ISI Evercore OFS Initiation

October 14, 2014
Oil Services, Equipment & Drilling

James West
+1 212 653-9047, jwest@isigrp.com
Samantha Hoh
+1 212 653-9017, shoh@isigrp.com
Alex Nuta
+1 212 653-9044, anuta@isigrp.com
Cameron Schnier
+1 212 653-9041, cshnier@isigrp.com
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 ISIs 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. dollars 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
cartels 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
Table of Contents
Comp Table: ISI Groups Global Oil Services, Equipment & Drilling Coverage Universe
Our Key Calls in this Report
The Group is Oversold; Buying Opportunity
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)

Atwood Oceanics (ATW)
Baker Hughes (BHI)
Basic Energy Services (BAS)
Bristow Helicopters (BRS)
C&J Energy Services (CJES
Calfrac Well Services (CFW.CN)
Cameron Intl (CAM)
Carbo Ceramics (CRR)
Chart Industries (GTLS)
CHC Helicopters (HELI)
Core Laboratories (CLB)
Diamond Offshore (DO)
Dresser-Rand (DRC)
Dril-Quip (DRQ)
Ensco plc (ESV)
Ensign Energy Services (ESI.CN)
ERA Group (ERA)
Exterran Holdings (EXH)
FMC Technologies (FTI)
Forum Energy Technologies (FET)
Franks International (FI)
Gulfmark Offshore (GLF)
Halliburton (HAL)
Helmerich & Payne (HP)
Hercules Offshore (HERO)
Hornbeck Offshore (HOS)
Independence Contract Drilling (ICD)
ION Geophysical (IO)
Key Energy Services (KEG)
MRC Global (MRC)
Nabors Industries (NBR)
National Oilwell Varco (NOV)
Noble Corp (NE)
60
65
70
75
80
85
90
95
100
105
110
115
120
125
130
135
140
145
150
155
160
165
170
175
180
185
190
196
201
206
211
216
221
226
October 14, 2014
North Atlantic Drilling (NADL)

NOW Inc. (DNOW)
Ocean Rig (ORIG)
Oceaneering International (OII)
Oil States International (OIS)
Pacific Drilling (PACD)
Paragon Offshore (PGN)
Parker Drilling (PKD)
Patterson-UTI Energy (PTEN)
Precision Drilling (PD.CN)
RPC Inc.
Rowan Companies (RDC)
Schlumberger (SLB)
SEACOR Holdings (CKH)
Seadrill Limited (SDRL)
Seventy Seven Energy (SSE)
Superior Energy Services (SPN)
Tenaris (TS)
TETRA Technologies (TTI)
Thermon Group (THR)
Tidewater (TDW)
Transocean Inc. (RIG)
Trican Well Services (TCW.CN)
Vantage Drilling (VTG)
Weatherford International (WFT)
Appendix
231
236
241
246
251
256
261
266
271
276
281
286
291
296
302
307
312
317
322
327
332
337
342
347
352
357
$0.5
1.3
2.4
0.6
3.3
0.7
1.6
$0.2
5.9
1.2
3.2
2.5
6.4
$6.2
2.4
2.2
1.3
3.2
0.7
$11.3
11.5
29.4
23.3
$1.3
1.9
5.8
1.3
3.4
2.3
2.2
$0.2
6.3
1.1
2.8
2.3
6.4
$7.3
4.4
2.6
1.5
3.3
0.8
$14.2
12.4
28.7
26.7
$5.1
1.1
$26.4
47.5
121.7
21.2
$22.8
42.1
115.0
12.2
$3.6
0.7
EV
($B)
Mk Cap
($B)
0.0%
3.7%
0.0%
0.0%
2.8%
0.0%
2.9%
1.3%
0.0%
0.0%
1.3%
2.6%
0.0%
3.7%
1.8%
1.6%
1.5%
0.0%
1.7%
0.0%
0.0%
0.0%
0.0%
0.3%
0.0%
0.0%
0.0%
2.7%
3.1%
1.4%
1.4%
1.4%
0.0%
0.7%
0.7%
1.3%
1.2%
1.8%
0.0%
1.1%
1.3%
Div
Yield
$12.07
13.35
19.28
3.76
15.10
15.19
10.50
$9.45
133.41
50.00
79.53
16.29
59.46
$81.14
35.40
23.56
43.11
58.15
22.29
$55.55
48.87
68.08
39.31
$23.43
8.91
$52.23
49.33
88.35
15.79
Share
Price
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Hold
Buy
Buy
Buy
Sell
Hold
Buy
Buy
Buy
Buy
Buy
Buy
Buy
Hold
Buy
Buy
Buy
Buy
Buy
Buy
$25
22
34
5.0
23
26
16
$17
151
62
126
26
93
$83
40
40
72
71
25
$87
67
95
41
$39
13
$95
97
129
29
107%
65%
76%
33%
52%
71%
52%
65%
65%
80%
13%
24%
58%
60%
56%
49%
57%
2%
12%
70%
67%
22%
12%
31%
17%
57%
37%
40%
4%
35%
38%
66%
46%
56%
56%
82%
97%
46%
84%
77%
83%
ISI
Target
%
Rating Price Upside
Source: ISI Energy Research, Bloomberg. Note: Priced as of 3:25pm on October 14, 2014
Production and Completion Services

BAS
Basic Energy Services
CFW.CN1 Calfrac Well Services
CJES2 C&J Energy Services
KEG
Key Energy Services
RES
RPC, Inc.
SSE
Seventy Seven Energy
TCW.CN1 Trican Well Service
Average
Median
SMID Cap Niche Technology

ASPN Aspen Aerogels
CLB
Core Laboratories
CRR
Carbo Ceramics
DRQ
Dril-Quip
FI
Frank's Int'l
OII
Oceaneering Int'l
Average
Median
SMID Cap Capital Equipment

DRC
Dresser-Rand Group
EXH
Exterran Holdings
FET
Forum Energy Technologies
GTLS Chart Industries
OIS
Oil States Int'l
THR
Thermon Group
Average
Median
Large Cap Capital Equipment

CAM Cameron Int'l
FTI
FMC Technologies
NOV
National Oilwell Varco
TS
Tenaris
Average
Median
SMID Cap Diversified Services

SPN
Superior Energy Services
TTI
TETRA Technologies
Average
Median
Ticker Company
Large Cap Diversified Services
BHI
Baker Hughes
HAL
Halliburton
SLB
Schlumberger
WFT
Weatherford Int'l
Average
Median
EV/EBITDA
EV/EBITDA
EV/EBITDA
EV/EBITDA
EV/EBITDA
EV/EBITDA
EV/EBITDA
EV/EBITDA
P/E
P/E
P/E
P/E
P/E
EV/EBITDA
EV/EBITDA
P/E
P/E
P/E
P/E
P/E
P/E
P/E
P/E
P/E
P/E
P/E
P/E
P/E
P/E
4.5x
6.9x
6.9x
5.1x
6.0x
5.0x
6.9x
50.0x
21.5x
16.5x
19.8x
19.8x
19.8x
13.4x
6.0x
16.5x
19.0x
16.5x
18.2x
16.5x
19.0x
14.0x
14.0x
14.9x
14.0x
17.3x
18.2x
19.8x
16.5x
Price Target
2015E Multiple
-$0.71
0.30
1.22
-0.10
0.80
n/a
-0.27
n/a
5.25
3.67
4.16
1.69
3.42
$3.00
1.05
1.50
2.94
5.74
1.20
$3.30
2.23
5.52
1.31
$1.57
0.63
$2.62
3.15
4.75
0.60
2013
$0.58
0.79
1.16
-0.38
1.15
0.46
-0.03
-$0.63
5.92
3.23
5.05
1.14
3.99
$2.57
0.78
1.82
2.90
4.17
1.25
$4.20
2.82
5.95
2.76
$1.89
0.50
$4.07
3.95
5.57
1.12
EPS
2014E
Comp Table: ISI Groups Global Oil Services, Equipment & Drilling Coverage Universe
$1.47
1.70
1.30
0.12
1.70
2.00
0.95
-$0.15
7.03
3.75
6.10
1.30
4.70
$3.00
1.60
2.40
3.80
4.31
1.40
$5.30
3.50
6.80
2.90
$2.65
0.95
$5.51
5.31
6.50
1.75
2015E
$229
189
193
270
504
390
195
n/a
360
168
252
436
745
$482
600
282
175
822
76
$1,443
940
4,143
2,788
$1,113
150
$3,772
6,174
12,412
2,688
$322
299
225
165
634
445
229
-$8
381
158
301
433
860
$480
650
339
171
521
75
$1,633
1,244
4,598
2,805
$1,232
175
$4,822
7,229
13,610
3,086
$405
398
851
297
840
432
443
$7
441
177
362
481
1,007
$554
742
421
215
464
83
$1,911
1,506
5,106
3,043
$1,433
223
$5,694
9,127
14,921
3,792
EBITDA ($MM)
2013
2014E
2015E
-17.0x
44.5x
15.8x
-37.6x
18.9x
n/a
-38.9x
-2.4x
-0.6x
n/a
25.4x
13.6x
19.1x
9.6x
17.4x
17.0x
17.4x
27.0x
33.7x
15.7x
14.7x
10.1x
18.6x
20.0x
17.1x
16.8x
21.9x
12.3x
30.0x
20.3x
19.4x
14.9x
14.1x
14.5x
14.5x
19.9x
15.7x
18.6x
26.3x
20.1x
19.3x
20.9x
16.9x
16.6x
-9.8x
13.1x
33.1x
-343.8x
-36.1x
16.6x
-14.9x
22.5x
15.5x
15.8x
14.3x
14.9x
11.3x
15.2x
31.6x
45.6x
13.0x
14.8x
13.9x
17.9x
22.8x
16.4x
13.2x
17.3x
11.4x
14.3x
14.1x
13.7x
12.4x
17.9x
15.2x
15.2x
12.8x
12.5x
15.9x
14.1x
13.8x
13.5x
8.2x
7.9x
14.8x
31.0x
8.9x
7.6x
11.1x
12.8x
8.9x
-63.2x
19.0x
13.3x
13.0x
12.6x
12.7x
1.2x
12.9x
27.0x
22.2x
9.8x
11.3x
13.5x
15.9x
16.6x
14.7x
10.5x
14.0x
10.0x
13.5x
12.0x
12.0x
8.9x
9.4x
9.1x
9.1x
9.5x
9.3x
13.6x
9.0x
10.4x
9.4x
Price to Earnings
2013
2014E
2015E
5.7x
10.2x
30.2x
4.7x
6.8x
5.9x
11.2x
10.7x
6.8x
n/a
17.4x
6.6x
11.3x
5.3x
8.6x
9.8x
8.6x
15.1x
7.3x
9.3x
8.3x
4.0x
10.0x
9.0x
8.8x
9.8x
13.2x
6.9x
9.6x
9.9x
9.7x
4.6x
7.6x
6.1x
6.1x
7.0x
7.7x
9.8x
7.9x
8.1x
7.8x
2013
4.1x
6.4x
26.0x
7.7x
5.4x
5.2x
9.6x
9.2x
6.4x
-19.5x
16.4x
7.0x
9.5x
5.3x
7.4x
4.4x
7.2x
15.1x
6.7x
7.7x
8.5x
6.3x
10.1x
9.1x
8.1x
8.7x
10.0x
6.2x
9.5x
8.6x
9.1x
4.1x
6.5x
5.3x
5.3x
5.5x
6.6x
8.9x
6.9x
7.0x
6.7x
3.2x
4.8x
6.9x
4.3x
4.1x
5.3x
4.9x
4.8x
4.8x
23.8x
14.2x
6.3x
7.9x
4.8x
6.4x
10.6x
7.1x
13.1x
5.9x
6.2x
6.8x
7.1x
9.1x
8.0x
6.9x
7.4x
8.3x
5.6x
8.8x
7.5x
7.8x
3.6x
5.1x
4.3x
4.3x
4.6x
5.2x
8.2x
5.6x
5.9x
5.4x
EV/EBITDA
2014E
2015E
October 14, 2014
ION Geophysical
$0.4
$2.4
1.5
0.4
0.8
0.4
0.9
1.8
$2.5
5.2
8.8
0.2
1.4
4.8
1.6
1.5
0.5
2.7
10.5
11.3
0.3
$0.4
$3.2
2.0
0.7
1.3
1.8
1.7
3.3
$3.8
6.3
13.3
1.3
4.1
11.4
5.5
4.1
2.7
4.3
18.8
23.0
3.0
$2.7
8.1
0.3
8.5
3.9
1.0
3.7
$2.7
3.4
$2.9
2.0
$2.1
8.4
0.2
5.0
2.8
0.5
3.2
EV
($B)
Mk Cap
($B)
0.0%
1.9%
0.0%
0.0%
3.6%
0.0%
0.0%
2.7%
1.2%
0.0%
2.6%
9.3%
8.0%
0.0%
16.7%
8.1%
6.1%
0.0%
9.1%
1.9%
10.4%
17.5%
0.0%
6.9%
8.0%
3.5%
3.5%
0.0%
1.4%
2.5%
0.0%
1.9%
1.8%
1.9%
0.0%
0.0%
0.0%
0.0%
Div
Yield
$2.44
$65.95
76.45
20.80
28.03
5.16
25.25
36.53
$38.14
37.62
37.40
1.49
5.77
18.45
12.47
7.02
5.49
21.60
28.73
22.90
0.94
$13.43
77.86
7.93
16.68
9.50
3.89
21.54
$27.32
19.92
Share
Price
Hold
Buy
Hold
Sell
Buy
Buy
Buy
Hold
Buy
Sell
Buy
Sell
Sell
Buy
Buy
Buy
Buy
Buy
Sell
Buy
Hold
Hold
Buy
Buy
Buy
Buy
Buy
Buy
Hold
Buy
$2.7
$80
85
19
35
5.8
50
37
$48
32
45
2.0
5.8
25
34
12
10
41
27
40
1.0
$17
114
18
29
14
8.0
43
$29
29
11%
21%
11%
-9%
25%
12%
98%
1%
23%
12%
26%
-15%
20%
34%
1%
36%
173%
71%
82%
90%
-6%
75%
6%
46%
34%
27%
46%
127%
74%
44%
106%
100%
75%
74%
6%
46%
26%
26%
ISI
Target
%
Rating Price Upside
Source: ISI Energy Research, Bloomberg. Note: Priced as of 3:25pm on October 14, 2014
Seismic
IO
Offshore Transportation
BRS
Bristow Helicopters
CKH
SEACOR Holdings
ERA
Era Group
GLF
Gulfmark Offshore
HELI
CHC Helicopter
HOS
Hornbeck Offshore
TDW Tidewater
Average
Median
Offshore Drillers
ATW Atwood Oceanics
DO
Diamond Offshore
ESV
Ensco PLC
HERO Hercules Offshore
NADL North Atlantic Drilling
NE
Noble Corp.
ORIG Ocean Rig
PACD Pacific Drilling
PGN
Paragon Offshore
RDC
Rowan Drilling
RIG
Transocean
SDRL Seadrill
VTG
Vantage Drilling
Average
Median
Onshore Drillers
ESI.CN1 Ensign Energy Services
HP
Helmerich & Payne
ICD
Independence Contract Drilling
NBR
Nabors Industries
PD.CN1 Precision Drilling
PKD
Parker Drilling
PTEN Patterson-UTI Energy
Average
Median
Ticker Company
Oilfield Distributors
DNOW NOW Inc.
MRC MRC Global
Average
Median
6.0x
4.8x
6.6x
3.6x
7.2x
7.2x
7.2x
7.2x
3.6x
6.0x
6.0x
10%
6.6x
5.1x
6.3x
7.8x
6.0x
5.4x
4.2x
5.4x
16.5x
16.5x
SOTP
4.8x
EV/EBITDA 7.2x
BV
1.25x
EV/EBITDA 6.6x
EV/EBITDA 6.0x
EV/EBITDA 5.1x
EV/EBITDA 6.3x
EV/EBITDA 6.0x
EV/EBITDA
EV/EBITDA
EV/EBITDA
EV/EBITDA
EV/EBITDA
EV/EBITDA
EV/EBITDA
EV/EBITDA
EV/EBITDA
EV/EBITDA
EV/EBITDA
Div Yield
EV/EBITDA
EV/EBITDA
EV/EBITDA
EV/EBITDA
EV/EBITDA
EV/EBITDA
EV/EBITDA
EV/EBITDA
P/E
P/E
Price Target
2015E Multiple
-$0.09
$4.45
1.39
0.77
2.54
-3.00
2.17
3.56
$5.32
4.24
6.09
0.27
1.04
2.95
0.95
0.35
n/a
1.95
4.11
3.55
0.05
$0.84
5.74
n/a
1.02
0.66
0.18
1.43
n/a
1.57
2013
$0.03
$5.14
3.34
1.19
3.30
-1.32
2.72
3.89
$4.72
2.95
6.14
0.01
1.14
2.76
2.03
0.81
2.40
2.08
4.59
3.30
0.16
$0.99
6.52
-0.03
1.21
0.84
0.44
1.58
$1.35
2.06
EPS
2014E
$0.21
$5.52
4.45
1.36
4.24
-0.65
4.25
4.80
$6.95
3.45
5.50
0.20
1.00
2.40
3.26
1.10
1.55
3.90
3.00
3.30
0.20
$1.15
7.75
0.35
2.00
1.20
0.74
2.70
$1.76
2.20
2015E
$239
402
$74
$314
200
81
161
201
269
346
$541
1,207
2,395
295
549
1,964
525
358
n/a
599
3,483
2,763
357
$97
$371
268
99
199
244
310
449
$541
1,032
2,380
262
619
1,942
905
540
380
696
3,548
2,531
426
$540
1,632
14
1,805
816
279
989
$246
415
$99
$398
336
108
242
340
420
548
$740
1,230
2,274
357
671
1,723
1,175
716
705
1,104
2,991
2,803
446
$618
1,897
37
1,775
957
355
1,258
$320
449
EBITDA ($MM)
2013
2014E
2015E
$501
1,394
5
1,590
624
250
863
Comp Table: ISI Groups Global Oil Services, Equipment & Drilling Coverage Universe (continued)
-27.1x
14.8x
55.0x
27.0x
11.0x
n/a
11.6x
10.3x
21.6x
13.2x
7.2x
8.9x
6.1x
5.5x
5.6x
6.3x
13.2x
20.2x
n/a
11.1x
7.0x
6.5x
18.8x
9.7x
7.1x
16.0x
13.6x
n/a
16.4x
14.4x
21.6x
15.1x
16.2x
15.5x
n/a
12.7x
12.7x
12.7x
70.0x
12.8x
22.9x
17.5x
8.5x
-3.9x
9.3x
9.4x
10.9x
9.4x
8.1x
12.8x
6.1x
279.0x
5.1x
6.7x
6.2x
8.6x
2.3x
10.4x
6.3x
6.9x
6.0x
28.0x
6.7x
13.6x
11.9x
-260.7x
13.8x
11.3x
8.9x
13.6x
-26.8x
11.9x
20.3x
9.7x
15.0x
15.0x
11.7x
12.0x
17.2x
15.3x
6.6x
-8.0x
5.9x
7.6x
8.1x
7.6x
5.5x
10.9x
6.8x
7.3x
5.8x
7.7x
3.8x
6.4x
3.5x
5.5x
9.6x
6.9x
4.8x
6.5x
6.4x
11.7x
10.0x
22.4x
8.3x
7.9x
5.3x
8.0x
10.5x
8.3x
15.5x
9.0x
12.3x
12.3x
Price to Earnings
2013
2014E
2015E
5.9x
10.1x
10.1x
8.6x
7.9x
8.8x
6.4x
9.5x
8.8x
8.8x
7.0x
5.3x
5.6x
4.3x
7.5x
5.8x
10.5x
11.5x
n/a
7.1x
5.4x
8.3x
8.5x
7.2x
7.1x
5.3x
5.8x
46.2x
5.3x
6.3x
4.0x
4.3x
11.0x
5.3x
11.3x
8.4x
9.8x
9.8x
2013
4.5x
8.6x
7.5x
6.9x
6.4x
7.3x
5.6x
7.3x
7.1x
7.3x
7.0x
6.1x
5.6x
4.8x
6.7x
5.9x
6.1x
7.6x
7.1x
6.1x
5.3x
9.1x
7.1x
6.5x
6.1x
4.9x
5.0x
18.1x
4.7x
4.8x
3.6x
3.8x
6.4x
4.8x
11.0x
8.1x
9.6x
9.6x
4.4x
8.0x
6.0x
6.4x
5.3x
5.2x
4.1x
6.0x
5.8x
6.0x
5.1x
5.2x
5.9x
3.5x
6.2x
6.6x
4.7x
5.7x
3.8x
3.9x
6.3x
8.2x
6.8x
5.5x
5.7x
4.3x
4.3x
6.9x
4.8x
4.1x
2.8x
3.0x
4.3x
4.3x
8.4x
7.5x
8.0x
8.0x
EV/EBITDA
2014E
2015E
October 14, 2014
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, Franks 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.
The Group is Oversold; Buying Opportunity
October 14, 2014
We Believe the Stocks are Bottoming

In our 15 years following the industry weve 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.
Capitulation Selling
Newsflow
Strategists
Oil Price
EPS Revision
In Progress
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.
October 14, 2014
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.
$115
$310
$110
$300
$290
$105
$280
$100
$270
$95
$90
OSX (L)
$260
Brent (R)
$250
$85
WTI (R)
$240
Jun-14
$80
Jul-14
Aug-14
Sep-14
Oct-14
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.
$2,025
$320
$87
$2,000
$310
$86
$300
$85
$290
$84
$280
$83
$270
$82
$1,975
$1,950
$1,925
$1,900
$260
$1,875
$250
$1,850
$240
Jun-14
OSX (L)
S&P 500 (Far L)
U.S. Dollar (R)
$80
$79
Jul-14
$81
Aug-14
Sep-14
Oct-14
October 14, 2014
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. ISIs Head of
Company Surveys Oscar Sloterbecks 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

ISIs Head of Company
Surveys Oscar Sloterbecks
Institutional Equity Sector
Allocation Survey showed
a 900 basis point drop in
allocations towards
Energy from August to
September.
50
Institutional equity sector allocation

towards equity dropped 900bp from
August to September and remains
well below 2012 weightings
45
40
35
30
25
J-12
A-12
J-12
O-12
J-13
A-13
J-13
O-13
J-14
A-14
J-14
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/Es 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.
The "big four" diversified services

are trading at almost a 26% discount
to their 2004-2013 average of 16.7x
26x
23x
20x
17x
14x
11x
8x
5x
'04
'05
'06
'07
10
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
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 Americanleveraged small and midcap stocks are also
reasonably valued,
especially given our view
that consensus estimates
dramatically
underestimate the
operational leverage and
earnings power of this
group.
11x
Production & Completion Services
10x
Onshore Drillers
Onshore Drillers historically trades at a

15% discount to SMID Cap NAM
services, averaging 5.0x and 5.9x
respectively from 2004-2013
9x
8x
7x
6x
5x
4x
3x
2x
'06
'07
'08
'09
'10
'11
'12
'13
'14
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.
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
25x
21x
17x
13x
9x
5x
'04
'05
'06
'07
11
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
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.
Offshore drillers are trading at 5.8x, only a 13%

discount to their 6.7x average from 2006-2013
10x
9x
8x
7x
6x
5x
4x
3x
'06
'07
'08
'09
'10
'11
'12
'13
'14
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.
26x
23x
20x
17x
14x
Capital Technology / Equipment Providers are
trading at an attractive 21% discount to their
2004-2013 average of 19.5x
11x
8x
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
Similar to offshore niche technology providers, the support companies that provide
vessels and helicopters to the industry are experiencing solid demand and robust
12
October 14, 2014
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.
9x
8x
7x
6x
5x
Offshore Support companies are generally trading in

line with their historical average multiple of 6.6x
4x
'06
'07
'08
13
'09
'10
'11
'12
'13
'14
The State of the Oil Service Industry
14
October 14, 2014
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 Chinas 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
1980s and 1990s, the
2000s experienced a
surge in spending.
$700
$600
Rest of the World
$500
Canada
$400
United States
$300
$200
$100
$0
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Source: ISI Energy Research
15
October 14, 2014
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.
$900
$800
Rest of the World
$700
Canada
$600
United States
Actual
Estimates
$500
$400
$300
$200
$100
$0
2005
2006
2007
16
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Regional Outlooks
17
October 14, 2014
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 NOCs & Independents 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%.
NOCs
39%
Independents
39%
Majors
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.
18
October 14, 2014
Sharply rising North

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

7
NAM MMBbl/d
17
ROW MMBbl/d
80
NAM Production
ROW Production
15
70
13
60
11
50
40
'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14E
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

9,800
5.4
9,600
5.3
9,400
5.2
9,200
5.1
9,000
The U.S. well count

increased to 9,566 during
Q3:14, up 5% YoY and 1%
sequentially.
5.0
8,800
4.9
8,600
8,400
4.8
8,200
4.7
8,000
4.6
U.S. Well Count - L
Wells to Rig Ratio - R
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.
19
October 14, 2014
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.
MM HHP
Marketable Capacity
Effective Utilization
% Utilization
100%
18
Utilization dropped
2430bp in 2012
to bottom at
73.5% ...
17
16
... and has recovered to

90% this quarter
95%
90%
85%
15
14
80%
13
75%
12
70%
'12
'13
'14
3QE
'15E
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.
'000 Wells
Wells Frac'ed
Proppant per Well
MM lbs / Well
4.5
8.0
About 6,500-7,500 wells
are frac'ed per quarter ...
7.5
... but proppant usage per well

continues to rise
4.0
3.5
7.0
3.0
6.5
2.5
6.0
2.0
'12
'13
Source: PacWest Consulting, ISI Energy Research
20
'14
3QE
'15E
October 14, 2014
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)

+8%
$225
$200
45
$175
132
144
150
'11
'12
'13
38
$125
36
$100
38
32
25
30
$75
$25
43
49
$150
$50
44
25
49
65
92
99
'06
'07
123
84
164
101
$0
'04
'05
21
'08
'09
'10
'14E
'15E
October 14, 2014
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.
Acreage type
Call for Bids
Data room opening
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
Open blocks & joint ventures
Source: Company Reports, ISI Energy Research
Separately, PEMEX has signed MOUs 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 governments
quick move on Energy
Reform, followed by very
little slippage getting
ready for foreign
investment.
"Round Zero"
Pemex Proposals
Secondary
Legislation
Government
Response to
Round Zero
Round One
Tenders
Activity Begins
March
2014
April
2014
September
2014
1H
2015
4Q
2015
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.
22
October 14, 2014
Brazil Oil & Gas Production
Mexico Oil & Gas Production
Oil MMBbl/d
2.8
Gas Bcf/d
Oil
Natural Gas
2.7
2.6
Oil MMBbl/d
2.3
3.8
2.1
3.7
1.9
3.6
3.2
1.1
2.2
After a few disappointing years,

Brazil's oil production growth is
expected to accelerate this year
2.1
2.0
'06
'07
'08
'09
'10
'11
'12
Mexico's oil production is down

sharply from 2006 levels, while gas
production is relatively unchanged
3.3
1.3
2.3
4.5
3.4
1.5
2.4
5.0
Oil
Gas
3.5
1.7
2.5
Gas Bcf/d
4.0
3.1
0.9
3.0
0.7
2.9
0.5
2.8
3.5
'13
'06
Source: EIA, ISI Energy Research
'07
'08
'09
'10
'11
'12
'13
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

90
Mexico Onshore & Offshore Rig Count
80
140
The onshore rig

count is down
60% since mid
2012
Onshore
Offshore
70
Offshore
Onshore
120
100
60
50
80
40
60
30
Brazil's offshore rig

count is down 44%
from its 2011 peak
20
10
40
Mexico's offshore rig count is near its

historical highs, but the onshore count is
down almost 50% from the end of 2012
20
0
'06
'07
'08
'09
'10
'11
'12
'13
'06
'14
'07
'08
'09
'10
'11
'12
'13
'14
Petrobras & Pemex Budgets ($B)

$28
Petrobras
PEMEX
$23
$18
$13
$8
2006
2007
2008
23
2009
2010
2011
2012
2013
2014E
October 14, 2014
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.
+5.5%
$70
$60
$50
$40
$30
$20
$10
$0
2006
2007
2008
2009
2010
2011

* Our estimates include Petrobras, Pemex, PDVSA, Ecopetrol SA, OGX and others.
24
2012
2013
2014E
October 14, 2014
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.
Offshore
Onshore
100
80
60
40
Saudi's onshore rig count has ramped up sharply since late 2013
and average up 23% year to date, outpacing offshore's 13% growth
20
0
'06
'07
'08
'09
'10
'11
'12
'13
'14
Middle Eastern operators are also increasingly making investments abroad, as

evidenced by Kuwait Foreign Petroleum Exploration Companys (the international
investment arm of Kuwait Petroleum Company) recent agreement to acquire a 30%
stake in Chevrons interest in the Kaybob area of Canadas Duvernay shale.
E&P Spending by Select Middle East Companies ($ in billions)

+15.5%
$40
$30
$20
$10
$0
2007
2008
2009
2010
2011
2012
2013

* Our estimates include Saudi Aramco, Kuwait Oil Company, Abu Dhabi National Oil Co. (ADNOC) and others.
25
2014E
October 14, 2014
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)

+8.5%
$25
$20
$15
$10
$5
$0
2008
2009
2010
2011
2012
2013

* Our estimates include Sonangol, Nigerian National Petroleum Company (NNPC), Sonatrach and others.
26
2014E
October 14, 2014
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.
The North Sea's rig count is averaging down 12%

Y-Y to date, despite another pickup in spending
60
50
40
30
20
10
0
'06
'07
'08
'09
'10
'11
'12
'13
'14
Despite a flattish spending outlook for 2015 the North Sea remains at historically high
levels.
E&P Spending by Select European Companies ($ in billions)

$45
-0.2%
$40
$35
$30
$25
$20
$15
$10
$5
$0
2006
2007
2008
2009

* Our estimates include Eni, Statoil, BG Group and others.
27
2010
2011
2012
2013
2014E
October 14, 2014
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 countrys 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)

+8.0%
$110
$100
$90
$80
$70
$60
$50
$40
$30
$20
$10
$0
2006
2007
2008
2009
2010
2011

* Our estimates include PetroChina, Sinopec, CNOOC, Petronas, ONGC and others.
28
2012
2013
2014E
October 14, 2014
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.
+7.9%
$55
$50
$45
$40
$35
$30
$25
$20
$15
$10
$5
$0
2006
2007
2008
2009

* Our estimates include Gazprom, Lukoil, Rosneft and others.
29
2010
2011
2012
2013
2014E
Oil Market Outlook
30
October 14, 2014
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.
5,200
5,000
389
286
4,800
4,600
4,400
4,880
4,777
4,200
4,000
Sep
Production from
new wells
Legacy production
change
Oct
ISIs Integrated Oil Analyst Doug Terreson recently reduced ISIs 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 Chinas 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.
31
October 14, 2014
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.
94
1.4
92
-0.1
1.4
90
88
4.9
92.8
86
90.0
84
82
85.2
80
2009
North
America
Other
Non-OPEC
Saudi
Arabia
Other
Opec
2014
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%.
$B
MMBbl/d
$800
100
90
80
70
60
50
40
30
20
10
0
$700
$600
$500
$400
$300
$200
$100
$0
'99
'00
'01
'02
'03
ROW Spending
32
'04
'05
'06
'07
'08
NAM Spending
'09
'10
'11
'12
'13 14E
Global Oil Production
October 14, 2014
The Majors cutting back on upstream spending is also a concerning trend as similar
periods of underinvestment have led to significant oil price spikes.
Majors Upstream Spending vs. Brent Average

Y-Y Chg
60%
Majors' Upstream Spending

Brent Average
45%
40%
34%
%
3%
0%
-20%
2014E
2009
2008
2007
2006
2005
2004
2001
2000
0%
9%
2013
0%
11%
2012
0%
7%
2011
1%
2003
4%
8%
16%
15%
15%
9%
2010
19%
20%
2002
Underinvestment in
2002 and 2003 may
have contributed to
34% oil price spike in
2004 and 45% in 2005.
-40%
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,
MMBbl/d
15.0
Y-Y Growth
20%
Canada
U.S.
13.5
but U.S. production growth is decelerating from

2013 peaks, while Canada spikes in 2016 for oil
sands
Canada
U.S.
12.0
15%
10.5
9.0
7.5
10%
6.0
4.5
5%
3.0
1.5
0.0
0%
'10
'11
33
'12
'13
14E
15E
16E
17E
'10
'11
'12
'13
14E
15E
16E
17E
October 14, 2014
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.
Capex/Bbl
$50
$45
$40
$35
$30
$25
$20
$15
$10
$5
$0
'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14E
??E
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.
1.2
1.0
0.8
0.6
0.4
0.2
0.0
(0.2)
(0.4)
(0.6)
(0.8)
(1.0)
1.0
0.8
0.5
0.3
0.0
(0.4)
(0.7)
Q1
Q2
Q3
(0.8)
Q4
2013
Source: IEA, OPEC, EIA, ISI Energy Research
34
0.8
Q1
Q2
Q3
2014E
0.2
0.2
Q3
Q4
(0.5)
Q4
Q1
Q2
2015E
October 14, 2014
Global Oil Inventory Draws Ahead (Days Demand)

55
OPEC Production Change
50
Stock-builds
Moderate
45
40
35
'03
'04
'05
'06
'07
Source: Bloomberg, IEA, ISI Energy Research
35
'08
'09
'10
'11
'12
'13
14E
15E
North America Natural Gas Outlook
36
October 14, 2014
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: its 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 Chenieres Sabine
Pass has started
construction with the first
train available in early
2016.
Project
Sabine Pass Liquefaction
Dominion Cove Point
Cameron LNG
Freeport LNG Expansion
Freeport-McMoRan
Main Pass Energy Hub
Gulf Coast LNG
Magnolia LNG
Cheniere Marketing
Golden Pass Products
Jordan Cove Energy Project
Lake Charles Exports
Trunkline LNG
Delfin LNG
Barca LNG
Eos LNG
Gulf LNG Liquefaction
Excelerate Liquefaction
Venture Global
LNG Development Company
Pangea LNG
CE FLNG
Annova LNG
Southern LNG Company
Waller LNG
Louisiana LNG
Texas LNG
Gasfin Development
Carib Energy
SB Power Solutions
Advanced Energy Solutions
Argent Marine Management
Total Capacity (Bcf/d)
Capacity
(bcf/d)
4.1
1.8
1.7
3.2
3.2
3.2
2.8
2.2
2.1
2.0
2.0
2.0
2.0
1.8
1.6
1.6
1.5
1.4
1.3
1.3
1.1
1.1
0.9
0.5
0.4
0.3
0.3
0.2
0.1
0.1
0.0
0.0
Source: DOE, FERC, ISI Energy Research
37
FTA App
Status
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
approved
40.96
Non-FTA
App Status
approved
approved
approved
approved
pending
N/A
pending
pending
pending
pending
approved
approved
pending
pending
pending
pending
pending
pending
pending
approved
pending
pending
N/A
pending
pending
pending
pending
pending
approved
N/A
N/A
N/A
37.6
FERC
App Status
approved
approved
approved
approved
Start Year
2016
TBD
TBD
TBD
October 14, 2014
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

Operator
Project
Location
App Status
ExxonMobil
Shell
Nexen (CNOOC)
BG Group
Petronas
Chevron
AltaGas Ltd
Woodfibre Natural Gas
Douglas Channel EP
Steelhead
Orca
Woodside
Kitsault Energy
Quicksilver
Haisla Nation
WesPac Midstream
WCC LNG
LNG Canada
Aurora LNG
Prince Rupert LNG
Pacific NorthWest LNG
Kitimat LNG
Triton LNG
Woodfibre LNG
BC LNG (Douglas Channel)
Steelhead LNG
Orca LNG
Grassy Point LNG
Kitsault Energy Project
Discovery LNG
Cedar LNG
WesPac Marine Terminal
Kitimat or Prince Rupert

Kitimat
Prince Rupert
Prince Rupert
Lelu Island
Kitimat
Kitimat or Prince Rupert
Squamish
Kitimat
TBD, British Columbia
Prince Rupert
Prince Rupert
Kitsault
Campbell River
Kitimat
Delta
approved
approved
approved
approved
approved
approved
approved
approved
approved
pending
pending
pending
pending
pending
pending
pending
Start
Year
2023
2020
2021
2022
2018
2016
2017
2017
2016
TBD
2019
2021
2018
2021
2021
2017
Capacity
(bcf/d)
3.9
3.2
3.2
2.8
2.6
1.3
0.27
0.25
3.9
3.2
2.6
2.6
2.5
2.1
0.4
Capacity
(mt/yr)
30.0
24.0
24.0
21.6
20.0
10.0
2.3
2.1
1.8
30.0
24.0
20.0
20.0
18.8
16.0
3.0
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.
U.S. Bcf/d
68
Canada Bcf/d
Canada's dry gas production fell
5% annually from 2007-2012 ...
66
64
19
... while U.S. production has

increased 4% annually since
bottoming in 2005
18
17
62
60
16
58
15
56
54
14
52
50
13
'03
'04
'05
38
'06
'07
'08
'09
'10
'11
'12
'13
October 14, 2014
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.
22
U.S. industrial demand has
increased by 4% annually
since 2009
21
20
19
18
17
16
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14E
'15E
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.
1,600
1,400
LNG
CNG
The CNG & LNG fueling station

count has changed in 15 years
1,200
1,000
800
600
400
200
0
'92 '93 '94 '95 '96 '97 '98 '99 '01 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
Source: Alternative Fuels Data Center, ISI Energy Research
39
October 14, 2014
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.
185
180
Traditional gas stations

count has fallen 1% per year
since 1996
175
170
165
160
155
150
145
'96
'97
'98
'99
'01
'01
'02
'03
Source: Alternative Fuels Data Center, ISI Energy Research
40
'04
'05
'06
'07
'08
'09
'10
'11
'12
Subsector Outlooks
41
October 14, 2014
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

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%
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 $3 billion buyback
authorization; the first buyback in the companys history.
The Big Three Capital Equipment Backlog ($B)

$35
FTI
$30
$25
CAM
NOV
$20
$15
$10
$5
$0
'97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '114 '15E
42
October 14, 2014
The Big Three Capital Equipment Cash Build ($MM)

$9
$8
$7
$6
FTI
CAM
NOV
$5
$4
$3
$2
$1
$0
'09
'10
'11
'12
'13
'114
'15E
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
companys 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

100%
60
50
95%
40
90%
30
20
85%
10
80%
0
HP
PTEN
Planned Newbuild Deliveries (R)
PD
NBR
% of Newbuilds Contracted (L)

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
43
October 14, 2014
SMID Cap Production & Completion Services EBITDA Margins, 1Q13-4Q15E

20%
18%
16%
14%
12%
10%
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14 3Q14E 4Q14E 1Q15E 2Q15E 3Q15E 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

35
Available
30
Contracted
8
25
20
14
13
13
32
15
10
13
24
22
16
12
6
6
2017E
2018E
2019E
0
2010
2011
2012
2013
2014E
2015E
2016E
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.
44
October 14, 2014
Jackup Newbuild Deliveries, 2010-2017E

60
Available
50
Contracted
40
6
21
52
30
20
10
31
31
15
8
25
14
0
2010
2011
2012
2013
2014E
2015E
7
2
2016E
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 multiclient 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.
45
October 14, 2014
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&Js acquisition of Nabors 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.
46
The Major Themes
47
October 14, 2014
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.
48
October 14, 2014
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.
$200
30%
$180
25%
$160
$140
20%
$120
15%
$100
$80
10%
$60
$40
5%
$20
$0
0%
2005
2006
2007
2008
2009
2010
2011
2012
2013
In addition to a market share grab, the large caps are spending more on R&D to
support and defend their position. While R&D spending is holding steady at ~2.5% of
revenue the absolute dollar amounts continue to rise.
Partially Due to its Full Technology Suite Offering, Supported by Higher R&D
Big Four spending ($MM)
continues to rise, but has
stabilized as a % of total
global revenue.
$2,500
$2,000
4%
WFT
BHI
HAL
SLB
3%
$1,500
2%
$1,000
1%
$500
$0
0%
2005
2006
2007
2008
2009
2010
2011
2012
2013
This enhanced market share position has also led to higher capital expenditures to
support the E&P spending growth and CAPEX for the Big 4 has risen by 14% annually
since 2005.
49
October 14, 2014
Big Four Capex ($B) Spend Has Grown by 14% CAGR Since 2005
$14
$12
$10
WFT
BHI
HAL
SLB
$8
$6
$4
$2
$0
2005
2006
2007
2008
50
2009
2010
2011
2012
2013
2014E
October 14, 2014
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, SubSaharan 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 Chinas 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%
$500
$450
$400
$350
$300
$250
$200
2006
2007
51
2008
2009
2010
2011
2012
2013
2014E
October 14, 2014
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.
900
800
700
600
High Case
Mean Case
Base Case
Historical Awards
838 869
716 742
590 612
500
500
400
416
300
200
672 680
358
100
276 232
364
553
438 462 452 428

319
373
315
416
465 481 507 491

332
0
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13 '14E '15E '16E '17E '18E
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.
$20
$15
$10
$5
$0
'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14E'15E'16E'17E'18E
52
October 14, 2014
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.
Startup Subsea Wells Onstream by Water Depth

ANSD
600
542
>5,000'
1,001-5000'
0-1,000'
500
460
395
400
281
300
335
309
379
369
310
335
328
404
288
241
207
200
100
0
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14E '15E '16E '17E '18E
'10
'11
'12
'13
'14E
Global Subsea CAPEX by Region

Global subsea capex is
ramping significantly and
will double from 2014 t0
2018.
16,000
Asia Pacific
Africa/Med.
North Sea
S. America
N. America
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
'04
'05
'06
'07
'08
'09
53
'15E
'16E
'17E
'18E
October 14, 2014
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, Camerons Drilling aftermarket business has grown from ~$300 million
in revenue in 2009 to what we expect to be over $1 billion in 2014.
Cameron Internationals Backlog & Aftermarket ($B), 2003-2015E

Camerons aftermarket
business has doubled
since 2009.
$3.0
Backlog
$12
Aftermarket Revenue
$2.5
$10
$2.0
$8
$1.5
$6
$4
$1.0
$2
$0.5
$0.0
$0
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'114
'15E
In the case of National Oilwell Varco, the companys non-capital goods business has
surged from less than $2 billion in 2009 and 2010, to well over $3 billion in 2014. NOV
performed five-year surveys on 35-40 offshore rigs in 2013 and will perform five-year
surveys on 125-130 by 2017.
National Oilwell Varcos Backlog & Non-Capital Goods Revenues ($B),

2003-2015E
NOVs non-capital goods
revenue could approach
$4 billion in 2015.
$18
$4.5
Backlog
$16
$4.0
non-Capital Goods Revenue
$14
$3.5
$12
$3.0
$10
$2.5
$8
$2.0
$6
$1.5
$4
$1.0
$2
$0.5
$0
$0.0
'05
'06
'07
'08
'09
54
'10
'11
'12
'13
'114
'15E
October 14, 2014
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.
600
500
400
300
200
100
0
'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14E'15E'16E'17E'18E
55
October 14, 2014
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 Canadas 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 quasiNOC 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 portfolios in the coming
years.
The Arctic is estimated to hold 25%-30% of the worlds 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 worlds Arctic hydrocarbons.
Estimated Arctic Reserves by Country/Region
Russia Dominates Estimated Holdings of Arctic

Hydrocarbons
52%
20%
11%
12%
Greenland
Norway
5%
Canada
56
Source: USGS, ISI Energy Research
Russia
U.S.
October 14, 2014
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 hasnt gone unnoticed, as evidenced by the proposed acquisition of
Dresser-Rand by Siemens and GEs 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 Rands New Units Backlog ($MM), 2005-2015E

$2,371
$2,400
$2,075
$2,000
$2,105
$1,831
$1,611
$1,543
$1,600
$1,371
$1,200
$800
$2,188 $2,209
$982
$688
$400
$0
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14E
'15E
Chart Industries Backlog ($MM), 2005-2015E

Chart Industries backlog
consists of several large
LNG liquefaction awards.
$900
$800
$700
BioMedical
Distribution and Storage
Energy and Chemicals
$792
$828
$729
$617
$600
$400
$300
$200
$100
$489
$475
$500
$319
$234
$185
359
208
266
$0
'05
'06
'07
'08
57
363
473
342
302
581
169
126
105
80
148
107
228
$399
88
$236
109
88
116
'09
'10
303
'11
365
'12
'13
'14E
236
'15E
October 14, 2014
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.
2.
3.
4.
The Primary Phase. This is the initial production when hydrocarbons flow
naturally due to pressure.
The Secondary Phase. This is when simple technologies such as water
injection or the use of artificial lift occurs to create additional hydrocarbon
recovery.
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.
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
0%
10%
Primary Recovery
20%
Secondary Recovery
Source: Halliburton, ISI Energy Research
58
30%
40%
Improved Recovery
50%
Enhanced Recovery
60%
Company-Specific Outlooks
59
October 14, 2014
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.
60
October 14, 2014
Aspen Aerogels
Key Thoughts and Potential Catalysts
Management guided for products gross margins to increase by several points in 2H14, and were modeling
margins to peak at almost 20% in 3Q14, falling again in 4Q for seasonality (holiday disruptions to shipments
and deliveries). Last quarters 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.
61
October 14, 2014
Aspen Aerogels
Annual Income Statement, 2009-2015E ($ in millions, except per share)
2009
2010
2011
2012
2013
2014E
2015E
Revenues
Product
Research Services
Other
Total revenues
$25
4
0
$29
$39
5
0
$43
$43
3
0
$46
$60
3
0
$63
$82
4
0
$86
$101
3
0
$104
$123
3
0
$126
Expenses
Product
Research Services
Other
Total Expenses
($30)
(2)
30
($32)
($35)
(2)
35
($38)
($47)
(2)
44
($49)
($70)
(1)
66
($71)
($73)
(2)
70
($75)
($85)
(2)
81
($87)
($93)
(2)
88
($94)
Gross Profit
Product
Research Services
Gross Profit
($6)
2
($4)
$3
2
$6
($4)
2
($3)
($10)
2
($8)
$9
2
$11
$16
2
$17
$30
2
$32
Other Expenses
R&D
Sales & Marketing
G&A
Other
Operating income
Interest income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Other
Net income
($3)
(4)
(5)
0
($16)
$0
(3)
0
($19)
0
0
(3)
($22)
($3)
(5)
(6)
0
($7)
$0
(2)
0
($10)
0
0
(57)
($67)
($4)
(6)
(8)
0
($21)
$0
(9)
(3)
($33)
0
0
(24)
($56)
($5)
(9)
(11)
0
($33)
$0
(22)
(1)
($56)
0
0
47
($9)
($5)
(9)
(13)
(3)
($20)
$0
(31)
3
($48)
0
0
49
$1
($6)
(11)
(18)
0
($19)
$0
(50)
0
($69)
0
0
0
($69)
($6)
(11)
(18)
0
($3)
$0
0
0
($3)
0
0
0
($3)
($22.17)
$0.00
($26.17)
$0.00
($21.66)
$0.00
($3.41)
$0.00
$0.49
$0.00
($0.63)
$0.00
($0.15)
$0.00
-23%
54%
-13%
0%
-54%
9%
53%
13%
0%
-17%
-10%
53%
-6%
-28%
-45%
-16%
54%
-13%
-37%
-52%
11%
51%
12%
-12%
-23%
15%
51%
16%
-8%
-18%
25%
56%
25%
5%
-3%
Per Share Data

Diluted Earnings
Dividend
Margins Summary
Gross margins
Product
Research Services
Companywide
EBITDA margins
Operating margins
62
October 14, 2014
Aspen Aerogels
Quarterly Income Statement, 2013-2015E ($ in millions, except per share)
2013
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
Revenues
Product
Research Services
Other
Total revenues
$16
1
0
$17
$22
1
0
$23
$21
1
0
$22
$23
1
0
$24
$21
1
0
$22
$26
1
0
$27
$27
1
0
$27
$27
1
0
$28
$28
1
0
$29
$30
1
0
$31
$32
1
0
$32
$34
1
0
$35
Expenses
Product
Research Services
Other
Total Expenses
($17)
(0)
16
($17)
($19)
(1)
18
($19)
($18)
(1)
17
($18)
($20)
(1)
19
($21)
($19)
(0)
18
($19)
($23)
(0)
21
($23)
($22)
(0)
20
($22)
($22)
(0)
21
($23)
($22)
(0)
21
($22)
($23)
(0)
21
($23)
($23)
(0)
22
($23)
($25)
(0)
24
($26)
Gross Profit
Product
Research Services
Gross Profit
($0)
0
$0
$3
1
$4
$3
1
$4
$3
0
$4
$3
0
$3
$3
0
$3
$5
0
$5
$5
0
$5
$6
0
$7
$7
0
$8
$9
0
$9
$8
0
$9
Other Expenses
R&D
Sales & Marketing
G&A
Other
Operating income
Interest income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Other
Net income
($1)
(2)
(3)
0
($6)
$0
3
4
$1
0
0
19
$20
($1)
(2)
(3)
0
($3)
$0
(16)
(1)
($19)
0
0
0
($19)
($1)
(3)
(4)
0
($5)
$0
(8)
0
($13)
0
0
0
($13)
($1)
(2)
(3)
(3)
($7)
$0
(10)
0
($17)
0
0
0
($17)
($1)
(2)
(3)
0
($3)
$0
(16)
15
($4)
0
0
0
($4)
($2)
(3)
(6)
0
($8)
$0
(34)
39
($3)
0
0
0
($3)
($2)
(3)
(4)
0
($4)
$0
0
0
($4)
0
0
0
($4)
($2)
(3)
(4)
0
($4)
$0
0
0
($4)
0
0
0
($4)
($2)
(3)
(4)
0
($2)
$0
0
0
($2)
0
0
0
($2)
($2)
(3)
(4)
0
($1)
$0
0
0
($1)
0
0
0
($1)
($2)
(3)
(4)
0
$0
$0
0
0
$0
0
0
0
$0
($2)
(3)
(4)
0
($0)
$0
0
0
($0)
0
0
0
($0)
$7.40
$0.00
($6,052)
$0.00
$0.00
$0.00
$0.00
$0.00
($0.16)
$0.00
($0.14)
$0.00
($0.15)
$0.00
($0.17)
$0.00
($0.10)
$0.00
($0.06)
$0.00
$0.00
$0.00
($0.00)
$0.00
-3%
57%
0%
-21%
-35%
13%
51%
15%
-1%
-11%
15%
49%
16%
0%
-21%
13%
48%
15%
0%
-27%
14%
45%
15%
-1%
-13%
12%
53%
13%
-21%
-31%
19%
55%
19%
-4%
-13%
17%
50%
18%
-5%
-14%
22%
50%
23%
1%
-8%
24%
58%
25%
4%
-4%
27%
60%
28%
8%
0%
25%
55%
26%
7%
0%
Per Share Data

Diluted Earnings
Dividend
Margins Summary
Gross margins
Product
Research Services
Companywide
EBITDA margins
Operating margins
63
October 14, 2014
Aspen Aerogels
Balance Sheet, 2012-2015E ($ in millions)
2009
2010
2011
2012
Assets
Cash & equivalents
Accounts receivable
Inventories
Other
Current assets
PP&E
Other
Total assets
Liabilities & shareholders' equity
Current maturities
Accounts payable
Other
Current liabilities
LT debt
Other
Total liabilities
Minority interest
Common stock
Total
2013
2014E
2015E
$1
14
6
0
$22
73
0
$95
$2
19
7
1
$28
62
0
$90
$51
19
6
1
$77
56
0
$134
$49
24
7
1
$81
50
0
$132
$1
9
11
$21
130
0
$151
0
(56)
$95
$19
7
5
$31
120
1
$152
0
(62)
$90
$0
9
5
$14
0
1
$15
0
119
$134
$0
10
5
$15
0
1
$17
0
116
$132
Cash Flow, 2011-2015E ($ in millions)

2009
2010
2011
2012
2013
2014E
2015E
Operating Activities
Net income
Depreciation
Other
Working Capital Chg
Cash from operations
($33)
8
13
(12)
($24)
($56)
10
27
(7)
($26)
($48)
10
35
(12)
($14)
($69)
10
56
(1)
($3)
($3)
10
0
(5)
$2
Investing Activities
Capex
Other
Cash from investing
($36)
4
($32)
($10)
0
($10)
($3)
0
($3)
($4)
0
($4)
($4)
0
($4)
Financing Activities
Change in ST debt
Change in LT debt
Dividend paid
Other
Cash flow financing
$0
45
0
(4)
$40
$1
25
0
(0)
$26
($0)
19
0
(1)
$17
($1)
(19)
0
77
$57
$0
0
0
0
$0
($16)
27
$11
($10)
11
$1
$0
1
$2
$49
2
$51
($2)
51
$49
FX and other
Chg in cash
Beginning cash
Ending cash
64
October 14, 2014
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 companys new dividend is safe as the companys 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 its
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

Atwoods 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. Were modeling similar gap for the Atwood Mako, though the rig could stay busy with follow-on work
in Southeast Asia and the rigs 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, were
modeling the Atwood Admiral to start work in 4Q15 at $500kpd, but dont 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.
65
October 14, 2014
Atwood Oceanics
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
10x
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.
8x
6x
4x
ATW
Offshore Drillers
2x
'06
'07
66
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Atwood Oceanics
2011
Revenues
Total Contract Drilling
Reimbursables
Other
Total revenues
Expenses
Reimbursables
Other
Operating costs
G&A
EBITDA
D&A
Other
Operating income
Interest income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Gross Margin
EBITDA margins
Operating margins
67
$645
2012
$787
2013
2014E
2015E
$1,028
35
0
$1,064
$1,112
66
0
$1,178
$1,414
56
0
$1,470
($612)
(40)
0
($652)
(66)
$753
($175)
0
$578
$0
(58)
0
$520
(51)
0
$469
($228)
(44)
$372
($44)
0
$329
$1
(5)
0
$325
(53)
0
$272
($348)
(50)
$390
($71)
0
$319
$0
(8)
2
$313
(41)
0
$272
($459)
(58)
$547
($118)
0
$429
$0
(25)
0
$405
(55)
0
$350
($529)
(51)
0
($580)
(62)
$536
($147)
1
$390
$0
(43)
0
$347
(43)
0
$304
$4.16
$0.00
$4.14
$0.00
$5.32
$0.00
$4.67
$0.00
$7.15
$1.00
65%
58%
51%
56%
50%
41%
57%
51%
40%
51%
46%
33%
56%
51%
39%
October 14, 2014
Atwood Oceanics
2013
1Q13
Revenues
Contract Drilling
Reimbursables
Other
Total revenues
Expenses
Contract Drilling
Reimbursables
Other
Operating costs
G&A
EBITDA
D&A
Other
Operating income
Interest income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Gross Margin
EBITDA margins
Operating margins
68
2Q13
2014
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$245
0
(0)
$245
$242
11
0
$253
$262
11
(0)
$273
$279
13
0
$293
$274
11
0
$285
$260
13
0
$273
$265
28
0
$293
$313
14
0
$327
$323
14
0
$337
$338
14
0
$352
$370
14
0
$384
$371
14
0
$385
($112)
0
(0)
($112)
(17)
$116
($28)
0
$88
$0
(4)
0
$84
(11)
0
$73
($99)
(9)
0
($107)
(13)
$132
($28)
0
$104
$0
(7)
0
$97
(12)
0
$86
($110)
(9)
0
($118)
(14)
$141
($30)
0
$111
$0
(6)
0
$105
(15)
0
$90
($112)
(10)
1
($122)
(14)
$157
($31)
0
$126
$0
(8)
0
$118
(16)
0
$102
($123)
(8)
0
($132)
(20)
$133
($33)
2
$102
$0
(8)
0
$94
(11)
0
$83
($137)
(9)
0
($146)
(15)
$112
($37)
(0)
$74
$0
(12)
0
$63
(14)
0
$49
($129)
(23)
0
($152)
(13)
$128
($38)
0
$90
$0
(11)
0
$79
(7)
0
$72
($137)
(10)
0
($147)
(14)
$166
($40)
0
$126
$0
(12)
0
$114
(11)
0
$103
($146)
(10)
0
($156)
(15)
$166
($42)
0
$124
$0
(13)
0
$111
(11)
0
$100
($148)
(10)
0
($158)
(16)
$178
($43)
0
$135
$0
(14)
0
$121
(12)
0
$109
($155)
(10)
0
($165)
(17)
$202
($45)
0
$158
$0
(15)
0
$142
(14)
0
$128
($163)
(10)
0
($173)
(18)
$194
($46)
0
$148
$0
(17)
0
$131
(13)
0
$118
$1.10
$0.00
$1.28
$0.00
$1.37
$0.00
$1.57
$0.00
$1.28
$0.00
$0.76
$0.00
$1.11
$0.00
$1.58
$0.00
$1.54
$0.25
$1.67
$0.25
$1.95
$0.25
$1.80
$0.25
54%
47%
36%
58%
52%
41%
57%
52%
41%
58%
54%
43%
54%
47%
36%
46%
41%
27%
48%
44%
31%
55%
51%
39%
54%
49%
37%
55%
51%
38%
57%
53%
41%
55%
50%
38%
October 14, 2014
Atwood Oceanics
2011
2012
2013
2014E
2015E
$295
87
79
$461
1,887
488
$2,375
$78
167
125
$371
2,537
406
$2,944
$89
200
165
$454
3,165
493
$3,657
$120
228
144
$492
3,961
536
$4,497
$103
268
169
$541
4,326
650
$4,976

Accrued income taxes
$8
Accounts payable
113
Other
38
Current liabilities
$159
LT debt
520
Deferred taxes
10
Other LT liabilities
34
Total liabilities
$723
Minority interest
0
Common stock
1,653
Total
$2,375
$10
84
43
$137
830
9
29
$1,004
0
1,939
$2,944
$16
96
36
$148
1,271
8
23
$1,450
0
2,207
$3,657
$22
68
43
$133
1,767
0
43
$1,943
0
2,553
$4,497
$26
80
51
$157
1,767
0
43
$1,967
0
3,009
$4,976
2014E
2015E
Assets
Cash & equivalents
Accounts receivable
Other
Current assets
PPE
Other
Total assets

2011
2012
2013
Net income
Depreciation
Deferred income taxes
Other
Working Capital Chg
$272
49
(1)
12
8
$340
$272
70
(1)
12
(97)
$256
$350
118
(1)
26
(61)
$432
$331
147
(1)
(13)
(8)
$457
$456
175
0
0
(42)
$589
Capex
Asset sales
Other
Cash from investing
($515)
0
0
($515)
($785)
8
0
($777)
($745)
0
0
($745)
($979)
60
0
($920)
($540)
0
0
($540)
Chg in LT debt
Dividend paid
Other
Cash flow financing
$295
0
(6)
$289
$299
0
6
$305
$422
0
(98)
$324
$497
0
(3)
$494
$0
(66)
0
($66)
FX and other
Chg in cash
Beginning cash
Ending cash
69
$114
181
$295
($217)
295
$78
$11
78
$89
$31
89
$120
($17)
120
$103
October 14, 2014
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 companys 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 Is 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 companys 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 companys 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.
70
October 14, 2014
Baker Hughes
The achievement of Bakers margin targets for NAM in 4Q14 would likely lead to earnings revisions higher.
The companys 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.
28x
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.
24x
20x
16x
12x
8x
BHI
Big Four Average
4x
'04
'05
'06
71
'07
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Baker Hughes
2004
Revenues
North America
Latin America
Europe, Africa, CIS
Middle East, APAC
Industrial and Other
Total revenues
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$2,540
623
1,766
1,172
NA
$6,114
$3,065
718
2,015
1,409
NA
$7,208
$4,000
$4,379
$5,163
827
969
1,147
2,473
3,066
3,380
1,729
2,015
2,173
NA
NA
NA
$9,027 $10,427 $11,863
$3,584
$6,732 $10,257 $10,836 $10,878 $11,701 $12,442
1,133
1,576
2,183
2,399
2,307
2,200
2,310
2,925
3,048
3,325
3,634
3,850
4,164
4,580
2,022
2,276
2,820
3,275
4,050
4,717
5,283
NA
782
1,246
986
1,279
1,396
1,558
$9,664 $14,414 $19,831 $21,130 $22,364 $24,178 $26,174
$1,194
$1,622
$2,393
$2,799
$3,075
$1,693
$2,610
$4,306
$3,865
$3,799
$4,822
$5,694
$366
$384
$434
$516
$637
$711
$1,069
$1,321
$1,568
$1,698
$1,805
$1,895
Operating Income
North America
Latin America
Europe, Africa, CIS
Middle East, APAC
Corporate
Operating Income
NA
NA
NA
NA
NA
(208)
$0
NA
NA
NA
NA
NA
(215)
$0
NA
NA
NA
NA
NA
(216)
$0
NA
NA
NA
NA
NA
(241)
$0
$1,284
218
735
444
NA
(243)
$0
$331
140
522
274
NA
(284)
$0
$1,175
74
263
179
82
(232)
$0
$2,034
291
460
368
104
(272)
$0
$1,301
289
604
323
101
(301)
$0
$993
183
576
481
136
(268)
$0
$1,536
240
690
681
153
(284)
$0
$1,927
268
840
835
209
(280)
$0
Affiliate Income
Net Interest Expense
Pretax income
Taxes
Minority interest
Net income
$36
(77)
$781
253
NA
$529
$100
(54)
$1,285
407
NA
$878
$60
(1)
$2,018
631
NA
$1,387
$1
(22)
$2,257
743
NA
$1,514
$3
(62)
$2,378
725
NA
$1,652
$0
(121)
$861
264
NA
$598
$0
(141)
$1,400
499
(7)
$894
$0
(221)
$2,764
919
(4)
$1,841
$0
(210)
$2,107
675
(6)
$1,426
$0
(234)
$1,867
626
(7)
$1,234
$0
(234)
$2,782
966
(26)
$1,790
$0
(236)
$3,563
1,158
(4)
$2,401
$1.58
$0.46
$2.57
$0.47
$4.18
$0.52
$4.74
$0.52
$5.35
$0.56
$1.93
$0.60
$2.20
$0.61
$4.20
$0.60
$3.24
$0.60
$2.78
$0.60
$4.07
$0.64
$5.51
$0.68
NA
NA
NA
NA
NA
13%
20%
NA
NA
NA
NA
NA
17%
22%
NA
NA
NA
NA
NA
22%
27%
NA
NA
NA
NA
NA
22%
27%
25%
19%
22%
20%
NA
21%
26%
9%
12%
18%
14%
NA
10%
18%
17%
5%
9%
8%
10%
11%
18%
20%
13%
14%
13%
8%
15%
22%
12%
12%
17%
10%
10%
11%
18%
9%
8%
15%
12%
11%
9%
17%
13%
11%
17%
14%
11%
12%
20%
15%
12%
18%
16%
13%
15%
22%
EBITDA
D&A
Per Share Data

Diluted Earnings
Dividend
Margins Summary
Operating Margins
North America
Latin America
Europe, Africa, CIS
Middle East, APAC
Companywide
EBITDA margins
72
October 14, 2014
Baker Hughes
2013
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$3,056
555
1,004
1,170
344
$6,130
$3,026
572
1,098
1,289
398
$6,383
$2,985
557
1,096
1,241
369
$6,248
$3,056
571
1,173
1,287
383
$6,470
$3,178
583
1,104
1,311
396
$6,572
$3,222
600
1,208
1,444
410
$6,884
$1,159
$1,269
$1,347
$1,304
$1,405
$1,442
$1,544
$437
$454
$456
$459
$462
$470
$478
$485
$241
71
162
94
35
(84)
$0
$300
58
148
141
28
(65)
$0
$340
58
178
168
34
(73)
$0
$452
59
168
171
36
(73)
$0
$444
65
196
201
55
(73)
$0
$428
60
195
184
45
(70)
$0
$471
65
218
199
52
(70)
$0
$507
69
198
206
54
(70)
$0
$521
75
229
246
59
(70)
$0
$0
(58)
$579
180
1
$400
$0
(61)
$458
179
(2)
$277
$0
(57)
$553
176
(8)
$369
$0
(59)
$646
236
(6)
$404
$0
(59)
$754
264
(6)
$484
$0
(59)
$829
290
(6)
$533
$0
(59)
$783
254
(1)
$528
$0
(59)
$876
285
(1)
$590
$0
(59)
$905
294
(1)
$610
$0
(59)
$1,000
325
(1)
$674
$0.60
$0.15
$0.90
$0.15
$0.62
$0.15
$0.84
$0.15
$0.92
$0.15
$1.10
$0.17
$1.22
$0.17
$1.21
$0.17
$1.35
$0.17
$1.40
$0.17
$1.55
$0.17
8%
0%
16%
12%
12%
9%
16%
10%
7%
17%
15%
12%
11%
18%
9%
12%
15%
8%
10%
9%
16%
11%
11%
15%
13%
9%
11%
18%
12%
11%
17%
15%
10%
12%
20%
15%
11%
17%
15%
11%
13%
21%
15%
11%
18%
16%
14%
14%
21%
14%
11%
18%
15%
12%
13%
21%
15%
11%
19%
15%
14%
14%
22%
16%
12%
18%
16%
14%
15%
22%
16%
12%
19%
17%
14%
15%
22%
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
$2,603
590
854
894
289
$5,230
$2,677
557
966
971
316
$5,487
$2,854
557
984
1,064
328
$5,787
$2,744
603
1,046
1,121
346
$5,860
$2,776
530
996
1,108
321
$5,731
$2,843
544
1,066
1,149
333
$5,935
$893
$891
$1,060
$955
$1,047
$415
$424
$423
$436
Operating Income
North America
Latin America
Europe, Africa, CIS
Middle East, APAC
Corporate
Operating Income
$235
72
93
116
24
(62)
$0
$222
2
151
115
39
(62)
$0
$295
38
170
156
38
(60)
$0
Affiliate Income
Pretax income
Taxes
Minority interest
Net income
$0
(55)
$423
132
(1)
$290
$0
(60)
$407
135
(5)
$267
$0.65
$0.15
9%
12%
11%
13%
8%
9%
17%
Revenues
North America
Latin America
Europe, Africa, CIS
Middle East, APAC
Total revenues
EBITDA
D&A
Per Share Data

Diluted Earnings
Dividend
Margins Summary
Operating Margins
North America
Latin America
Europe, Africa, CIS
Middle East, APAC
Companywide
EBITDA margins
73
October 14, 2014
Baker Hughes
2004
Assets
Cash & equivalents
$319
Short-term Investment
0
Accounts Receivables
1,356
Inventories
1,035
Net Assets of Discont
0
Other
250
Current assets
$2,960
PPE
1,334
Goodwill
1,422
Other
364
Total assets
$6,759
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$697
0
1,673
1,126
17
327
$3,824
1,356
1,479
454
$7,791
$750
354
2,055
1,529
0
280
$4,968
1,801
1,537
380
$8,706
$1,054
$1,955
$1,595
$1,706
$1,050
$1,015
$1,399
$1,360
$2,552
0
0
0
0
0
0
0
0
0
2,383
2,759
2,331
3,942
4,878
4,815
5,138
5,510
5,729
1,714
2,021
1,836
2,594
3,222
3,781
3,884
4,127
4,228
0
0
0
0
0
0
0
0
0
304
410
463
465
647
806
874
1,019
1,066
$5,456
$7,145
$6,225
$8,707
$9,797 $10,417 $11,295 $12,016 $13,575
2,345
2,833
3,161
6,310
7,415
8,707
9,076
9,213
9,818
1,531
1,587
1,613
7,438
7,099
6,951
6,849
6,835
6,835
526
296
440
420
536
614
714
808
808
$9,857 $11,861 $11,439 $22,875 $24,847 $26,689 $27,934 $28,872 $31,036

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

2004
Net income
Depreciation
Income of Affiliates
Other
Working Capital Chg
2005
2006
$528
366
48
(36)
(36)
(86)
$784
$874
384
7
(100)
(24)
(329)
$955
$2,399
434
78
(1,096)
(16)
(316)
$590
Capex
Asset sales
Acquisition
continued Operations
Cash from investing
($348)
166
(14)
(0)
($197)
($478)
137
(124)
(0)
($465)
($922)
6,188
(3,949)
60
$1,376
Change in Debt
Change in Equity
Cash Dividends Paid
Other
Cash flow financing
($64)
(140)
(154)
27
($331)
($77)
($9)
130
(1,764)
(161)
(173)
0
19
($108) ($1,926)
FX and other
Chg in cash
Beginning cash
Ending cash
74
2007
$1,514
516
(4)
(1)
(137)
(413)
$1,475
2008
$1,635
637
0
(2)
(209)
(447)
$1,614
($1,127) ($1,303)
507
253
0
(120)
0
0
($620) ($1,170)
2009
$421
711
0
0
(142)
564
$1,239
2010
$819
1,069
(188)
0
7
(851)
$856
2011
2012
$1,743
1,321
(492)
0
368
(1,433)
$1,507
2013
$1,317
1,568
(114)
0
48
(984)
$1,835
$1,103
1,698
1
0
(113)
472
$3,161
2014E
2015E
$1,712
1,805
0
0
(48)
(1,248)
$2,222
$2,401
1,895
0
0
0
(27)
$4,270
($1,086) ($1,491) ($2,461) ($2,910) ($2,085) ($1,903) ($2,500)

163
208
311
389
455
203
0
(43)
(1,093)
259
0
(33)
(26)
0
0
0
0
0
0
0
0
($966) ($2,376) ($1,891) ($2,521) ($1,663) ($1,726) ($2,500)
$14
(454)
(166)
14
($592)
$1,250
(540)
(173)
4
$541
($541)
51
(185)
0
($675)
$1,531
74
(241)
2
$1,366
$54
183
(261)
(6)
($30)
$847
($571)
81
(249)
(263)
(267)
(19)
(16)
$646 ($1,103)
$178
(413)
(278)
(21)
($534)
$0
(284)
(294)
0
($578)
(14)
(4)
13
42
(84)
42
15
(11)
(1)
$221
($13)
$319
$378
$319
$697
$53
$697
$750
$304
$750
$1,054
$901
$1,054
$1,955
($360)
$1,955
$1,595
($139)
$1,595
$1,456
($406)
$1,456
$1,050
($35)
$1,050
$1,015
$384
$1,015
$1,399
($39)
$1,399
$1,360
$1,192
$1,360
$2,552
October 14, 2014

Investment Thesis
We view several factors as working in Basics 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 companys 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

Basics 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.
75
October 14, 2014

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 oilfields 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.
12x
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.
BAS
10x
8x
6x
4x
2x
'06
'07
76
'08
'09
'10
'11
'12
'13
'14
October 14, 2014

2004
Revenues
Well Servicing
Fluid Services
Completions
Drilling/Other
Total revenues
Expenses
Well Servicing
Fluid Services Expen
Completions
Contract Drilling Exp
Operating costs
G&A
EBITDA
D&A
Other Costs
Operating income
Interest expense, net
Other income
Pretax income
Taxes
Net income
Per Share Data
Diluted Earnings
Margins Summary
Gross margins
Well Servicing
Fluid Services
Completions
Contract Drilling
EBITDA margins
Operating margins
77
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$366
367
674
61
$1,468
$388
395
802
65
$1,650
$143
99
29
41
$312
$222
132
60
46
$460
$331
195
154
50
$730
$377
212
241
47
$877
$343
316
304
42
$1,005
$161
215
135
16
$527
$205
241
261
21
$728
$333
332
537
41
$1,243
$376
352
586
60
$1,375
$363
344
501
55
$1,263
($98)
(65)
(17)
0
($212)
(36)
$64
($29)
(4)
$31
(10)
(0)
$21
(8)
$13
($137)
(83)
(31)
0
($283)
(53)
$124
($37)
(2)
$85
(13)
(0)
$72
(27)
$45
($186)
(118)
(75)
0
($415)
(81)
$234
($62)
(0)
$172
(16)
1
$156
(56)
$101
($228)
(133)
(126)
0
($519)
(99)
$259
($93)
(0)
$166
(27)
2
$140
(53)
$88
($215)
(203)
(166)
(29)
($613)
(115)
$277
($119)
0
$159
(25)
(0)
$134
(51)
$83
($122)
(159)
(95)
(14)
($390)
(104)
$33
($133)
(3)
($102)
(33)
2
($133)
49
($84)
($157)
(178)
(157)
(15)
($507)
(108)
$114
($135)
(3)
($24)
(46)
0
($70)
25
($45)
($229)
(212)
(297)
(28)
($766)
(142)
$335
($154)
(2)
$178
(52)
1
$127
(49)
$78
($268)
(237)
(358)
(40)
($903)
(167)
$305
($187)
(2)
$117
(62)
(0)
$54
(20)
$34
($265)
(239)
(328)
(36)
($868)
(160)
$235
($210)
(2)
$23
(67)
1
($44)
17
($27)
$0.00
$1.34
$2.63
$2.13
$2.01
($2.12)
($1.14)
$1.88
$0.83
($0.66)
$0.58
$1.47
31%
34%
40%
NA
19%
10%
38%
38%
48%
NA
26%
18%
44%
39%
51%
NA
32%
24%
40%
37%
48%
NA
29%
19%
37%
36%
46%
NA
28%
16%
24%
26%
29%
NA
6%
-19%
23%
26%
40%
NA
15%
-3%
31%
36%
45%
NA
27%
14%
29%
33%
39%
NA
22%
8%
27%
30%
35%
NA
18%
2%
27%
28%
38%
NA
22%
7%
30%
29%
40%
32%
25%
10%
($265)
($273)
(263)
(280)
(418)
(479)
(41)
(44)
($987) ($1,077)
(158)
(168)
$322
$405
($215)
($235)
(0)
0
$107
$170
(67)
(66)
1
0
$41
$103
(17)
(41)
$24
$63
October 14, 2014

2013
1Q13
Revenues
Well Servicing
Fluid Services
Completions
Drilling/Other
Total revenues
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$88
84
118
14
$304
$94
86
132
14
$326
$98
86
127
14
$325
$84
88
123
13
$308
$93
93
137
14
$337
$90
90
164
15
$360
$93
92
184
16
$386
$90
92
188
16
$386
$92
95
192
16
$396
$95
98
201
16
$410
$99
101
212
17
$428
$102
100
196
17
$415
Expenses
Well Servicing
Fluid Services Expen
Completions
Contract Drilling Exp
Operating costs
G&A
EBITDA
D&A
Other Costs
Operating income
Other income
Pretax income
Taxes
Net income
($65)
(58)
(79)
(9)
($211)
(42)
$51
($50)
(1)
$0
(17)
0
($16)
7
($9)
($68)
(59)
(86)
(10)
($223)
(41)
$62
($52)
0
$10
(17)
0
($7)
1
($5)
($71)
(60)
(83)
(9)
($223)
(40)
$62
($54)
(0)
$8
(17)
0
($9)
4
($5)
($61)
(62)
(80)
(8)
($212)
(37)
$59
($54)
(1)
$4
(17)
0
($12)
5
($7)
($70)
(67)
(86)
(9)
($232)
(40)
$65
($52)
1
$14
(17)
0
($2)
1
($2)
($65)
(65)
(103)
(11)
($243)
(38)
$78
($52)
(1)
$26
(17)
0
$9
(4)
$5
($66)
(65)
(113)
(11)
($256)
(40)
$90
($55)
0
$35
(17)
0
$18
(7)
$11
($64)
(66)
(116)
(11)
($257)
(41)
$88
($56)
0
$32
(17)
0
$16
(6)
$10
($66)
(68)
(118)
(11)
($262)
(41)
$92
($57)
0
$35
(17)
0
$18
(8)
$10
($67)
(70)
(120)
(11)
($268)
(42)
$101
($58)
0
$43
(17)
0
$26
(10)
$16
($69)
(72)
(126)
(11)
($277)
(42)
$109
($60)
0
$49
(17)
0
$32
(12)
$20
($71)
(71)
(116)
(11)
($270)
(42)
$103
($60)
0
$43
(17)
0
$26
(10)
$16
Per Share Data

Diluted 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
26%
31%
33%
34%
17%
0%
28%
31%
35%
30%
19%
3%
27%
31%
35%
34%
19%
2%
27%
29%
35%
35%
19%
1%
25%
28%
37%
32%
20%
4%
28%
28%
38%
32%
22%
7%
29%
29%
39%
32%
23%
9%
28%
29%
38%
32%
23%
8%
28%
29%
39%
32%
23%
9%
30%
29%
40%
32%
25%
10%
30%
29%
41%
32%
25%
11%
30%
29%
41%
32%
25%
10%
Margins Summary
Gross margins
Well Servicing
Fluid Services
Completions
Contract Drilling
EBITDA margins
Operating margins
78
October 14, 2014

2004
Assets
Cash & equivalents
Accounts receivable
Inventory
Other
Current assets
PPE
Goodwill
Deferred loan costs
Other
Total assets
$20
57
1
9
$87
233
40
5
2
$368

Current maturities
$12
Accounts payable
11
Other
21
Current liabilities
$32
LT debt
182
Deferred taxes
30
1
Total liabilities
$246
Shareholders Equity
122
Total
$368
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$33
87
2
11
$133
309
48
5
2
$497
$51
129
8
21
$210
475
102
7
3
$796
$92
138
11
25
$267
637
205
6
29
$1,144
$111
173
12
28
$324
741
203
5
38
$1,311
$139
148
11
25
$323
667
3
8
39
$1,040
$48
230
22
32
$331
626
16
7
50
$1,030
$78
255
35
55
$423
856
83
16
82
$1,460
$135
209
40
54
$438
944
106
19
89
$1,596
$112
208
34
49
$403
928
111
16
85
$1,543
$67
253
44
55
$419
961
112
15
82
$1,588
$145
272
47
60
$524
925
112
15
82
$1,658
$8
14
42
$56
119
2
54
$231
266
$497
$12
20
57
$90
251
73
3
$417
379
$796
$17
22
52
$92
406
115
6
$619
525
$1,144
$26
28
48
$102
454
150
10
$716
595
$1,311
$26
23
43
$92
476
122
10
$699
340
$1,040
$24
40
55
$119
475
123
11
$728
302
$1,030
$34
57
65
$156
749
184
11
$1,100
360
$1,460
$38
62
78
$178
845
185
14
$1,222
374
$1,596
$41
46
78
$165
847
164
22
$1,198
345
$1,543
$41
58
90
$188
879
163
26
$1,257
331
$1,588
$41
61
94
$196
879
163
26
$1,264
394
$1,658
2007
2008
2009
2010
2011
2012
2013
2014E
2015E

77
2004
2005
2006
Net income
D&A
Other Non-Cash Exp.
Working Capital Chg
$13
29
14
(9)
$47
$45
37
22
(5)
$99
$101
62
11
(26)
$146
$88
93
23
(5)
$199
$83
119
58
(32)
$213
($84)
133
191
19
$89
($45)
135
3
(45)
$49
$78
154
86
(8)
$279
$34
187
39
57
$304
($27)
210
(1)
(7)
$166
$24
215
9
(35)
$210
$63
235
0
(20)
$279
Capex
Asset sales
Other
Cash from investing
($56)
(19)
1
($74)
($83)
(25)
1
($108)
($105)
(136)
(1)
($241)
($99)
(200)
4
($294)
($92)
(111)
6
($197)
($43)
(8)
(12)
($63)
($64)
(48)
13
($98)
($222)
(218)
20
($420)
($171)
12
(91)
($251)
($137)
20
(23)
($140)
($256)
26
(1)
($231)
($200)
0
0
($200)
Chg in Debt
Change in Equity
Other
Cash flow financing
$21
0
0
$21
($68)
89
0
$21
$101
15
(1)
$114
$134
(0)
2
$136
$6
(10)
8
$4
$2
(6)
(8)
($12)
($28)
(0)
(0)
($29)
$220
6
(55)
$171
$27
(18)
(6)
$3
($45)
(3)
(1)
($49)
($22)
(2)
(0)
($24)
$0
0
0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
($23)
$0
$0
($6)
57
$52
$13
81
$94
$19
137
$156
$41
79
$119
$19
72
$91
$14
104
$118
($77)
100
$23
$31
75
$105
$56
111
$167
($23)
52
$29
($45)
118
$73
$79
73
$152
FX and other
Chg in cash
Beginning cash
Ending cash
79
October 14, 2014
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. Its 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.
80
October 14, 2014
Bristow Helicopters
Bristows 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 161167, up 2% YoY at the midpoint, and a continued dividend payout policy of 20%-30%.
10x
9x
8x
7x
6x
5x
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.
BRS
Offshore Technology
4x
'06
'07
81
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Bristow Helicopters
2006
Revenues
North America
Europe
West Africa
Australia
Other
Total revenues
EBITDAR
North America
Europe
West Africa
Australia
Other International
Total Helicopter Services
Corporate
Total EBITDAR
Rent Expense
D&A
Other
Total Operating Income
Other Income
Pretax Income
Taxes
Minority Interest
Net income
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
NA
245
107
NA
416
$769
NA
298
131
NA
469
$898
NA
362
171
NA
508
$1,040
NA
402
192
NA
540
$1,134
$45
453
219
131
319
$1,168
$194
476
226
159
177
$1,233
$177
450
246
148
178
$1,199
$225
502
282
159
176
$1,344
$229
623
315
149
201
$1,516
$244
844
352
204
206
$1,850
$273
937
385
229
212
$2,036
NA
NA
NA
NA
NA
$0
NA
NA
NA
(42)
0
$74
1
$75
(17)
(0)
$58
NA
NA
NA
NA
NA
$0
NA
NA
NA
(43)
0
$115
0
$116
(40)
(1)
$74
NA
NA
NA
NA
NA
$0
NA
NA
NA
(54)
0
$151
7
$158
(53)
0
$105
NA
NA
NA
NA
NA
$0
NA
NA
NA
(66)
0
$144
(9)
$135
(34)
(2)
$98
NA
NA
NA
NA
NA
$0
NA
NA
NA
(79)
0
$183
(43)
$140
(27)
(1)
$112
NA
NA
NA
NA
NA
$0
NA
NA
NA
(85)
0
$193
(45)
$148
(25)
(1)
$123
$31
148
86
36
56
$357
(7)
$350
(15)
(96)
(58)
$180
(36)
$144
(25)
(2)
$117
$58
181
89
43
62
$433
(52)
$381
(15)
(74)
(68)
$225
(43)
$182
(39)
(2)
$142
$74
216
101
29
65
$485
(51)
$435
(31)
(70)
(101)
$233
(32)
$201
(36)
(2)
$163
$86
278
94
48
59
$565
(40)
$525
(150)
(101)
0
$273
(34)
$239
(55)
(2)
$182
$99
314
105
55
62
$635
(40)
$594
(185)
(109)
0
$300
(37)
$263
(61)
0
$203
Per Share Data

Diluted Earnings
Dividend
$2.45
$0.00
$2.74
$0.00
$3.46
$0.00
$2.84
$0.00
$3.09
$0.00
$3.34
$0.00
$3.19
$0.00
$3.89
$0.00
$4.46
$0.00
$5.10
$1.28
$5.70
$1.28
Margins Summary
EBITDAR Margin
EBITDA Margin
Operating Margin
Pretax Margin
0%
15%
10%
10%
0%
18%
13%
13%
0%
20%
15%
15%
0%
18%
13%
12%
0%
23%
16%
12%
0%
23%
16%
12%
29%
23%
15%
12%
28%
24%
17%
14%
29%
22%
15%
13%
28%
20%
15%
13%
29%
20%
15%
13%
82
October 14, 2014
Bristow Helicopters
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
1Q16E
2016
2Q16E
3Q16E
4Q16E
Revenues
North America
Europe
West Africa
Australia
Other
Total revenues
$58
137
76
38
50
$360
$60
156
76
35
51
$379
$55
158
79
35
46
$374
$56
171
84
41
54
$405
$58
202
80
47
52
$437
$61
209
84
51
52
$458
$62
212
94
53
52
$472
$63
221
93
54
51
$482
$64
226
94
55
51
$490
$67
234
95
55
52
$502
$70
238
97
59
54
$518
$73
239
99
60
55
$526
EBITDAR
North America
Europe
West Africa
Australia
Other International
Total Helicopter Services
Corporate
Total EBITDAR
Rent Expense
D&A
Other
Other Income
Pretax Income
Taxes
Minority Interest
Net income
$17
41
24
7
22
$111
(9)
$102
23
23
(92)
$57
(8)
$49
(12)
(0)
$36
$19
55
23
7
13
$117
(9)
$109
23
24
(94)
$61
(9)
$52
(6)
0
$46
$18
56
27
5
10
$116
(15)
$101
28
24
(104)
$49
(7)
$42
(10)
(0)
$31
$20
64
28
10
20
$141
(18)
$123
31
26
(114)
$66
(8)
$58
(7)
(2)
$49
$23
69
20
11
15
$138
(10)
$128
33
25
(117)
$69
(7)
$62
(14)
(1)
$47
$20
68
22
12
15
$137
(10)
$127
36
25
(122)
$66
(9)
$58
(14)
(1)
$43
$21
69
26
12
15
$143
(10)
$133
39
25
(129)
$68
(9)
$59
(14)
0
$45
$22
73
25
13
14
$148
(10)
$138
43
25
(136)
$70
(9)
$61
(14)
0
$46
$26
78
25
13
15
$157
(10)
$146
44
26
(140)
$76
(9)
$67
(15)
0
$52
$23
77
26
13
15
$153
(10)
$143
46
27
(145)
$71
(9)
$62
(14)
0
$48
$24
78
27
14
16
$160
(10)
$150
47
28
(150)
$75
(9)
$66
(15)
0
$51
$26
81
27
14
16
$165
(10)
$155
49
29
(154)
$78
(9)
$68
(16)
0
$53
Per Share Data

Diluted Earnings
Dividend
$1.00
$0.00
$1.27
$0.00
$0.85
$0.00
$1.35
$0.00
$1.32
$0.32
$1.21
$0.32
$1.27
$0.32
$1.30
$0.32
$1.45
$0.32
$1.34
$0.32
$1.43
$0.32
$1.48
$0.32
Margins Summary
EBITDAR Margin
EBITDA Margin
Operating Margin
Pretax Margin
29%
22%
16%
14%
29%
23%
16%
14%
27%
19%
13%
11%
30%
23%
16%
14%
29%
22%
16%
14%
28%
20%
14%
13%
28%
20%
14%
13%
29%
20%
14%
13%
30%
21%
16%
14%
29%
19%
14%
12%
29%
20%
14%
13%
29%
20%
15%
13%
83
October 14, 2014
Bristow Helicopters
2006
Assets
Cash & equivalents
Accounts receivable
Inventories
Other
Current assets
Investments
PP&E
Goodwill
Other
Total assets
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
$122
160
148
17
$447
40
616
27
494
$1,176
$184
176
158
18
$536
47
892
20
547
$1,506
$290
216
176
24
$706
52
1,173
16
737
$1,977
$301
217
165
20
$703
20
1,541
45
729
$2,335
$113
183
174
57
$528
204
1,736
47
551
$2,538
$116
263
196
54
$629
209
1,768
32
654
$2,663
$262
286
158
31
$736
205
1,723
30
783
$2,740
$216
263
154
43
$676
272
1,921
29
729
$2,951
$204
297
137
82
$722
263
2,269
57
810
$3,398
($53)
335
166
102
$549
266
2,948
58
644
$3,915
$107
347
174
111
$738
266
2,979
58
833
$4,135

Accounts Payable
$41
Accrued Liabilities
46
Other
59
Current liabilities
$146
LT debt
265
Deferred Taxes
68
Other
22
Total liabilities
$502
674
Total
$1,176
$42
38
82
$163
259
76
136
$634
872
$1,506
$50
36
73
$158
606
92
139
$995
982
$1,977
$45
40
64
$149
746
120
109
$1,124
1,212
$2,335
$41
32
63
$136
717
150
126
$1,129
1,408
$2,538
$57
35
67
$158
707
148
130
$1,144
1,519
$2,663
$56
44
84
$185
757
148
129
$1,219
1,522
$2,740
$70
56
92
$218
787
151
184
$1,340
1,611
$2,951
$90
71
297
$458
827
170
187
$1,642
1,757
$3,398
$115
82
334
$531
1,155
190
166
$2,042
1,873
$3,915
$125
90
348
$563
1,155
205
166
$2,089
2,046
$4,135

2006
2007
2008
2009
$58
42
1
(62)
$39
$74
43
12
(24)
$104
$104
54
11
(82)
$88
$124
66
(4)
(57)
$128
$111
79
9
20
$219
$133
91
4
(77)
$151
$65
96
62
9
$232
Capex
Sale of PP&E
Other
Cash from investing
($140)
85
0
($54)
($305)
40
0
($264)
($338)
27
1
($310)
($455)
102
(17)
($370)
($300)
75
(179)
($404)
($146)
4
29
($113)
Change in Debt
Change in Equity
Dividends
Other
Cash flow financing
$1
(7)
0
0
($5)
$227
(6)
0
(5)
$216
$6
335
0
(12)
$329
$225
91
0
(19)
$298
$1
(10)
0
(6)
($15)
FX and other
($4)
$6
($0)
($45)
($24)
146
$122
$62
122
$184
$106
184
$290
$11
290
$301
Net Income
Depreciation & Amortization
Other
Working Capital Chg
Chg in cash
Beginning cash
Ending cash
84
2010
2011
2012
2013
2014E
2015E
2016E
$132
96
9
30
$267
$188
96
(57)
6
$232
$180
101
42
(71)
$252
$203
109
44
(12)
$344
($326)
240
(2)
($89)
($571)
315
(51)
($308)
($629)
402
(40)
($266)
($802)
27
0
($775)
($300)
160
0
($140)
$2
(16)
0
(1)
($15)
($20)
47
(22)
(1)
$4
$14
1
(29)
0
($13)
($64)
21
(36)
90
$10
($19)
326
(45)
0
$262
$0
0
(44)
0
($44)
$12
$5
($3)
$8
$13
$4
$0
($188)
301
$113
$28
113
$116
$145
116
$262
($46)
262
$216
($11)
216
$204
($258)
204
($53)
$160
(53)
$107
October 14, 2014
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 Nabors Completion & Production Services segment accelerates C&Js long term growth
strategy, more than doubling the companys 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 Nabors 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 WFTs 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
managements 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.
85
October 14, 2014
C&J Energy Services

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
CJESs legacy Casedhole Solutions business.
The June 25th agreement to acquire Nabors 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 companys
penetration with select customers, driving margins higher through operating leverage of fixed costs.
11x
CJES current trades at 4.9x, a 4%

a 29% premium to its historical 3.8x.
CJES
10x
9x
8x
7x
6x
5x
4x
3x
2x
'06
'07
86
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
C&J Energy Services

2008
2009
2012
2013
2014E
2015E
$244
$620
97
19
0
22
0
0
$758
$785
140
16
130
41
0
0
$1,112
$626
141
17
279
8
0
0
$1,070
$929
175
23
395
11
0
0
$1,533
$1,040
189
26
432
11
2,741
0
$4,438
($54)
(10)
(10)
19
$13
(5)
(0)
$8
0
0
$8
($154)
(18)
(11)
29
$90
(17)
(0)
$72
(20)
0
$52
($421)
(53)
(23)
0
$262
(4)
(0)
$258
(91)
0
$167
($673)
(102)
(47)
(1)
$289
(5)
(0)
$284
(96)
0
$188
($743)
(138)
(75)
0
$115
(7)
0
$109
(42)
0
$67
($1,118)
(190)
(107)
0
$118
(10)
0
$109
(42)
0
$66
($3,170)
(417)
(308)
0
$543
(15)
0
$528
(195)
(176)
$156
$0.00
$0.00
$0.00
$0.00
$1.07
$0.00
$3.26
$0.00
$3.48
$0.00
$1.21
$0.00
$1.16
$0.00
$1.30
$0.00
32%
32%
19%
19%
37%
37%
45%
35%
39%
26%
31%
11%
27%
8%
29%
12%
Revenues
Hydraulic Fracturing
Coiled Tubing
Other Services
Wireline Operations
Manufacturing
NCPS
Other
Total revenues
$62
$67
Costs & Expenses

Cost of Goods Sold
SG&A & R&D
D&A
Other
Operating income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
($42)
(9)
(9)
18
$20
(7)
(1)
$13
(2)
0
$10
Per Share Data

Diluted Earnings
Dividend
Margins Summary
Gross Margins
Operating margins
87
2010
2011
October 14, 2014
C&J Energy Services

1Q13
2013
2Q13
3Q13
4Q13
1Q14
2014
2Q14
3Q14E
4Q14E
1Q15E
2015
2Q15E 3Q15E
4Q15E
Revenues
Coiled Tubing
Other Services
Wireline Operations
Manufacturing
NCPS
Other
Total revenues
$174
36
3
62
1
0
0
$276
$161
33
5
68
2
0
0
$267
$145
34
5
75
3
0
0
$262
$147
37
4
74
2
0
0
$265
$187
40
4
83
2
0
0
$317
$222
43
6
94
3
0
0
$368
$253
45
6
106
3
0
0
$414
$268
46
6
112
2
0
0
$434
$260
47
6
106
2
645
0
$1,066
$263
48
6
109
3
714
0
$1,143
$265
48
7
110
3
733
0
$1,167
$252
47
6
106
3
649
0
$1,063
Costs & Expenses

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

Diluted Earnings
Dividend
$0.46
$0.00
$0.39
$0.00
$0.24
$0.00
$0.13
$0.00
$0.21
$0.00
$0.28
$0.00
$0.33
$0.00
$0.35
$0.00
$0.28
$0.00
$0.36
$0.00
$0.41
$0.00
$0.26
$0.00
32%
15%
31%
13%
30%
9%
29%
6%
27%
7%
27%
7%
27%
8%
27%
8%
27%
11%
29%
13%
31%
15%
27%
10%
Margins Summary
Gross Margins
Operating margins
88
October 14, 2014
C&J Energy Services

2008
Assets
Cash & equivalents
Other
Current assets
PP&E
Goodwill
Other
Total assets
Accounts Payable
Other
Current liabilities
LT debt & Capital Leases
Total liabilities
Noncontrolling interest
Stockholder Equity
Total
2009
$0
14
$14
71
0
69
$155
25
0
0
$155
2010
2011
2012
2013
2014E
2015E
$1
16
$17
65
60
8
$150
$3
57
$59
88
60
18
$226
$47
178
$224
214
65
35
$538
$14
236
$250
434
197
132
$1,013
$14
258
$272
536
206
134
$1,148
$82
376
$458
738
221
157
$1,573
$132
873
$1,005
3,450
221
157
$4,832
$11
2
$13
67
4
$84
0
66
$150
$15
45
$59
45
13
$117
0
109
$226
$58
22
$79
0
64
$143
0
395
$538
$70
35
$105
174
134
$413
0
600
$1,013
$89
36
$125
164
163
$452
0
696
$1,148
$151
50
$201
448
158
$806
0
767
$1,573
$444
50
$493
1,338
158
$1,989
(176)
2,843
$4,832
2012
2013
2014E
2015E

2008
2009
2010
2011
Net income
Depreciation
Other
$0
0
9
$9
($2)
10
5
$12
$32
11
2
$45
$162
23
(13)
$172
$182
47
25
$255
$66
75
46
$187
Capex
Asset sales
Acquisitions
Cash from investing
($22)
1
0
($21)
($4)
0
0
($4)
($44)
1
0
($44)
($141)
2
(27)
($166)
($459)
0
0
($458)
($173)
1
0
($171)
$0
0
0
12
$12
($6)
(1)
0
(0)
($7)
($35)
39
(0)
(4)
$1
($3)
(69)
0
110
$38
$0
170
(1)
2
$171
($20)
0
(3)
7
($16)
$261
0
(2)
(1)
$258
$450
390
0
1,920
$2,760
($0)
0
$0
$1
0
$1
$2
1
$3
$44
3
$47
($32)
47
$14
($0)
14
$14
$68
14
$82
$0
82
$82
Change in ST Debt
Change in LT Debt
Change in Capital Leases
Other
Cash flow financing
Chg in cash
Beginning cash
Ending cash
89
$62
107
(49)
$120
$156
308
(204)
$260
($274)
($160)
(36)
0
0
(2,860)
($310) ($3,020)
October 14, 2014
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 companys 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
Calfracs 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 companys 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
Argentinas Vaca Muerta shale.
90
October 14, 2014

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 Calfracs 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.
11x
CFW current trades at 4.8x, a 1%

10x
9x
8x
7x
6x
5x
4x
CFW
3x
2x
'06
'07
91
'08
'09
'10
'11
'12
'13
'14
October 14, 2014

2004
2005
2006
2007
2008
2009
2011
2012
2013
2014E
2015E
$507
302
77
51
$936
$755
608
116
58
$1,537
$733
638
113
111
$1,595
$677
616
159
112
$1,564
$795
1,194
178
149
$2,316
$893
1,288
190
208
$2,579
($483)
(38)
71
(63)
$8
(15)
(2)
($10)
4
(0)
($6)
($691)
(60)
185
(78)
$107
(26)
5
$86
(23)
0
$63
($1,047)
(77)
413
(87)
$325
(35)
10
$299
(95)
0
$205
($1,244)
(94)
257
(90)
$167
(36)
7
$138
(41)
1
$97
($1,280)
(96)
188
(110)
$78
(42)
(1)
$35
(7)
1
$29
($1,885)
(131)
299
(136)
$163
(58)
(9)
$96
(30)
(1)
$66
($2,033)
(148)
398
(124)
$274
(58)
0
$216
(54)
(0)
$162
$0.48
$0.10
($0.15)
$0.10
$1.44
$0.20
$4.62
$0.18
$2.17
$1.00
$0.64
$1.00
$0.79
$1.00
$1.70
$1.00
22%
15%
5%
18%
12%
1%
26%
20%
11%
32%
27%
21%
22%
16%
10%
18%
12%
5%
19%
13%
7%
21%
15%
11%
Revenues
Canada
United States
Russia
Latin America
Total revenues
$214
28
0
0
$241
$280
33
1
0
$314
$318
86
22
0
$426
$249
147
64
0
$460
$273
206
57
28
$564
$242
218
67
65
$591
Expenses
Operating Exp.
G &A
EBITDA
D&A
Operating Income
Interest Expense
Other Income
Pretax income
Taxes
Minority interest
Net income
($158)
(19)
65
(12)
$53
(1)
(0)
$52
(6)
(0)
$47
($205)
(29)
80
(17)
$62
0
(0)
$63
(2)
0
$60
($291)
(28)
107
(26)
$81
(2)
3
$81
(9)
0
$72
($329)
(32)
100
(37)
$63
(9)
(2)
$51
(13)
0
$39
($441)
(41)
82
(51)
$31
(12)
2
$21
(4)
0
$18
Per Share Data

Diluted Earnings
Dividend
$1.51
$0.00
$1.64
$0.10
$1.98
$0.10
$1.06
$0.10
35%
27%
22%
35%
25%
20%
32%
25%
19%
29%
22%
14%
Margins Summary
Total Gross Profit Margin
EBITDA Margin
Operating Margin
92
2010
October 14, 2014

2013
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
Revenues
Canada
United States
Russia
Latin America
Total revenues
$232
127
37
28
$423
$81
146
37
24
$289
$168
154
43
24
$389
$197
189
41
35
$463
$268
211
39
30
$548
$96
316
51
40
$503
$210
340
43
39
$632
$221
327
45
41
$633
$308
279
42
54
$683
$97
313
55
54
$519
$238
345
46
56
$684
$251
351
47
44
$693
Expenses
Operating Exp.
G &A
EBITDA
D&A
Operating Income
Interest Expense
Other Income
Pretax income
Taxes
Minority interest
Net income
($337)
(24)
(63)
(25)
($38)
9
(2)
($31)
7
(0)
($25)
($250)
(22)
(16)
(26)
$10
9
0
$19
(4)
(0)
$15
($313)
(24)
(52)
(28)
($24)
10
5
($9)
3
(0)
($6)
($380)
(26)
(57)
(31)
($26)
13
(2)
($14)
1
(0)
($13)
($454)
(29)
(64)
(34)
($31)
15
4
($12)
3
0
($9)
($428)
(30)
(45)
(34)
($10)
14
5
$9
4
0
$13
($503)
(37)
(92)
(34)
($58)
14
0
($44)
11
0
($33)
($500)
(35)
(98)
(34)
($64)
14
0
($50)
12
0
($37)
($536)
(37)
(110)
(31)
($79)
14
0
($64)
16
0
($48)
($422)
(32)
(65)
(31)
($34)
14
0
($19)
5
0
($14)
($535)
(41)
(109)
(31)
($78)
14
0
($63)
16
0
($47)
($540)
(37)
(115)
(31)
($84)
14
0
($70)
17
0
($52)
Per Share Data

Diluted Earnings
Dividend
$0.54
$0.25
($0.32)
$0.25
$0.13
$0.25
$0.28
$0.25
$0.19
$0.25
($0.14)
$0.25
$0.34
$0.25
$0.39
$0.25
$0.50
$0.25
$0.15
$0.25
$0.50
$0.25
$0.55
$0.25
Margins Summary
Gross Margin
EBITDA Margin
Operating Margin
15%
9%
9%
6%
-3%
-3%
13%
6%
6%
12%
6%
6%
12%
6%
6%
9%
2%
2%
15%
9%
9%
15%
10%
10%
16%
12%
12%
12%
6%
6%
16%
11%
11%
17%
12%
12%
93
October 14, 2014

2004
Assets
Cash & equivalents
Accounts receivable
Inventories
Other
Current assets
PP&E
Goodwill
Deferred Income taxes
Other
Total assets
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$28
57
3
2
$89
121
4
53
0
$266
$0
92
6
2
$100
198
6
32
0
$337
$6
84
13
7
$111
328
6
9
0
$454
$39
87
25
6
$157
389
6
5
1
$559
$36
120
41
12
$210
460
11
11
0
$692
$25
136
44
9
$214
579
11
37
0
$841
$217
178
58
12
$464
589
11
32
0
$1,096
$133
314
94
11
$553
826
11
16
0
$1,405
$42
320
119
11
$492
1005
11
17
0
$1,525
$42
396
134
18
$591
1245
11
24
0
$1,870
($4)
541
183
25
$746
1251
11
24
0
$2,032
$68
592
201
27
$888
1227
11
24
0
$2,149

Short-Term Debt
$33
Accounts Payable
0
Other
4
Current liabilities
$36
LT debt
4
Finance lease obligations
0
48
Other
3
Total liabilities
$91
175
Total
$266
$47
0
14
$61
8
0
28
6
$103
234
$337
$77
0
2
$80
60
0
6
5
$151
304
$454
$65
0
0
$65
130
0
11
2
$208
351
$559
$95
15
0
$110
160
0
27
1
$298
393
$692
$82
0
3
$85
267
4
23
1
$381
460
$841
$116
0
6
$122
443
3
24
1
$594
502
$1,096
$150
2
2
$154
451
1
98
1
$705
701
$1,405
$168
0
1
$169
441
0
133
0
$744
781
$1,525
$246
24
0
$271
652
0
152
0
$1,075
795
$1,870
$336
18
1
$355
652
0
208
0
$1,215
817
$2,032
$368
18
1
$386
652
0
228
0
$1,266
883
$2,149
2010
2011
2012
2013
2014E
2015E

2004
Net Income
Stock-based compensation
Other
Working Capital Chg
2005
2006
2007
2008
2009
$46
12
1
1
(25)
$34
$60
17
2
1
(19)
$62
$72
26
2
1
11
$113
$39
38
3
9
(8)
$79
$18
52
4
7
(31)
$50
($6)
64
4
(7)
1
$56
$49
77
7
18
(24)
$128
$187
87
9
85
(138)
$231
$96
90
7
28
(17)
$205
$27
110
5
3
(13)
$132
$66
136
2
66
(107)
$163
$162
124
0
19
(39)
$267
Capital Expenditures
Sale of PP&E
Acquisitions
Other
Cash from investing
($51)
0
(2)
0
($53)
($98)
0
(3)
0
($101)
($155)
4
12
0
($140)
($92)
0
(14)
(18)
($124)
($85)
0
(6)
9
($82)
($102)
2
(19)
(11)
($129)
($119)
5
(2)
0
($116)
($324)
4
0
0
($320)
($270)
2
0
0
($268)
($183)
2
(151)
0
($332)
($152)
1
0
0
($152)
($100)
0
0
0
($100)
Change in Debt
Change in Equity
Dividends
Other
Cash flow financing
$1
(31)
0
61
$31
$12
(9)
(4)
0
($0)
$57
(7)
(4)
(3)
$43
$200
(108)
(4)
1
$90
$65
(65)
(4)
23
$19
$216
(117)
(4)
(25)
$70
$474
(289)
(5)
6
$185
$1
(8)
(8)
5
($10)
$0
(0)
(41)
12
($29)
$366
(193)
(24)
43
$192
$32
(37)
(62)
18
($49)
$0
0
(95)
0
($95)
Chg in cash
Beginning cash
Ending cash
$13
15
$28
($39)
28
($11)
$16
(11)
$6
$34
6
$39
($3)
39
$36
($11)
36
$25
$192
25
$217
($84)
217
$133
($91)
133
$42
($0)
42
$42
($46)
42
($4)
$72
(4)
$68
94
October 14, 2014
Cameron Intl
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 CAMs 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
CAMs improvement story is clear and we expect continued improvement, especially as the subsea outlook comes
into focus.
95
October 14, 2014
Cameron Intl
Recent awards to FTI and OneSubsea give us confidence in assumptions that Tree awards will rebound in
15. Additionally, we view the fact that CAMs award was for the first deepwater subsea field to be
developed by Pemex in a very strong light given our feelings surrounding Mexicos 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.
CAM current trades at 15.5x, a
25x
21x
17x
13x
9x
CAM
Capital Equipment
5x
'04
'05
'06
96
'07
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Cameron Intl
2004
2005
2006
2007
2008
2009
2010
2011
2012
Revenues
Drilling & Production
Valves & Measurement
Process & Compression
Total revenues
$1,403
350
340
$2,093
$1,508
625
385
$2,518
$2,113
1,178
452
$3,743
$2,887
1,274
506
$4,666
$3,485
1,473
890
$5,849
$3,110
1,195
918
$5,223
$3,782
1,273
1,143
$6,199
$4,062
1,663
1,234
$6,959
$4,871
2,142
1,489
$8,502
$6,288
$7,583
$8,475
2,086
2,113
2,227
1,465
983
1,024
$9,838 $10,679 $11,726
EBITDA
Corporate and Other
EBITDA
D&A
Operating Income
Net Interest Exp.
Pretax income
Taxes
Minority interest
Net income
$170
50
41
(33)
$229
(83)
$146
(6)
$139
(40)
NA
$99
$223
118
42
(43)
$340
(78)
$262
1
$263
(92)
NA
$171
$418
215
61
(81)
$613
(101)
$511
6
$517
(181)
NA
$336
$555
298
90
(96)
$846
(110)
$737
8
$744
(254)
NA
$491
$667
334
161
(108)
$1,053
(132)
$921
(22)
$898
(288)
NA
$610
$660
247
170
(109)
$968
(157)
$811
(88)
$723
(202)
NA
$521
$760
230
187
(119)
$1,058
(202)
$857
(78)
$778
(180)
NA
$599
$797
335
154
(166)
$1,119
(207)
$912
(84)
$828
(165)
NA
$664
$862
467
184
(197)
$1,317
(255)
$1,062
(89)
$973
(195)
NA
$778
$1,030
464
179
(213)
$1,460
(315)
$1,145
(100)
$1,045
(220)
(25)
$800
$1,197
465
146
(176)
$1,633
(334)
$1,299
(118)
$1,181
(273)
(41)
$866
$1,418
493
234
(235)
$1,911
(301)
$1,609
(111)
$1,498
(346)
(87)
$1,065
Per Share Data

Diluted Earnings
Dividend
$0.92
$0.00
$1.52
$0.00
$1.44
$0.00
$2.13
$0.00
$2.67
$0.00
$2.32
$0.00
$2.42
$0.00
$2.67
$0.00
$3.14
$0.00
$3.30
$0.00
$4.20
$0.00
$5.30
$0.00
Margins Summary
EBITDA Margin
Operating Margin
11%
7%
14%
10%
16%
14%
18%
16%
18%
16%
19%
16%
17%
14%
16%
13%
15%
12%
15%
12%
15%
12%
16%
14%
97
2013
2014E
2015E
October 14, 2014
Cameron Intl
2013
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$1,974
$543
$242
$2,759
$2,001
$542
$305
$2,848
$1,914
$517
$237
$2,668
$2,123
$563
$212
$2,898
$2,203
$570
$254
$3,027
$2,235
$577
$321
$3,133
$304
$119
$20
($41)
$402
($90)
$312
$30
$282
$65
$12
$205
$325
$120
$28
($47)
$426
($91)
$336
$28
$308
$71
$12
$225
$319
$120
$76
($48)
$466
($66)
$400
$28
$372
$86
$13
$273
$297
$113
$55
($53)
$412
($70)
$342
$28
$314
$72
$19
$223
$349
$125
$54
($58)
$470
($74)
$396
$28
$368
$87
$21
$261
$381
$127
$64
($61)
$511
($77)
$434
$28
$406
$93
$22
$291
$391
$128
$61
($63)
$517
($80)
$437
$28
$409
$94
$24
$291
$0.75
$0.00
$1.00
$0.00
$1.11
$0.00
$1.35
$0.00
$1.10
$0.00
$1.30
$0.00
$1.45
$0.00
$1.45
$0.00
14%
10%
15%
12%
15%
12%
16%
14%
15%
13%
16%
14%
17%
14%
17%
14%
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
Revenues
Total revenues
$1,269
$522
$327
$2,118
$1,438
$534
$315
$2,287
$1,637
$503
$357
$2,496
$1,943
$528
$467
$2,938
$1,705
$492
$234
$2,432
$1,903
$536
$202
$2,641
EBITDA
Corporate and Other
EBITDA
D&A
Operating Income
Net Interest Exp.
Pretax income
Taxes
Minority interest
Net income
$198
$123
$31
($43)
$310
($70)
$240
$26
$214
$40
NA
$173
$239
$119
$32
($53)
$337
($70)
$267
$25
$242
$45
NA
$196
$274
$108
$43
($56)
$369
($83)
$285
$23
$262
$61
$3
$198
$319
$114
$73
($61)
$445
($91)
$354
$26
$328
$74
$22
$232
$249
$106
$23
($40)
$338
($87)
$251
$32
$219
$52
$5
$163
Per Share Data

Diluted Earnings
Dividend
$0.70
$0.00
$0.79
$0.00
$0.81
$0.00
$1.00
$0.00
Margins Summary
EBITDA Margin
Operating Margin
15%
11%
15%
12%
15%
11%
15%
12%
98
October 14, 2014
Cameron Intl
2004
2005
2006
2007
2008
2009
2010
$227
425
554
$1,205
479
415
257
$2,356
$362
574
792
$1,728
526
577
268
$3,099
$1,034
696
1,178
$2,908
649
595
199
$4,351
$740
798
1,535
$3,072
821
648
190
$4,731
$1,621
950
1,485
$4,056
932
709
205
$5,902
$1,861
959
1,894
$4,714
1,192
1,442
377
$7,725
$1,833
1,056
2,044
$4,933
1,248
1,476
349
$8,005
$1,322
$1,703
$1,854
$1,929
$2,215
1,757
1,967
2,719
2,747
3,023
2,749
3,241
3,596
3,939
4,333
$5,829
$6,911
$8,169
$8,615
$9,571
1,500
1,765
2,037
1,558
1,857
1,615
1,924
2,925
2,704
2,704
418
559
1,118
1,091
1,091
$9,362 $11,158 $14,249 $13,968 $15,223

Short-Term Debt
$7
Accounts Payable & Accru
517
Accrued Property & Liabili
4
Current liabilities
$528
LT debt
458
Postretirement Benefits
43
(15)
Other
99
Total liabilities
$1,128
1,228
Total
$2,356
$7
892
24
$922
444
40
35
97
$1,504
1,595
$3,099
$207
1,365
56
$1,628
745
21
0
215
$2,609
1,741
$4,351
$9
1,677
7
$1,693
745
16
43
182
$2,636
2,095
$4,731
$162
1,854
96
$2,112
1,256
8
10
207
$3,583
2,320
$5,902
$22
2,208
66
$2,296
1,232
0
(36)
277
$3,806
3,920
$7,725
$520
2,016
38
$2,574
773
0
(19)
266
$3,613
4,392
$8,005
$11
$29
$297
$562
$562
2,670
3,046
3,883
3,780
4,159
0
94
80
108
119
$2,680
$3,169
$4,261
$4,450
$4,840
1,574
2,047
2,563
2,814
2,814
0
0
0
0
0
(22)
(85)
30
34
0
400
376
510
480
480
$4,654
$5,592
$7,333
$7,744
$8,134
4,707
5,566
6,915
6,224
7,089
$9,362 $11,158 $14,249 $13,968 $15,223
2007
2008
Assets
Cash & equivalents
Accounts receivable
Other
Current assets
PP&E
Goodwill
Other
Total assets
2011
2012
2013
2014E
2015E

2004
Net Income
Depreciation & Amortizat
Deferred Income Taxes
Other
Working Capital Chg
2005
2006
2009
2010
2012
$94
83
(15)
7
26
$195
$171
78
35
4
63
$352
$318
101
0
96
31
$547
$501
110
43
67
(269)
$452
$594
132
10
95
190
$988
$476
157
(36)
28
(11)
$613
Sale of PP&E
Acquisitions
Other
Cash from investing
($53)
(78)
(93)
32
($192)
($77)
0
(329)
5
($401)
($185)
0
(29)
17
($197)
($246)
(26)
(43)
2
($313)
($272)
4
(192)
0
($460)
($241)
4
11
0
($226)
Change in Debt
Change in Equity
Other
Cash flow financing
($5)
(92)
27
($71)
($2)
47
148
$193
$491
(194)
0
$297
($201)
(261)
15
($447)
$667
(262)
10
$415
($150)
(19)
(0)
($169)
($8)
(88)
10
($86)
$83
7
1
$91
$457
(9)
(4)
$445
Chg in cash
Beginning cash
Ending cash
($65)
273
$208
$135
208
$342
$672
342
$1,014
($294)
1,014
$720
$881
720
$1,602
$240
1,602
$1,842
($29)
1,842
$1,813
($934)
1,813
$879
$287
879
$1,166
99
$563
202
(19)
35
(486)
$294
2011
2013
2014E
2015E
$522
207
(22)
37
(535)
$209
$751
255
(85)
45
(282)
$683
$724
315
30
35
(266)
$838
$848
334
34
(91)
(634)
$491
$1,065
301
0
0
(280)
$1,086
($201)
($388)
0
20
(41)
(421)
12
(423)
($229) ($1,213)
($427)
28
(349)
(94)
($843)
($520)
884
(9)
127
$482
($478)
1,135
0
(11)
$647
($600)
0
0
0
($600)
$780
$259
(1,448)
(1,329)
1
3
($667) ($1,067)
$0
(200)
0
($200)
$627
1,166
$1,793
$75
1,793
$1,868
$286
1,868
$2,155
October 14, 2014
Carbo Ceramics
Investment Thesis
Carbo is repositioning itself as a production enhancement company, providing integrated solutions to optimize a
wells 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
Carbos 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 CRRs 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 companys 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.
100
October 14, 2014
Carbo Ceramics
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.
36x
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.
32x
28x
24x
20x
16x
CRR
12x
Niche Offshore Technology Providers
8x
'04
'05
'06
101
'07
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Carbo Ceramics
Revenues
EBITDA
2004
$233
$78
2005
$253
$84
2006
$312
$100
2007
$340
$99
2008
$388
$112
2009
$342
$104
2010
$473
$147
2011
$626
$234
2012
$646
$204
2013
$667
$172
2014E
$644
$158
2015E
$766
$177
Expenses
Floaters
G&A
Other
Operating income
Interest income
Other income
Pretax income
Taxes
Minority interest
Net income
($142)
(25)
232
$65
$1
0
$66
(25)
0
$42
($154)
(27)
251
$70
$2
0
$72
(25)
0
$47
($196)
(35)
312
$81
$2
1
$84
(30)
0
$54
($221)
(40)
339
$78
$0
3
$81
(28)
0
$54
($260)
(38)
385
$87
$0
1
$88
(28)
0
$60
($221)
(41)
342
$79
$0
(0)
$80
(27)
0
$53
($298)
(53)
471
$120
$0
(0)
$119
(41)
0
$79
($364)
(62)
624
$198
$0
(0)
$197
(67)
0
$130
($422)
(64)
645
$159
$0
(0)
$159
(52)
0
$107
($474)
(68)
667
$125
$1
(0)
$125
(40)
0
$85
($440)
(70)
619
$110
$0
0
$111
(36)
0
$74
($508)
(81)
717
$128
$0
0
$128
(42)
0
$86
Per Share Data

Diluted Earnings
Dividend
$1.73
$0.29
$1.93
$0.36
$2.22
$0.44
$2.20
$0.52
$2.47
$0.62
$2.28
$0.70
$3.43
$0.76
$5.65
$0.88
$4.64
$1.02
$3.70
$1.14
$3.23
$1.26
$3.75
$1.32
39%
33%
28%
39%
33%
28%
37%
32%
26%
35%
29%
23%
33%
29%
22%
35%
31%
23%
37%
31%
25%
42%
37%
32%
35%
32%
25%
29%
26%
19%
32%
25%
17%
34%
23%
17%
1,281
67
0
1,348
$0.322
1,477
128
0
1,605
$0.360
1,618
57
6
1,681
$0.343
1,719
241
100
2,060
$0.297
1,609
166
1,512
3,287
$0.196
1,853
141
3,856
5,851
$0.131
Margins Summary
Gross margins
EBITDA margins
Operating margins
Proppant Sales Volume (MM lbs)

Ceramic
Resin-Coated Sand
Northern White Sand
Total
Avg Selling Price
$0.277
102
$0.293
$0.320
$0.320
$0.322
$0.315
October 14, 2014
Carbo Ceramics
Revenues
EBITDA
1Q13
$148
$37
2013
2Q13
3Q13
$154
$201
$35
$56
4Q13
$165
$43
1Q14
$149
$39
2014
2Q14
3Q14E
$177
$150
$46
$34
4Q14E
$169
$39
1Q15E
$176
$41
2015
2Q15E
3Q15E
$187
$197
$43
$46
4Q15E
$206
$48
Expenses
Floaters
G&A
Other
Operating income
Interest income
Other income
Pretax income
Taxes
Minority interest
Net income
($105)
(17)
148
$25
$0
(0)
$26
(8)
0
$18
($114)
(15)
154
$24
$0
(0)
$24
(8)
0
$16
($139)
(19)
201
$44
$0
0
$44
(14)
0
$30
($116)
(17)
165
$31
$0
(0)
$31
(10)
0
$21
($104)
(17)
149
$27
$0
(0)
$28
(9)
0
$18
($123)
(19)
176
$34
$0
0
$34
(11)
0
$23
($100)
(16)
138
$22
$0
0
$22
(7)
0
$15
($113)
(18)
157
$27
$0
0
$27
(9)
0
$18
($117)
(19)
164
$28
$0
0
$28
(9)
0
$19
($124)
(20)
175
$31
$0
0
$31
(10)
0
$21
($130)
(21)
185
$33
$0
0
$33
(11)
0
$22
($136)
(22)
194
$35
$0
0
$35
(12)
0
$24
Per Share Data

Diluted Earnings
Dividend
$0.76
$0.27
$0.71
$0.27
$1.31
$0.30
$0.91
$0.30
$0.80
$0.30
$1.00
$0.30
$0.65
$0.33
$0.78
$0.33
$0.83
$0.33
$0.90
$0.33
$0.98
$0.33
$1.04
$0.33
29%
25%
17%
26%
23%
16%
31%
28%
22%
29%
26%
19%
30%
26%
18%
30%
26%
19%
33%
23%
15%
33%
23%
16%
34%
23%
16%
34%
23%
16%
34%
23%
17%
34%
23%
17%
Proppant Sales Volume (MM lbs)

Ceramic
398
Resin-Coated Sand
25
Northern White Sand
22
Total
445
Avg Selling Price
$0.302
378
68
11
457
$0.303
534
59
16
609
$0.306
409
89
51
549
$0.300
373
48
157
578
$0.238
454
43
271
768
$0.210
372
40
434
845
$0.177
410
36
650
1,096
$0.154
430
35
813
1,278
$0.138
451
35
935
1,422
$0.132
474
35
1,028
1,538
$0.128
498
35
1,080
1,613
$0.128
Margins Summary
Gross margins
EBITDA margins
Operating margins
103
October 14, 2014
Carbo Ceramics
2004
Assets
Cash & equivalents
Other
Current assets
PP&E
Goodwill
Other
Total assets
2005
$34
112
$146
125
22
4
$298

Current liabilities
$29
Deferred taxes
24
Stockholder Equity
244
Total
$298
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$20
129
$148
180
22
6
$356
$25
119
$144
232
22
7
$405
$12
132
$144
276
23
10
$453
$155
141
$296
245
5
4
$549
$70
149
$219
271
14
10
$513
$47
191
$238
338
13
10
$600
$41
261
$303
393
12
33
$741
$91
259
$350
426
12
21
$809
$94
277
$371
479
12
17
$879
$48
285
$333
561
12
17
$923
$73
285
$358
591
12
17
$979
$36
26
293
$356
$34
28
343
$405
$33
30
389
$453
$84
23
443
$549
$32
24
457
$513
$51
26
522
$600
$79
32
630
$741
$51
45
713
$809
$57
54
769
$879
$57
54
811
$923
$57
54
867
$979

2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
Net income
Depreciation
Other
Working Capital Chg
$42
12
5
2
3
$64
$47
14
1
2
(10)
$53
$54
20
1
1
(24)
$51
$54
21
(1)
(1)
(14)
$60
$110
25
(6)
(53)
(1)
$76
$53
25
1
1
(57)
$22
$79
28
3
5
(22)
$92
$130
36
4
5
(64)
$111
$106
45
11
5
(10)
$156
$85
47
10
6
(11)
$138
$74
48
2
4
(14)
$114
$86
49
0
0
0
$135
Capex
Acquisitions
Dispositions
Other
Cash from investing
($22)
0
0
(46)
($68)
($68)
0
0
4
($64)
($70)
0
0
34
($36)
($65)
(3)
0
6
($62)
($23)
0
142
141
$118
($46)
(23)
0
0
($69)
($97)
0
0
0
($96)
($90)
0
0
0
($90)
($77)
0
0
0
($77)
($100)
0
0
0
($100)
($125)
0
0
0
($125)
($80)
0
0
0
($80)
Chg in ST debt
Chg in LT debt
Dividend paid
Stock repurchases
Other
Cash flow financing
$0
0
(7)
0
6
($1)
$0
0
(9)
0
6
($3)
$0
0
(11)
0
1
($9)
$0
0
(13)
0
2
($11)
$0
0
(15)
(43)
7
($51)
$0
0
(16)
(23)
1
($38)
$0
0
(18)
(2)
1
($18)
$0
0
(20)
(8)
1
($26)
$0
0
(24)
(8)
1
($30)
$0
0
(26)
(7)
0
($33)
$0
0
(29)
(6)
0
($34)
$0
0
(30)
0
0
($30)
(0)
(0)
(0)
(0)
(1)
(1)
($5)
39
$34
($14)
34
$20
$5
20
$25
($13)
25
$12
$143
12
$155
($85)
155
$70
($23)
70
$47
($5)
47
$41
$49
41
$91
$4
91
$94
($46)
94
$48
$25
48
$73
FX and other
Chg in cash
Beginning cash
Ending cash
104
October 14, 2014
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 companys 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 megatrend 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 companys La Crosse,
Wisconsin E&C facility now capable of producing a standard LNG plant in just 12-16 months.
105
October 14, 2014
Chart Industries
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 Charts slightly higher capex ($70-80mm) to be funded from existing cash and cash from operation,
noting the companys 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.
31x
GTLS
27x
23x
19x
15x
11x
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.
7x
3x
'04
'05
'06
106
'07
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Chart Industries
2004
2005
2006
2007
2008
2009
2010
2012
2013
2014E
2015E
$205
390
199
0
$795
$324
476
215
0
$1,014
$319
593
266
0
$1,177
$370
611
258
0
$1,239
$416
687
276
0
$1,379
$31
77
60
60
$168
$59
109
82
82
$250
$99
137
69
69
$305
$89
169
94
94
$352
$104
178
88
88
$370
$118
201
95
95
$414
$62
40
16
1
$103
$6
42
35
5
$53
$27
61
41
7
$96
$65
81
29
(17)
$129
$60
94
43
(5)
$148
$68
98
31
(18)
$148
$76
119
40
(7)
$188
($19)
(3)
$110
(28)
(0)
$83
($17)
1
$86
(26)
(0)
$60
($18)
0
$36
(10)
(0)
$26
($20)
1
$77
(22)
(0)
$55
($17)
(1)
$110
(33)
(1)
$76
($18)
0
$131
(35)
(2)
$93
($18)
(1)
$130
(38)
(1)
$90
($18)
0
$170
(51)
(1)
$118
$2.00
$0.00
$2.85
$0.00
$2.08
$0.00
$0.87
$0.00
$1.85
$0.00
$2.53
$0.00
$2.92
$0.00
$2.90
$0.00
$3.80
$0.00
21%
33%
36%
29%
17%
23%
31%
34%
28%
17%
33%
30%
36%
32%
21%
37%
30%
37%
34%
19%
23%
29%
41%
30%
12%
29%
28%
41%
32%
14%
30%
29%
32%
30%
14%
28%
28%
35%
30%
14%
28%
29%
34%
30%
14%
28%
29%
34%
30%
15%
18%
21%
20%
16%
10%
20%
20%
12%
13%
21%
20%
14%
23%
19%
22%
18%
24%
16%
18%
17%
4%
16%
24%
10%
13%
16%
21%
12%
20%
17%
13%
13%
19%
16%
16%
13%
18%
16%
12%
12%
18%
17%
14%
14%
$393
1.3x
$198
237
76
$511
1.3x
$230
296
79
$606
1.1x
$408
325
94
$827
1.2x
$221
368
94
$683
0.9x
$76
209
93
$377
0.6x
$166
288
151
$605
1.1x
$392
436
204
$1,032
1.3x
$385
531
208
$1,125
1.1x
$295
720
256
$1,271
1.1x
$330
726
251
$1,306
1.1x
$350
795
270
$1,415
1.0x
$129
$148
80
6
$234
$208
105
6
$319
$359
107
9
$475
$266
126
7
$399
$88
88
10
$185
$116
109
12
$236
$303
169
16
$489
$365
228
24
$617
$342
363
23
$729
$302
473
17
$792
$236
581
11
$828
Revenues
Energy & Chemicals
Dist'n & Storage
BioMedical
Other
Total revenues
$70
163
73
0
$306
$121
209
73
0
$403
$191
268
78
0
$537
$254
323
90
0
$666
$313
336
96
0
$744
$255
247
90
0
$592
$138
268
148
0
$554
Gross Profit
Energy & Chemicals
Dist'n & Storage
BioMedical
Other
Total Gross Profit
$21
47
26
26
$94
$34
62
24
24
$119
$40
87
28
28
$155
$58
101
31
31
$190
$103
101
35
35
$239
$95
74
33
33
$202
Operating Income
Energy & Chemicals
Dist'n & Storage
BioMedical
Other
Operating Income
$37
$22
43
15
(2)
$63
$19
55
16
(7)
$67
$34
66
18
(7)
$93
$71
64
21
(1)
$133
Other Expenses
Interest Expense
Other
Pretax income
Taxes
Minority interest
Net income
($5)
0
$33
(10)
(0)
$23
($27)
0
$36
(14)
(0)
$22
($25)
0
$43
(13)
(0)
$29
($23)
(0)
$70
(15)
0
$55
Per Share Data

Diluted Earnings
Dividend
$4.10
$0.00
$0.85
$0.00
$1.13
$0.00
31%
29%
35%
31%
15%
28%
30%
32%
30%
18%
Margins Summary
Gross margins
Energy & Chem
Dist'n & Storage
BioMedical
Companywide
EBITDA margins
Operating margins
Energy & Chem
Dist'n & Storage
BioMedical
Companywide
Orders
Energy & Chemicals
Dist'n & Storage
BioMedical
Total Orders
Book-to-Bill
Backlog
Energy & Chemicals
Dist'n & Storage
BioMedical
Total Backlog
107
2011
October 14, 2014
Chart Industries
2013
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
Revenues
Energy & Chemicals
Dist'n & Storage
BioMedical
Other
Total revenues
$81
129
64
0
$274
$79
147
72
0
$298
$80
153
69
0
$302
$79
164
61
0
$304
$86
130
51
0
$266
$93
149
65
0
$307
$96
161
72
0
$329
$95
172
70
0
$337
$96
142
54
0
$293
$104
167
69
0
$340
$108
181
77
0
$367
$107
196
75
0
$378
Gross Profit
Energy & Chemicals
Dist'n & Storage
BioMedical
Other
Total Gross Profit
$21
37
22
22
$79
$23
42
25
25
$90
$22
43
24
24
$89
$24
47
23
23
$94
$25
36
16
16
$78
$25
46
22
22
$92
$26
46
25
25
$97
$28
50
25
25
$103
$28
40
18
18
$86
$28
52
24
24
$103
$30
52
27
27
$109
$32
57
26
26
$116
Operating Income
Energy & Chemicals
Dist'n & Storage
BioMedical
Other
Operating Income
$13
19
8
(4)
$29
$15
23
14
1
$40
$14
22
11
(0)
$37
$17
29
11
(3)
$43
$17
18
2
(12)
$23
$16
24
7
(4)
$36
$17
26
11
(1)
$42
$19
29
11
(1)
$47
$18
23
7
(5)
$37
$17
32
10
(2)
$47
$19
30
12
(0)
$49
$22
34
11
(0)
$55
Other Expenses
Interest Expense
Other
Pretax income
Taxes
Minority interest
Net income
($4)
(0)
$24
(7)
(1)
$16
($4)
(0)
$35
(10)
(1)
$25
($4)
0
$33
(7)
(0)
$25
($4)
0
$39
(11)
(1)
$27
($4)
(0)
$18
(5)
(0)
$13
($4)
(0)
$31
(9)
(0)
$22
($4)
0
$38
(11)
(0)
$26
($4)
0
$43
(13)
(0)
$30
($4)
0
$32
(10)
(0)
$22
($4)
0
$43
(13)
(0)
$29
($4)
0
$45
(13)
(0)
$31
($4)
0
$51
(15)
(0)
$35
Per Share Data

Diluted Earnings
Dividend
$0.54
$0.00
$0.79
$0.00
$0.76
$0.00
$0.82
$0.00
$0.41
$0.00
$0.70
$0.00
$0.84
$0.00
$0.96
$0.00
$0.72
$0.00
$0.95
$0.00
$1.00
$0.00
$1.13
$0.00
26%
28%
34%
29%
12%
29%
28%
35%
30%
15%
27%
28%
35%
29%
14%
30%
29%
38%
31%
16%
29%
28%
33%
29%
11%
26%
31%
34%
30%
14%
27%
28%
35%
30%
15%
30%
29%
35%
31%
16%
29%
28%
33%
29%
15%
27%
31%
34%
30%
16%
28%
29%
35%
30%
15%
30%
29%
35%
31%
16%
16%
15%
12%
10%
19%
16%
19%
13%
18%
15%
16%
12%
22%
17%
18%
14%
19%
14%
5%
9%
17%
16%
11%
12%
17%
16%
15%
13%
20%
17%
15%
14%
19%
16%
13%
13%
17%
19%
14%
14%
18%
17%
15%
13%
20%
17%
15%
15%
Orders
Energy & Chemicals
Dist'n & Storage
BioMedical
Total Orders
Book-to-Bill
$39
133
72
$244
0.9x
$78
222
70
$370
1.2x
$93
219
58
$370
1.2x
$85
146
56
$287
0.9x
$65
143
55
$263
1.0x
$57
163
61
$281
0.9x
$110
210
65
$385
1.2x
$98
210
70
$378
1.1x
$75
155
60
$290
1.0x
$85
180
65
$330
1.0x
$100
230
70
$400
1.1x
$90
230
75
$395
1.0x
Backlog
Energy & Chemicals
Dist'n & Storage
BioMedical
Total Backlog
$323
231
33
$587
$323
310
31
$664
$336
380
27
$743
$342
363
23
$729
$321
372
28
$722
$285
385
25
$695
$299
435
17
$751
$302
473
17
$792
$281
485
23
$789
$262
498
19
$779
$253
547
11
$812
$236
581
11
$828
Margins Summary
Gross margins
Energy & Chem
Dist'n & Storage
BioMedical
Companywide
EBITDA margins
Operating margins
Energy & Chem
Dist'n & Storage
BioMedical
Companywide
108
October 14, 2014
Chart Industries
2004
Assets
Cash & equivalents
Accounts receivable
Other
Current assets
PP&E
Goodwill
Other
Total assets
2005
$15
46
79
$139
42
75
51
$307

Current maturities
$15
Accounts payable
27
Other
34
Current liabilities
$76
LT debt
76
Other
39
Total liabilities
$191
Minority interest
0
Common stock
116
Total
$307
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$11
62
93
$167
64
237
168
$636
$19
77
135
$231
86
247
161
$725
$93
97
139
$329
100
248
149
$826
$122
92
191
$405
102
262
141
$909
$211
78
126
$414
111
265
136
$927
$165
95
146
$406
116
275
157
$955
$257
132
209
$598
137
289
151
$1,174
$141
150
265
$556
170
399
203
$1,328
$137
224
288
$649
224
399
189
$1,462
$143
219
342
$704
267
407
189
$1,566
$189
246
384
$818
302
407
189
$1,717
$21
30
47
$98
345
76
$519
0
116
$636
$1
48
90
$138
290
76
$504
0
220
$724
$0
65
110
$175
250
73
$498
0
328
$826
$1
45
148
$194
242
68
$504
0
405
$909
$0
38
106
$144
242
62
$448
0
478
$927
$0
64
101
$165
242
64
$471
0
501
$972
$11
84
170
$265
242
72
$580
0
614
$1,193
$4
101
169
$274
242
102
$618
0
710
$1,328
$4
102
394
$499
242
79
$821
0
641
$1,462
$0
120
151
$270
242
80
$593
0
973
$1,566
$0
134
169
$303
242
80
$625
0
1,091
$1,717
2011
2012
2013
2014E
2015E

2004
2005
2006
2007
2008
2009
2010
Net income
Depreciation
Stock Option Expense
Other
Working Capital Chg
$23
8
0
6
(2)
$35
$8
11
0
18
(7)
$30
$27
22
2
(6)
(9)
$36
$44
19
9
(5)
16
$83
$79
21
3
(10)
5
$98
$61
21
3
(5)
6
$87
$21
21
4
7
(21)
$31
$44
28
5
11
(7)
$82
$72
32
7
11
(35)
$88
$87
40
10
11
(89)
$60
$89
41
6
5
(49)
$91
$118
44
0
0
(36)
$126
Capex
Asset sales
Acquisitions
Other
Cash from investing
($9)
6
0
0
($3)
($17)
2
(12)
(356)
($383)
($22)
0
(16)
(0)
($39)
($19)
2
0
(2)
($19)
($14)
0
(19)
(33)
($66)
($13)
0
(18)
30
($1)
($17)
0
(9)
(0)
($27)
($22)
0
(38)
0
($60)
($44)
2
(182)
(0)
($224)
($73)
1
(3)
0
($75)
($75)
2
(12)
0
($85)
($80)
0
0
0
($80)
Change in Equity
Change in Debt
Other
Cash flow financing
$0
(36)
(0)
($36)
$2
349
0
$350
$217
(57)
(150)
$9
$43
(41)
5
$7
$0
(7)
3
($4)
$1
0
0
$1
$0
(17)
(3)
($19)
($11)
80
(2)
$68
($1)
12
6
$17
$3
(1)
5
$8
($3)
3
(0)
($0)
$0
0
0
$0
(1)
(1)
($4)
19
$15
($3)
15
$11
$8
11
$19
$74
19
$93
$30
93
$123
$89
123
$212
($14)
212
$198
$92
198
$290
($115)
290
$175
($4)
175
$170
$5
170
$176
$46
176
$222
FX and other
Chg in cash
Beginning cash
Ending cash
109
October 14, 2014
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 HELIs main
competitive disadvantages is its balance sheet. High levels of rental and interest expenses hamper HELIs 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 companys 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 HELIs 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
HELIs 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.
110
October 14, 2014
CHC Helicopter
HELIs 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.
9x
8x
7x
6x
HELI current trades at 6.8x, a
4% premium to the group's
6.5x average.
5x
HELI
Offshore Technology
4x
'06
'07
111
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
CHC Helicopter
2012
2013
2014E
2015E
2016E
$1,407
115
$1,530
166
166
445
$1,574
$1,689
$328
355
271
311
167
9
$1,440
164
$1,609
140
140
427
$1,580
$1,744
$344
379
249
309
167
5
$1,453
165
$1,618
147
147
307
$1,600
$1,765
$374
432
265
294
177
7
$1,548
198
$1,746
189
189
304
$1,737
$1,935
$416
478
289
318
184
7
$1,692
198
$1,890
235
235
494
$1,926
$2,124
EBITDAR
Heli-Services Costs
($1,123)
Earnings from Equity Investm
3
Heli-Services EBITDAR
$410
Heli-One Costs
(353)
Heli-One EBITDAR
$92
G&A
(72)
Corporate & Other
(6)
Inter-segment/Equity Costs
(3)
Adjusted EBITDAR
$421
Rent Expense
(177)
EBITDA
$244
Depreciation
113
Other
(14)
EBIT
$99
Interest Expense
(117)
Other
(13)
Pre-Tax Income
($31)
Tax Expense
(48)
Non-Controlling Interest
(12)
Net Income available to CHC
($91)
($1,141)
5
$473
(335)
$91
(75)
0
(2)
$486
(202)
$285
132
(36)
$96
(127)
(30)
($61)
(54)
(3)
($118)
($1,111)
7
$514
(278)
$29
(95)
0
(3)
$445
(228)
$217
145
(106)
$39
(153)
4
($111)
(28)
(7)
($146)
($1,211)
11
$546
(246)
$58
(83)
(5)
(0)
$516
(268)
$248
139
(30)
$109
(160)
(1)
($52)
(36)
(31)
($119)
($1,253)
11
$647
(371)
$123
(90)
(11)
(16)
$653
(283)
$370
154
61
$216
(166)
0
$49
(50)
(31)
($32)
($1.18)
$0.00
($1.53)
$0.00
($1.89)
$0.00
($1.48)
$0.00
($0.39)
$0.00
29%
21%
25%
14%
33%
21%
28%
16%
35%
10%
25%
12%
35%
19%
27%
13%
38%
25%
31%
17%
Revenues
Eastern North Sea
Western North Sea
Americas
Asia-Pacific
Africa Euro-Asia
Fleet, Corp. & Other
Heli-Services
Reimbursables Rev
Heli-Services Gross Revenue
Heli-One 3rd Party Revenue
Internal Revenue
Heli-One Gross Revenue
Total Operating Revenue
Total Revenue
Per Share Data

Diluted Earnings
Dividend
Margins Summary
Heli-Service EBITDAR Margin
Heli-One EBITDAR Margin
Firmwide EBITDAR Margin
EBITDA Margin
112
October 14, 2014
CHC Helicopter
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
1Q16E
2016
2Q16E
3Q16E
4Q16E
Revenues
Eastern North Sea
Western North Sea
Americas
Asia-Pacific
Africa Euro-Asia
Fleet, Corp. & Other
Heli-Services Operating Reve
Reimbursables Rev
Heli-Services Gross Revenue
Heli-One 3rd Party Revenue
Internal Revenue
Heli-One Gross Revenue
Total Operating Revenue
Total Revenue
$84
90
52
76
42
1
$345
42
$387
28
37
65
$373
$415
$87
93
65
78
43
1
$368
40
$408
35
43
79
$403
$443
$85
97
69
81
43
1
$375
42
$417
37
33
70
$412
$454
$87
99
62
74
39
2
$364
41
$405
48
46
94
$412
$453
$93
107
66
73
44
2
$384
40
$424
37
24
61
$421
$461
$93
108
66
73
44
2
$386
53
$439
42
31
73
$428
$481
$94
108
66
74
44
2
$388
53
$441
48
30
78
$436
$489
$94
109
67
74
44
2
$390
53
$443
62
30
92
$452
$505
$98
113
67
75
45
2
$399
54
$454
46
45
92
$445
$500
$102
117
71
78
46
2
$415
46
$461
53
69
122
$468
$514
$106
122
74
81
46
2
$431
48
$479
60
71
131
$490
$538
$111
126
77
84
47
2
$447
50
$497
76
74
150
$523
$573
EBITDAR
Heli-Services Costs
Earnings from Equity Investm
Heli-Services EBITDAR
Heli-One Costs
Heli-One EBITDAR
G&A
Corporate & Other
Inter-segment/Equity Costs
Adjusted EBITDAR
Rent Expense
EBITDA
Depreciation
Other
EBIT
Interest Expense
Other
Pre-Tax Income
Tax Expense
Non-Controlling Interest
Net Income available to CHC
($264)
2
$126
(61)
$4
(18)
0
(1)
$111
(55)
$56
32
(16)
$16
(39)
(7)
($30)
(5)
(3)
($38)
($289)
2
$120
(70)
$8
(21)
0
(1)
$108
(55)
$53
39
(43)
($4)
(39)
(2)
($45)
(5)
0
($50)
($291)
2
$128
(64)
$6
(39)
0
(0)
$95
(56)
$39
35
(32)
$3
(40)
(4)
($40)
(7)
(2)
($49)
($267)
1
$140
(83)
$10
(17)
0
(2)
$131
(61)
$70
38
(15)
$24
(36)
16
$4
(11)
(3)
($9)
($300)
3
$127
(56)
$5
(20)
0
(0)
$112
(63)
$49
34
(19)
$15
(35)
(1)
($21)
(8)
(8)
($37)
($306)
3
$135
(60)
$13
(21)
0
(0)
$128
(68)
$59
34
(9)
$25
(42)
0
($17)
(8)
(8)
($33)
($304)
3
$140
(60)
$18
(21)
(2)
(0)
$134
(68)
$66
35
(4)
$31
(42)
0
($11)
(9)
(8)
($28)
($301)
3
$144
(70)
$22
(22)
(2)
(0)
$142
(68)
$74
36
2
$38
(42)
0
($4)
(10)
(8)
($22)
($303)
3
$154
(69)
$22
(21)
(2)
(4)
$149
(68)
$80
36
9
$45
(42)
0
$3
(11)
(8)
($15)
($305)
3
$159
(91)
$30
(23)
(3)
(4)
$160
(70)
$90
37
15
$52
(42)
0
$11
(12)
(8)
($9)
($318)
3
$164
(98)
$33
(22)
(3)
(4)
$168
(72)
$96
39
18
$57
(42)
0
$15
(13)
(8)
($5)
($328)
3
$171
(113)
$37
(24)
(3)
(4)
$177
(73)
$104
42
20
$62
(42)
0
$20
(14)
(8)
($2)
Per Share Data

Diluted Earnings
Dividend
($0.49)
$0.00
($0.64)
$0.00
($0.63)
$0.00
($0.12)
$0.00
($0.46)
$0.00
($0.41)
$0.00
($0.34)
$0.00
($0.27)
$0.00
($0.19)
$0.00
($0.12)
$0.00
($0.07)
$0.00
($0.02)
$0.00
36%
6%
27%
14%
33%
11%
24%
12%
34%
9%
21%
9%
38%
11%
29%
15%
33%
9%
24%
11%
35%
18%
27%
12%
36%
23%
27%
14%
37%
24%
28%
15%
39%
25%
30%
16%
38%
25%
31%
17%
38%
26%
31%
18%
38%
25%
31%
18%
Margins Summary
Heli-Service EBITDAR Margin
Heli-One EBITDAR Margin
Firmwide EBITDAR Margin
EBITDA Margin
113
October 14, 2014
CHC Helicopter
2012
Assets
Cash & equivalents
Accounts receivable
Inventories
Other
Current assets
PP&E
Investments
Goodwill & Intangibles
Other
Total assets
2013
2014E
2015E
2016E
$56
266
90
84
$495
1,027
24
652
(134)
$2,716
$124
317
106
104
$651
1,075
27
628
(117)
$2,893
$303
292
131
105
$831
1,051
31
610
(29)
$3,104
$228
331
142
115
$816
1,158
33
602
(14)
$3,198
$105
356
141
124
$726
1,280
33
602
(3)
$3,240

Accounts Payable
$363
Accrued & Other
44
Other
122
Current liabilities
$529
LT debt
1,269
20
Other
235
Total liabilities
$2,054
662
Total
$2,716
$419
48
107
$574
1,475
11
302
$2,362
531
$2,893
$355
42
152
$550
1,546
11
369
$2,475
629
$3,104
$352
44
119
$514
1,846
11
375
$2,745
495
$3,241
$367
44
119
$529
1,846
11
403
$2,789
495
$3,283
2015E
2016E

2012
Net Income
Other
Working Capital Chg
2013
2014E
($95)
113
20
(23)
$16
($116)
132
31
(48)
($1)
($171)
145
36
3
$12
($93)
139
(3)
(88)
($45)
($1)
154
17
(18)
$153
Dispositions
Other
Cash from investing
($377)
218
(59)
($218)
($428)
353
(75)
($150)
($647)
618
(112)
($141)
($504)
277
(43)
($270)
($504)
277
(50)
($277)
Change in Debt
Change in Equity
Dividends to parent
Other
Cash flow financing
$81
100
0
26
$207
$193
25
0
3
$221
$170
318
(25)
(140)
$323
$364
0
0
(123)
$241
$0
0
0
0
$0
FX and other
($19)
($2)
($16)
($0)
$0
Chg in cash
Beginning cash
Ending cash
($13)
69
$56
$68
56
$124
$179
124
$302
($74)
302
$228
($124)
228
$105
114
October 14, 2014
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 segments 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 companys reservoir description business. We
also believe the shale revolution provides a strong backlog of future work for CLBs 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 aint 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.
115
October 14, 2014
Core Laboratories
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.
32x
28x
24x
20x
16x
12x
CLB current trades at 21.2x, a

15.3x average but in line with
its historical average.
CLB
8x
'04
'05
'06
116
'07
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Core Laboratories
2004
Revenues
Canada
United States
Russia
Total revenues
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$259
147
21
$427
$281
176
27
$483
$315
223
38
$576
$374
245
51
$671
$435
293
52
$781
$415
231
50
$696
$426
314
55
$795
$470
371
66
$908
$496
404
82
$981
$522
452
99
$1,074
$528
471
107
$1,106
$578
521
113
$1,211
Expenses
Total Operating Exp.
EBITDA
D&A
Operating Income
Interest Expense
Other Income
Pretax income
Taxes
Minority interest
Net income
$361
$67
(17)
$49
(8)
0
$41
11
0
$30
$393
$91
(16)
$74
(8)
0
$66
20
1
$46
$435
$141
(17)
$124
(6)
0
$118
35
1
$83
$478
$193
(19)
$174
(2)
0
$171
52
1
$119
$539
$241
(22)
$220
(1)
0
$218
71
0
$147
$487
$209
(24)
$185
(16)
0
$170
54
0
$116
$543
$252
(23)
$229
(17)
0
$212
64
0
$148
$624
$284
(23)
$261
(10)
(0)
$251
68
0
$183
$663
$318
(23)
$295
(9)
0
$286
72
6
$214
$714
$360
(24)
$336
(9)
0
$327
82
9
$245
$725
$381
(26)
$355
(12)
0
$343
79
0
$263
$770
$441
(30)
$411
(14)
0
$398
95
0
$302
Per Share Data

Diluted Earnings
Dividend
$0.53
$0.00
$0.82
$0.00
$1.54
$0.00
$2.44
$0.00
$3.07
$0.58
$2.48
$0.57
$3.07
$0.82
$3.78
$0.95
$4.50
$1.11
$5.32
$1.28
$5.92
$2.00
$7.03
$2.00
12%
16%
10%
15%
19%
14%
21%
24%
20%
26%
29%
26%
28%
31%
28%
27%
30%
24%
29%
32%
27%
29%
31%
28%
30%
32%
29%
31%
34%
30%
32%
34%
31%
34%
36%
33%
Margins Summary
Total Operating Margin
EBITDA Margin
Pretax Margin
117
October 14, 2014
Core Laboratories
2013
1Q13
Revenues
Canada
United States
Russia
Total revenues
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$125
107
28
$261
$129
110
24
$263
$132
120
22
$273
$136
115
25
$276
$125
110
27
$263
$131
111
26
$268
$133
125
27
$285
$139
124
27
$290
$141
121
29
$291
$144
125
27
$296
$143
138
28
$309
$150
136
29
$315
Expenses
Total Operating Exp.
EBITDA
D&A
Operating Income
Interest Expense
Other Income
Pretax income
Taxes
Minority interest
Net income
$176
$85
6
$79
(2)
0
$77
20
6
$57
$174
$89
6
$84
(2)
0
$81
20
6
$61
$181
$92
7
$85
(2)
0
$83
21
6
$62
$183
$94
5
$88
(2)
0
$86
21
9
$65
$172
$91
7
$84
(2)
0
$82
20
5
$62
$178
$89
6
$83
(3)
0
$80
17
0
$63
$187
$98
6
$92
(3)
0
$89
20
0
$68
$188
$102
7
$96
(3)
0
$92
22
0
$70
$186
$105
7
$98
(3)
0
$95
23
0
$72
$188
$108
7
$100
(3)
0
$97
23
0
$74
$196
$113
8
$106
(3)
0
$102
25
0
$78
$200
$115
8
$107
(3)
0
$104
25
0
$79
Per Share Data

Diluted Earnings
Dividend
$1.22
$0.32
$1.32
$0.32
$1.36
$0.32
$1.43
$0.32
$1.38
$0.50
$1.40
$0.50
$1.55
$0.50
$1.60
$0.50
$1.66
$0.50
$1.70
$0.50
$1.81
$0.50
$1.85
$0.50
30%
33%
29%
32%
34%
31%
31%
34%
30%
32%
34%
31%
32%
35%
31%
31%
33%
30%
32%
34%
31%
33%
35%
32%
34%
36%
33%
34%
36%
33%
34%
37%
33%
34%
36%
33%
Margins Summary
EBITDA Margin
Operating Margin
118
October 14, 2014
Core Laboratories
2004
Assets
Cash & equivalents
Accounts receivable
Inventories
Other
Current assets
PP&E
Goodwill
Total assets
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$16
95
29
11
$152
80
157
0
$389
$14
99
29
11
$153
81
139
21
$395
$54
112
30
29
$226
88
139
49
$501
$26
137
29
28
$221
93
146
45
$505
$36
144
35
27
$242
103
192
0
$538
$181
134
32
44
$391
99
169
0
$658
$134
155
34
27
$349
104
182
0
$636
$29
171
53
27
$281
115
171
38
$605
$19
185
49
44
$297
125
172
42
$637
$25
201
47
31
$304
139
174
44
$661
$56
206
50
26
$338
158
175
48
$719
$93
224
54
28
$399
184
175
48
$807

Short-Term Debt
$0
Accounts Payable
29
Other
38
Current liabilities
$67
LT debt
111
Minority Interest
0
Other
21
Total liabilities
199
190
Total
$389
$0
33
34
$67
89
1
26
183
212
$395
$0
37
49
$86
303
1
42
432
69
$501
$0
40
55
$95
300
1
46
443
62
$505
$0
42
54
$96
239
0
45
379
158
$538
$0
33
73
$106
209
0
61
376
282
$658
$148
45
(60)
$132
0
0
212
343
293
$636
$2
58
75
$135
223
0
65
423
182
$605
$0
55
85
$141
234
6
74
454
182
$637
$0
51
85
$136
267
9
80
492
169
$661
$0
59
90
$148
383
0
88
619
100
$719
$0
64
97
$161
408
0
91
660
146
$807

2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
Net Income
Depreciation
Other
Working Capital Chg
$28
17
5
4
$54
$31
16
19
8
$75
$83
17
14
7
$120
$121
19
2
(17)
$126
$144
22
2
(12)
$155
$114
24
20
24
$182
$145
23
15
22
$206
$185
23
16
(20)
$204
$217
23
21
(23)
$237
$243
24
31
(0)
$298
$264
26
6
14
$309
$302
30
0
(8)
$324
Sale of PP&E
Other
Cash from investing
($11)
1
15
$6
($19)
4
(1)
($16)
($24)
3
(2)
($24)
($24)
14
(10)
($20)
($31)
4
(14)
($41)
($17)
1
(2)
($19)
($28)
1
(12)
($39)
($30)
1
(23)
($52)
($31)
1
(4)
($34)
($35)
1
(9)
($43)
($34)
1
(4)
($38)
($26)
0
0
($26)
Change in Debt
Change in Equity
Dividends
Other
Cash flow financing
($17)
(43)
0
(0)
($60)
($27)
(33)
0
(0)
($61)
$211
(236)
0
(31)
($56)
$0
(163)
0
29
($134)
($56)
(20)
(28)
0
($104)
$0
(9)
(27)
17
($18)
($82)
(92)
(40)
(0)
($214)
$69
(280)
(46)
1
($257)
$9
2
(53)
(171)
($213)
$22
(196)
(59)
3
($230)
$116
(269)
(89)
1
($241)
$25
(200)
(86)
0
($261)
$0
17
$17
($2)
16
$14
$40
14
$54
($29)
54
$26
$11
26
$36
$145
36
$181
($47)
181
$134
($105)
134
$29
($10)
29
$19
$25
19
$44
$31
44
$74
$37
74
$112
Chg in cash
Beginning cash
Ending cash
119
October 14, 2014
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.
120
October 14, 2014
Diamond Offshore
Diamond surprised the market but swapping the Ocean BlackRhino for the remainder of the Ocean
Confidences 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 ultradeepwater 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.
DO current trades at 4.8x, a -20%
discount to the group's 5.8x
historical 6.0x.
10x
9x
8x
7x
6x
5x
DO
4x
Offshore Drillers
3x
'06
'07
121
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Diamond Offshore
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
Revenues
Floaters
Jackups
Reimbursables
Other
Total revenues
$906
272
$1,179
42
0
$1,221
$1,552
435
$1,987
65
0
$2,053
$2,060
446
$2,506
62
0
$2,568
$2,951
525
$3,476
68
0
$3,544
$3,079
457
$3,537
95
0
$3,631
$2,962
268
$3,230
93
0
$3,323
$3,057
198
$3,254
68
0
$3,322
$2,776
161
$2,936
50
0
$2,987
$2,717
174
$2,891
77
0
$2,967
$2,531
174
$2,704
152
0
$2,857
$2,865
166
$3,031
171
0
$3,202
Expenses
Floaters
Jackups
Reimbursables
Other
Operating costs
G&A
EBITDA
D&A
Other
Operating income
Interest income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
($505)
(124)
($628)
(36)
(10)
($674)
(37)
$510
($184)
0
$326
$26
(37)
(2)
$313
(80)
0
$233
Per Share Data

Diluted Earnings
Dividend
Margins Summary
Gross margins
Floaters
Jackups
Companywide
EBITDA margins
Operating margins
122
($627)
($807)
($950)
($965) ($1,181) ($1,357) ($1,401) ($1,411) ($2,855) ($1,578)
(159)
(185)
(225)
(236)
(185)
(170)
(107)
(115)
(98)
(84)
($787)
($991) ($1,175) ($1,201) ($1,366) ($1,527) ($1,508) ($1,526) ($3,003) ($1,712)
(57)
(53)
(64)
(93)
(91)
(66)
(49)
(75)
(151)
(169)
(25)
(20)
(12)
(23)
(19)
(22)
(29)
(46)
1,411
0
($870) ($1,064) ($1,251) ($1,317) ($1,476) ($1,615) ($1,585) ($1,647) ($1,743) ($1,881)
(42)
(53)
(60)
(63)
(67)
(65)
(65)
(63)
(82)
(90)
$1,141
$1,450
$2,233
$2,252
$1,780
$1,643
$1,337
$1,257
$1,032
$1,230
($201)
($235)
($287)
($346)
($393)
($399)
($393)
($388)
($449)
($526)
(0)
(0)
0
0
0
0
0
0
0
0
$941
$1,215
$1,946
$1,905
$1,387
$1,244
$944
$869
$583
$704
$38
$34
$12
$4
$3
$7
$5
$1
$1
$0
(24)
(19)
(10)
(50)
(91)
(73)
(46)
(25)
(75)
(83)
12
9
(21)
8
5
(10)
(3)
(3)
(9)
(11)
$967
$1,238
$1,927
$1,868
$1,304
$1,168
$899
$842
$499
$610
(260)
(339)
(561)
(492)
(370)
(246)
(207)
(178)
(93)
(132)
0
0
0
0
0
0
0
0
0
0
$707
$899
$1,367
$1,376
$934
$922
$692
$663
$406
$478
$1.69
$0.37
$5.10
$2.00
$6.47
$5.84
$9.83
$6.13
$9.89
$8.02
$6.72
$5.27
$6.63
$3.50
$4.98
$3.50
$4.77
$3.50
$2.95
$3.50
$3.45
$3.50
44%
54%
45%
42%
27%
60%
63%
58%
56%
46%
61%
59%
59%
56%
47%
68%
57%
65%
63%
55%
69%
48%
64%
62%
52%
60%
31%
56%
54%
42%
56%
14%
51%
49%
37%
50%
34%
47%
45%
32%
48%
34%
44%
42%
29%
43%
43%
39%
36%
20%
45%
50%
41%
38%
22%
October 14, 2014
Diamond Offshore
2013
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
Revenues
Floaters
Jackups
Reimbursables
Other
Total revenues
$661
39
$700
30
0
$730
$704
41
$745
13
0
$758
$710
51
$761
15
0
$776
$642
43
$685
19
0
$703
$638
47
$685
24
0
$709
$604
45
$650
43
0
$692
$643
40
$683
43
0
$726
$646
41
$687
43
0
$729
$653
41
$694
43
0
$737
$713
41
$755
43
0
$797
$749
42
$791
43
0
$834
$749
42
$791
43
0
$834
Expenses
Floaters
Jackups
Reimbursables
Other
Operating costs
G&A
EBITDA
D&A
Other
Operating income
Interest income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
($336)
(30)
($366)
(29)
(10)
($404)
(17)
$309
($97)
0
$212
$1
(8)
(0)
$204
(29)
0
$175
($328)
(27)
($355)
(13)
(14)
($382)
(16)
$360
($97)
0
$263
$0
(8)
1
$256
(71)
0
$185
($380)
(29)
($409)
(15)
(11)
($434)
(15)
$327
($97)
0
$230
$0
(2)
(4)
$224
(54)
0
$170
($368)
(29)
($397)
(18)
(12)
($427)
(15)
$262
($97)
0
$165
($0)
(7)
(0)
$157
(24)
0
$134
($330)
(28)
($370)
(24)
0
($393)
(23)
$293
($107)
0
$186
$0
(18)
(1)
$168
(22)
0
$146
($353)
(30)
($395)
(42)
0
($438)
(20)
$234
($109)
0
$125
$0
(19)
(3)
$104
(21)
0
$83
($379)
(20)
($412)
(42)
0
($454)
(19)
$253
($114)
0
$139
$0
(19)
(3)
$117
(26)
0
$91
($383)
(20)
($416)
(42)
0
($458)
(20)
$251
($119)
0
$132
$0
(20)
(3)
$110
(24)
0
$86
($382)
(20)
($415)
(42)
0
($457)
(21)
$259
($124)
0
$135
$0
(20)
(3)
$112
(24)
0
$88
($394)
(21)
($427)
(42)
0
($470)
(22)
$306
($129)
0
$177
$0
(21)
(3)
$153
(33)
0
$120
($400)
(21)
($434)
(42)
0
($476)
(23)
$335
($134)
0
$201
$0
(21)
(3)
$177
(38)
0
$138
($402)
(21)
($436)
(42)
0
($478)
(24)
$331
($139)
0
$192
$0
(22)
(3)
$168
(36)
0
$132
$1.26
$0.88
$1.33
$0.88
$1.22
$0.88
$0.96
$0.88
$1.05
$0.88
$0.61
$0.88
$0.66
$0.88
$0.62
$0.88
$0.64
$0.88
$0.87
$0.88
$1.00
$0.88
$0.95
$0.88
49%
24%
45%
42%
29%
53%
33%
50%
47%
35%
46%
44%
44%
42%
30%
43%
32%
39%
37%
23%
48%
40%
45%
41%
26%
42%
34%
37%
34%
18%
41%
50%
37%
35%
19%
41%
50%
37%
34%
18%
42%
51%
38%
35%
18%
45%
50%
41%
38%
22%
47%
49%
43%
40%
24%
46%
49%
43%
40%
23%
Per Share Data

Diluted Earnings
Dividend
Margins Summary
Gross margins
Floaters
Jackups
Companywide
EBITDA margins
Operating margins
123
October 14, 2014
Diamond Offshore
2005
2006
2007
2008
2009
2010
2011
2012
2013
Assets
Cash & equivalents
Accounts receivable
Other
Current assets
PPE
Goodwill
Other
Total assets
2014E
2015E
$843
357
82
$1,282
2,302
0
23
$3,607
$525
567
389
$1,482
2,628
0
23
$4,133
$638
523
104
$1,265
3,040
0
36
$4,341
$336
575
556
$1,467
3,399
0
73
$4,939
$376
791
556
$1,723
4,432
0
109
$6,264
$464
610
789
$1,863
4,284
0
580
$6,727
$334
564
1,095
$1,993
4,667
0
304
$6,964
$335
500
1,298
$2,133
4,865
0
237
$7,235
$347
469
1,902
$2,718
5,467
0
206
$8,391
($150)
574
562
$986
6,967
0
229
$8,182
($1,568)
656
592
($320)
8,413
0
228
$8,322

Accounts payable
Accrued liabilities
Taxes payable
Other
Current liabilities
LT debt
Deferred taxes
Total liabilities
Common stock
Total
$61
169
39
0
$269
978
445
62
$1,754
0
1,853
$3,607
$122
185
27
0
$334
964
448
67
$1,813
0
2,320
$4,133
$132
236
82
0
$449
507
398
111
$1,464
0
2,877
$4,341
$509
0
0
0
$509
503
459
119
$1,590
0
3,349
$4,939
$75
302
32
4
$413
1,495
546
179
$2,634
0
3,631
$6,264
$0
626
0
0
$626
1,496
542
201
$2,865
0
3,862
$6,727
$0
427
0
0
$427
1,496
537
171
$2,631
0
4,333
$6,964
$0
486
0
0
$486
1,496
491
186
$2,659
0
4,576
$7,235
$0
496
0
0
$496
2,494
526
239
$3,754
0
4,637
$8,391
$0
437
0
0
$437
2,494
534
237
$3,702
0
4,480
$8,182
$132
456
0
0
$589
2,494
534
237
$3,854
0
4,468
$8,322
2007
2008
2009
2010
2011
2012
2013
2014E
2015E

2005
2006
Net income
Depreciation
Other
Working Capital Chg
$260
184
65
(40)
(81)
$389
$707
201
2
(12)
(137)
$760
Capex
Acquisitions
Sale (purchase) of securities
Securities repurchased
Other
Cash from investing
($294)
77
666
1
0
$450
($551)
5
(285)
5
3
($824)
($647)
($667)
($412)
11
6
(910)
313
(395)
0
8
(17)
(28)
0
0
0
($315) ($1,073) ($1,350)
($434)
($775)
188
6
(210)
(292)
0
0
0
0
($456) ($1,061)
($702)
($958)
138
5
(252)
4,650
0
(5,249)
0
0
($816) ($1,552)
($212)
0
12
(48)
(13)
($262)
$0
0
5
(258)
(1)
($254)
$0
0
16
(796)
0
($780)
$0
0
3
(852)
(0)
($849)
$987
0
0
(1,115)
2
($126)
($4)
0
0
(734)
0
($738)
$0
0
0
(490)
0
($490)
$0
0
0
(490)
(4)
($494)
$998
0
0
(490)
(10)
$498
$0
0
(91)
(485)
(0)
($576)
$1,600
0
(6)
(485)
1
$1,110
$577
266
$843
($318)
843
$525
$113
525
$638
($302)
638
$336
$40
336
$376
$88
376
$464
($131)
464
$334
$2
334
$335
$12
335
$347
($147)
347
$200
$182
200
$382
Chg in LT debt
Preferred issuance (redemption)
Common issuance (redemption)
Dividend paid
Other
Cash flow financing
Chg in cash
Beginning cash
Ending cash
124
$847
235
1
(12)
138
$1,208
$1,311
287
66
(6)
(39)
$1,620
$1,376
346
86
(8)
(284)
$1,517
$955
393
(7)
(34)
(25)
$1,282
$963
399
7
(12)
63
$1,420
$720
393
(47)
(18)
263
$1,311
$549
388
34
2
93
$1,066
$413
449
9
(9)
(238)
$624
$478
526
0
0
39
$1,044
($1,961) ($1,972)
16
0
6,150
0
(4,400)
0
0
0
($195) ($1,972)
October 14, 2014
Dresser-Rand
Investment Thesis
Order slippage and poor financial guidance have raised questions about Dressers 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 its 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 months
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 companys 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.
125
October 14, 2014
Dresser-Rand
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. Were forecasting
$400mm in bookings in 3Q, but see potential risk to our $98mm operating income estimates (vs.
managements $80-100mm guidance range) from a stronger US dollar that likely has a negative
effect on DRCs 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, Dressers 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.
15x
DRC current trades at 14.1x, a

54.% premium to its historical
8.5x.
13x
11x
9x
7x
5x
3x
'06
'07
126
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Dresser-Rand
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$345
570
0
$915
$577
632
0
$1,208
$750
752
0
$1,502
$813
852
0
$1,665
$1,203
992
0
$2,195
$1,259
1,031
0
$2,290
$959
994
0
$1,954
$1,082
1,230
0
$2,312
$1,302
1,435
0
$2,736
$1,524
1,509
0
$3,033
$1,552
1,488
0
$3,040
$1,634
1,564
0
$3,199
$3
116
(44)
$75
(6)
0
$69
(19)
0
$49
$21
141
(46)
$116
(57)
(3)
$56
(15)
0
$41
$47
204
(63)
$189
(47)
9
$151
(60)
0
$92
$59
216
(70)
$205
(35)
7
$178
(65)
0
$113
$132
277
(78)
$330
(29)
(7)
$294
(101)
0
$193
$172
267
(84)
$355
(32)
1
$324
(103)
0
$220
$130
228
(95)
$263
(33)
(0)
$229
(69)
0
$160
$110
252
(104)
$257
(55)
(5)
$198
(67)
0
$130
$118
323
(105)
$336
(60)
0
$276
(93)
0
$183
$140
296
(115)
$321
(52)
(9)
$260
(89)
0
$171
$147
349
(115)
$382
(60)
(8)
$314
(107)
(5)
$202
$178
383
(122)
$440
(68)
(15)
$357
(114)
0
$243
$0.00
$0.00
$0.45
$0.00
$1.02
$0.00
$1.27
$0.00
$2.27
$0.00
$2.68
$0.00
$1.92
$0.00
$1.65
$0.00
$2.31
$0.00
$2.16
$0.00
$2.57
$0.00
$3.00
$0.00
25%
8%
1%
20%
24%
15%
10%
4%
22%
27%
16%
13%
6%
27%
28%
15%
12%
7%
25%
23%
17%
15%
11%
28%
28%
18%
16%
14%
26%
28%
16%
13%
14%
23%
28%
14%
11%
10%
20%
28%
15%
12%
9%
23%
28%
14%
11%
9%
20%
30%
16%
13%
9%
23%
30%
17%
14%
11%
25%
Bookings
New Units
Aftermarket
Total Bookings
$121
97
$218
$772
674
$1,446
$1,002
837
$1,839
$1,322
873
$2,195
$1,429
1,094
$2,523
$727
934
$1,662
$1,210
1,026
$2,236
$1,500
1,358
$2,859
$1,630
1,533
$3,163
$1,331
1,610
$2,941
$1,467
1,544
$3,010
$1,530
1,720
$3,250
Backlog
New Units
Aftermarket
Total Backlog
$489
148
$638
$688
197
$885
$982
286
$1,267
$1,543
316
$1,859
$1,831
421
$2,252
$1,371
341
$1,712
$1,611
354
$1,965
$2,075
477
$2,553
$2,371
575
$2,946
$2,188
661
$2,849
$2,209
652
$2,861
$2,105
807
$2,913
Revenues
New Units
Aftermarket
Other
Total revenues
Operating income
New Units
Aftermarket
Other
Operating income
Interest
Other Income
Pretax income
Taxes
Minority interest
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Gross margins
EBITDA margins
Operating margins
New Units
Aftermarket
Book-to-Bill
New Units
Aftermarket
Total Book-to-Bill
127
0.4x
0.2x
0.2x
1.3x
1.1x
1.2x
1.3x
1.1x
1.2x
1.6x
1.0x
1.3x
1.2x
1.1x
1.1x
0.6x
0.9x
0.7x
1.3x
1.0x
1.1x
1.4x
1.1x
1.2x
1.3x
1.1x
1.2x
0.9x
1.1x
1.0x
0.9x
1.0x
1.0x
0.9x
1.1x
1.0x
October 14, 2014
Dresser-Rand
2013
1Q13
Revenues
New Units
Aftermarket
Other
Total revenues
Operating income
New Units
Aftermarket
Other
Operating income
Interest
Other Income
Pretax income
Taxes
Minority interest
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Gross margins
EBITDA margins
Operating margins
New Units
Aftermarket
Bookings
New Units
Aftermarket
Total Bookings
Backlog
New Units
Aftermarket
Total Backlog
Book-to-Bill
New Units
Aftermarket
Total Book-to-Bill
128
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$443
323
0
$766
$420
385
0
$805
$273
361
0
$634
$388
439
0
$827
$391
308
0
$699
$303
326
0
$628
$347
354
0
$700
$512
501
0
$1,013
$352
329
0
$682
$363
342
0
$705
$381
357
0
$739
$537
536
0
$1,073
$29
66
(30)
$66
(14)
(1)
$50
(16)
(2)
$33
$26
93
(31)
$87
(13)
2
$76
(21)
(1)
$53
$34
75
(27)
$81
(13)
0
$68
(16)
(1)
$51
$52
62
(27)
$87
(11)
(10)
$66
(36)
2
$32
$16
50
(25)
$40
(13)
3
$31
(14)
0
$17
$27
71
(31)
$66
(13)
(4)
$50
(21)
0
$29
$38
88
(29)
$98
(17)
(4)
$77
(24)
(3)
$50
$67
140
(29)
$178
(17)
(4)
$157
(49)
(3)
$106
$18
63
(30)
$50
(17)
(4)
$29
(9)
(1)
$19
$36
75
(30)
$82
(17)
(4)
$61
(19)
(1)
$40
$48
93
(31)
$110
(17)
(4)
$89
(28)
(1)
$59
$77
153
(31)
$199
(17)
(4)
$178
(57)
(1)
$120
$0.42
$0.00
$0.68
$0.00
$0.66
$0.00
$0.41
$0.00
$0.21
$0.00
$0.37
$0.00
$0.64
$0.00
$1.35
$0.00
$0.23
$0.00
$0.50
$0.00
$0.75
$0.00
$1.52
$0.00
28%
12%
9%
6%
21%
28%
14%
11%
6%
24%
28%
17%
13%
12%
21%
28%
13%
11%
14%
14%
21%
9%
6%
4%
16%
28%
14%
11%
9%
22%
26%
18%
14%
11%
25%
40%
20%
18%
13%
28%
16%
11%
7%
5%
19%
34%
16%
12%
10%
22%
25%
19%
15%
13%
26%
39%
21%
18%
14%
29%
$269
399
$668
$432
436
$868
$265
406
$671
$365
369
$734
$244
351
$594
$343
348
$691
$400
410
$810
$480
435
$915
$340
400
$740
$370
420
$790
$390
440
$830
$430
460
$890
$2,208
656
$2,864
$2,254
691
$2,945
$2,225
761
$2,986
$2,188
661
$2,849
$2,040
704
$2,744
$2,188
661
$2,849
$2,241
718
$2,959
$2,209
652
$2,861
$2,197
722
$2,920
$2,204
801
$3,004
$2,213
883
$3,096
$2,105
807
$2,913
0.6x
1.2x
0.9x
1.0x
1.1x
1.1x
1.0x
1.1x
1.1x
0.9x
0.8x
0.9x
0.6x
1.1x
0.9x
1.1x
1.1x
1.1x
1.2x
1.2x
1.2x
0.9x
0.9x
0.9x
1.0x
1.2x
1.1x
1.0x
1.2x
1.1x
1.0x
1.2x
1.1x
0.8x
0.9x
0.8x
October 14, 2014
Dresser-Rand
Assets
Cash & equivalents
Accounts receivable
Inventories
Other
Current assets
PPE
Goodwill
Other
Total assets
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$112
265
176
22
$575
227
903
47
$1,751
$98
269
146
37
$549
229
854
26
$1,658
$147
305
183
34
$669
223
857
22
$1,771
$206
312
265
42
$826
217
888
21
$1,951
$147
366
329
66
$908
250
871
23
$2,052
$223
290
353
70
$936
269
917
28
$2,150
$421
304
292
68
$1,084
278
913
29
$2,305
$128
477
409
137
$1,151
466
1,350
75
$3,042
$123
566
553
115
$1,356
467
1,418
92
$3,333
$190
727
716
102
$1,736
472
1,407
123
$3,738
$31
908
1,003
161
$2,103
461
1,389
150
$4,103
$264
963
1,079
170
$2,476
407
1,389
150
$4,422
$0
303
90
$393
598
152
$1,143
0
515
$1,658
$0
304
168
$472
506
162
$1,139
0
632
$1,771
$0
358
262
$621
370
155
$1,146
0
805
$1,951
$0
431
305
$736
370
186
$1,292
0
760
$2,052
$0
412
173
$585
370
182
$1,138
0
1,013
$2,150
$0
401
268
$669
370
178
$1,217
0
1,087
$2,305
$39
595
292
$927
988
256
$2,171
0
872
$3,042
$36
600
327
$963
1,015
260
$2,238
4
1,091
$3,333
$40
729
201
$970
1,247
220
$2,436
4
1,297
$3,738
$34
800
282
$1,116
1,254
214
$2,585
4
1,515
$4,103
$34
860
303
$1,197
1,254
214
$2,666
4
1,753
$4,422
2007
2008
2009
2010
2011
2012
2013
2014E
2015E

Current maturities
$4
Accounts payable
271
Other
54
Current liabilities
$330
LT debt
817
Other
152
Total liabilities
$1,298
Minority interest
0
Common stock
453
Total
$1,751

2004
Net income
Depreciation
Other
Working Capital Chg
2005
2006
$7
16
4
(10)
$17
$37
61
14
100
$212
$79
50
34
1
$164
$107
49
13
47
$216
$198
49
(2)
(9)
$235
$211
52
17
(150)
$130
$147
52
24
152
$376
$120
80
45
(137)
$108
$183
86
39
(215)
$93
$169
92
75
(403)
($67)
$202
99
20
(403)
($83)
$238
114
0
(58)
$293
Capex
Acquisitions
Asset sales
Other
Cash from investing
($2)
(1,125)
0
0
($1,127)
($16)
(55)
1
10
($59)
($20)
0
0
0
($20)
($24)
(8)
6
0
($26)
($40)
(91)
0
(5)
($136)
($41)
(13)
1
(10)
($63)
($33)
(69)
0
(5)
($106)
($51)
(284)
1
(12)
($346)
($73)
(49)
1
(3)
($124)
($83)
0
2
(3)
($84)
($62)
0
1
(22)
($83)
($60)
0
0
0
($60)
Change in Equity
Change in Debt
Other
Cash flow financing
$437
814
(33)
$1,218
$609
(211)
(558)
($160)
$0
(100)
0
($100)
$0
(141)
0
($141)
($150)
(0)
1
($149)
$2
(0)
0
$2
($71)
0
2
($68)
($499)
458
(12)
($53)
$3
21
4
$27
$4
228
2
$234
($2)
2
2
$2
$0
0
0
$0
(6)
10
(9)
(4)
(1)
(1)
(14)
$112
0
$112
($13)
112
$98
$49
98
$147
$59
147
$206
($59)
206
$147
$76
147
$223
$198
223
$421
($293)
421
$128
($5)
128
$123
$69
123
$192
($160)
190
$31
$233
31
$264
FX and other
Chg in cash
Beginning cash
Ending cash
129
October 14, 2014
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.
130
October 14, 2014
Dril-Quip
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.
40x
DRQ current trades at 14.5x, a -5% discount to the group's

36x
32x
28x
24x
20x
16x
12x
DRQ
8x
4x
'04
'05
'06
131
'07
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Dril-Quip
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
Revenues
Products
Services
Total revenues
$183
39
$222
$291
50
$341
$373
70
$443
$417
78
$496
$453
89
$543
$456
84
$540
$486
80
$566
$512
90
$601
$610
123
$733
$732
141
$872
$783
144
$927
$928
160
$1,089
Expenses
Expenses
SG&A
R&D
EBITDA
D&A
Operating Income
Interest Expense
Other Income
Pretax income
Taxes
Net income
($142)
(33)
(17)
$30
(12)
$18
(1)
0
$17
(5)
$12
($216)
(41)
(21)
$63
(13)
$49
(2)
0
$47
(15)
$33
($242)
(46)
(20)
$135
(15)
$120
3
0
$123
(38)
$85
($270)
(49)
(23)
$154
(16)
$138
8
(0)
$146
(43)
$103
($295)
(59)
(26)
$162
(17)
$145
3
(0)
$149
(40)
$108
($293)
(55)
(27)
$164
(17)
$147
0
0
$148
(39)
$109
($303)
(61)
(29)
$173
(19)
$153
0
0
$154
(41)
$112
($339)
(68)
(35)
$160
(23)
$137
0
(0)
$137
(37)
$100
($425)
(82)
(37)
$188
(26)
$162
0
0
$162
(43)
$119
($485)
(95)
(40)
$253
(29)
$224
1
0
$224
(54)
$170
($476)
(104)
(47)
$301
(31)
$270
1
0
$271
(66)
$205
($552)
(120)
(56)
$362
(36)
$326
1
0
$327
(79)
$248
Per Share Data

Diluted Earnings
Dividend
$0.36
$0.00
$0.89
$0.00
$2.13
$0.00
$2.52
$0.00
$2.69
$0.00
$2.76
$0.00
$2.80
$0.00
$2.49
$0.00
$2.94
$0.00
$4.16
$0.00
$5.05
$0.00
$6.10
$0.00
36%
14%
8%
8%
37%
18%
14%
14%
45%
31%
27%
28%
46%
31%
28%
30%
46%
30%
27%
27%
46%
30%
27%
27%
46%
31%
27%
27%
44%
27%
23%
23%
42%
26%
22%
22%
44%
29%
26%
26%
49%
32%
29%
29%
49%
33%
30%
30%
Margins Summary
Gross Margin
EBITDA Margin
Operating Margin
Pretax Margin
132
October 14, 2014
Dril-Quip
2013
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
Revenues
Products
Services
Total revenues
$160
33
$193
$189
33
$222
$187
37
$225
$195
38
$232
$172
32
$204
$190
40
$230
$204
35
$239
$217
37
$254
$203
35
$237
$224
38
$262
$242
41
$283
$260
47
$306
Expenses
Expenses
SG&A
Product Development
EBITDA
D&A
Operating Income
Interest Expense
Other Income
Pretax income
Taxes
Net income
($109)
(16)
(9)
$59
(7)
$52
(0)
0
$52
(12)
$40
($126)
(23)
(9)
$64
(7)
$56
(0)
0
$56
(13)
$43
($125)
(30)
(11)
$59
(7)
$52
(0)
0
$52
(12)
$40
($125)
(26)
(11)
$71
(8)
$63
(0)
0
$63
(16)
$47
($103)
(24)
(11)
$66
(8)
$59
(0)
0
$59
(15)
$43
($118)
(26)
(11)
$76
(7)
$69
(0)
1
$69
(16)
$53
($124)
(26)
(12)
$76
(8)
$68
(0)
1
$69
(16)
$52
($131)
(28)
(13)
$82
(8)
$74
(0)
1
$74
(18)
$57
($121)
(26)
(12)
$78
(8)
$69
(0)
1
$70
(17)
$53
($134)
(29)
(13)
$86
(9)
$78
(0)
1
$78
(19)
$59
($143)
(31)
(14)
$94
(9)
$85
(0)
1
$86
(21)
$65
($154)
(34)
(16)
$103
(9)
$94
(0)
1
$94
(23)
$71
Per Share Data

Diluted Earnings
Dividend
$0.98
$0.00
$1.05
$0.00
$0.98
$0.00
$1.15
$0.00
$1.06
$0.00
$1.30
$0.00
$1.29
$0.00
$1.39
$0.00
$1.30
$0.00
$1.45
$0.00
$1.60
$0.00
$1.75
$0.00
Margins Summary
Gross Margin
EBITDA Margin
Operating Margin
Pretax Margin
43%
31%
27%
27%
43%
29%
25%
25%
44%
26%
23%
23%
46%
30%
27%
27%
49%
32%
29%
29%
49%
33%
30%
30%
48%
32%
29%
29%
48%
32%
29%
29%
49%
33%
29%
29%
49%
33%
30%
30%
50%
33%
30%
30%
50%
34%
31%
31%
133
October 14, 2014
Dril-Quip
2004
Assets
Cash & equivalents
Accounts receivable
Inventories
Other
Current assets
PP&E
Other
Total assets
$5
63
111
11
$190
113
0
$304

Accrued Compensati
$6
Accounts Payable
27
Other
19
Current liabilities
$52
LT debt
28
Deferred Taxes
7
Other
(0)
Total liabilities
$87
216
Total
$304
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$33
108
155
15
$311
117
0
$428
$135
145
163
22
$465
129
1
$595
$202
142
183
26
$553
142
6
$700
$96
172
222
24
$514
161
6
$681
$198
131
251
37
$617
195
5
$817
$246
159
243
40
$688
247
13
$949
$299
180
278
43
$799
275
12
$1,086
$257
263
362
42
$924
296
11
$1,231
$384
279
368
47
$1,079
305
11
$1,395
$436
350
403
59
$1,247
320
11
$1,579
$531
421
485
72
$1,509
343
11
$1,863
$9
48
33
$90
3
9
(4)
$99
329
$428
$10
39
69
$118
3
15
(9)
$127
467
$595
$10
27
61
$98
2
16
(9)
$107
592
$700
$10
32
72
$114
1
16
(9)
$121
559
$681
$11
25
69
$105
0
25
(17)
$112
705
$817
$12
31
68
$111
0
22
(13)
$121
828
$949
$13
36
103
$151
0
24
(14)
$161
925
$1,086
$15
28
112
$155
0
24
(14)
$165
1,066
$1,231
$22
39
82
$143
0
25
(15)
$153
1,242
$1,395
$19
61
104
$185
0
30
(21)
$194
1,384
$1,579
$19
72
119
$210
0
36
(27)
$220
1,643
$1,863
2014E
2015E

2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Net Income
Depreciation
Other
Working Capital Chg
$12
12
(0)
1
$25
$33
13
(4)
(59)
($17)
$87
15
(3)
(6)
$93
$108
16
1
(42)
$83
$106
17
3
(84)
$41
$105
18
(3)
16
$136
$102
21
5
(21)
$107
$95
23
4
(21)
$102
$119
26
6
(160)
($8)
$170
29
8
(45)
$162
$203
31
6
(60)
$180
$248
36
6
(135)
$155
Sale of PP&E
Other
Cash from investing
($17)
0
0
($17)
($21)
1
0
($19)
($24)
1
0
($23)
($25)
0
0
($25)
($50)
1
0
($50)
($45)
0
0
($44)
($75)
2
0
($73)
($56)
2
0
($54)
($51)
2
0
($49)
($43)
1
0
($42)
($43)
0
0
($43)
($60)
0
0
($60)
Change in Debt
Change in Equity
Other
Cash flow financing
$0
(11)
(0)
($11)
$85
(25)
3
$63
$19
(1)
18
$37
$5
(1)
6
$10
($100)
(1)
1
($100)
$14
(1)
0
$13
$15
(1)
0
$15
$4
(0)
1
$5
$11
(0)
1
$12
$1
0
3
$3
($89)
0
0
($88)
$0
0
0
$0
FX and other
($1)
$1
($4)
($2)
$3
($4)
($1)
($0)
$4
$3
$3
$0
Chg in cash
Beginning cash
Ending cash
($3)
8
$5
$28
5
$33
$103
33
$135
$66
135
$202
($106)
202
$96
$102
96
$198
$48
198
$246
$53
246
$299
($41)
299
$257
$127
257
$384
$51
384
$436
$95
436
$531
134
October 14, 2014
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 Enscos $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 companys 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
companys 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.
135
October 14, 2014
Ensco plc
Since the companys 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.
Were 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
Enscos 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.
ESV current trades at 5.7x, a -1%
average but in line to its
historical average.
10x
8x
6x
4x
ESV
Offshore Drillers
2x
'06
'07
136
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Ensco plc
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$24
702
42
$768
$52
959
32
$1,043
$61
1,732
32
$1,825
$73
2,071
23
$2,167
$84
2,366
14
$2,465
$254
1,692
0
$1,946
$475
1,217
0
$1,693
$1,559
1,232
52
$2,843
$2,708
1,517
83
$4,308
$3,137
1,735
75
$4,947
$2,996
1,841
66
$4,903
$2,973
1,979
66
$5,018
($16)
(382)
(28)
($426)
(26)
$316
($144)
279
$452
$4
(37)
0
$419
(36)
0
$383
($21)
(417)
(17)
($454)
(29)
$559
($155)
0
$404
$7
(29)
2
$384
(102)
0
$282
($26)
(538)
(12)
($577)
(45)
$1,203
($176)
305
$1,332
$15
(17)
(4)
$1,326
(254)
0
$1,073
($29)
(645)
(11)
($684)
(60)
$1,423
($184)
(5)
$1,234
$26
(2)
13
$1,272
(262)
0
$1,010
($31)
(769)
(11)
($811)
(54)
$1,600
($192)
0
$1,408
$14
0
(18)
$1,404
(248)
0
$1,156
($108)
(617)
0
($726)
(64)
$1,156
($206)
0
$951
$0
0
12
$963
(177)
(5)
$780
Per Share Data

Diluted Earnings
Dividend
$2.49
$0.10
$1.80
$0.10
$6.95
$0.10
$6.81
$0.10
$8.09
$0.10
$5.55
$0.10
$4.07
$1.08
$3.11
$1.40
$5.48
$1.50
$6.08
$2.00
$6.14
$3.00
$5.50
$3.00
Margins Summary
Gross margins
Floaters
Jackups
Companywide
EBITDA margins
Operating margins
166%
46%
81%
78%
59%
141%
60%
56%
54%
39%
143%
69%
85%
83%
73%
140%
69%
68%
65%
57%
168%
67%
67%
65%
57%
167%
64%
63%
59%
49%
137%
52%
55%
50%
37%
151%
49%
49%
44%
30%
123%
51%
52%
49%
36%
52%
52%
52%
49%
36%
54%
48%
51%
49%
37%
52%
43%
48%
45%
34%
Revenues
Floaters
Jackups
Other
Total revenues
Expenses
Floaters
Jackups
Other
Operating costs
G&A
EBITDA
D&A
Other
Operating income
Interest income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
137
($176)
($787) ($1,243) ($1,498) ($1,384) ($1,421)
(584)
(627)
(745)
(835)
(1,319)
(1,453)
0
(44)
(70)
(59)
319
280
($760) ($1,459) ($2,059) ($2,392) ($2,385) ($2,593)
(86)
(121)
(146)
(147)
(139)
(151)
$847
$1,263
$2,103
$2,409
$2,380
$2,274
($219)
($419)
($568)
($612)
($577)
($580)
0
0
0
0
0
0
$627
$844
$1,535
$1,797
$1,803
$1,694
$0
$15
$23
$17
$13
$13
0
(72)
(124)
(159)
(147)
(176)
51
(5)
3
5
8
8
$678
$782
$1,438
$1,659
$1,678
$1,539
(92)
(140)
(166)
(234)
(232)
(231)
(6)
(4)
(7)
(10)
(14)
(12)
$580
$638
$1,265
$1,416
$1,433
$1,296
October 14, 2014
Ensco plc
2013
Revenues
Floaters
Jackups
Other
Total revenues
Expenses
Floaters
Jackups
Other
Operating costs
G&A
EBITDA
D&A
Other
Operating income
Interest income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Gross margins
Floaters
Jackups
Companywide
EBITDA margins
Operating margins
138
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$762
473
16
$1,251
$773
473
17
$1,262
$720
475
16
$1,211
$750
498
17
$1,264
$735
502
17
$1,254
$768
505
17
$1,289
($330)
(234)
(12)
($576)
(36)
$591
($139)
0
$451
$4
(36)
2
$421
(48)
(3)
$370
($322)
(261)
(12)
($595)
(32)
$624
($138)
0
$486
$3
(37)
2
$455
(59)
(3)
$392
($311)
(262)
(12)
($585)
(32)
$645
($140)
0
$505
$3
(39)
2
$472
(71)
(3)
$398
($314)
(267)
(12)
($592)
(36)
$583
($141)
0
$442
$3
(40)
2
$407
(61)
(3)
$343
($333)
(278)
(12)
($623)
(38)
$604
($143)
0
$461
$3
(42)
2
$425
(64)
(3)
$358
($365)
(288)
(12)
($664)
(38)
$552
($148)
0
$404
$3
(47)
2
$363
(54)
(3)
$305
($409)
(294)
(12)
($714)
(39)
$536
($149)
0
$387
$3
(48)
2
$345
(52)
(3)
$290
$1.17
$0.75
$1.59
$0.75
$1.68
$0.75
$1.70
$0.75
$1.46
$0.75
$1.52
$0.75
$1.29
$0.75
$1.22
$0.75
43%
54%
47%
44%
30%
54%
50%
52%
49%
38%
58%
45%
52%
50%
39%
60%
45%
54%
51%
40%
56%
44%
51%
48%
36%
56%
44%
51%
48%
36%
50%
43%
47%
44%
32%
47%
42%
45%
42%
30%
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
$719
411
20
$1,150
$823
404
20
$1,248
$815
460
19
$1,293
$779
461
16
$1,256
$741
430
17
$1,187
$721
466
17
$1,203
($345)
(200)
(16)
($561)
(38)
$551
($149)
0
$402
$3
(39)
0
$366
(52)
(3)
$311
($377)
(214)
(16)
($607)
(36)
$605
($153)
0
$452
$5
(44)
(0)
$412
(50)
(2)
$361
($383)
(210)
(15)
($608)
(37)
$648
($153)
0
$494
$4
(40)
3
$462
(81)
(3)
$378
($393)
(211)
(12)
($616)
(35)
$605
($157)
0
$448
$4
(35)
2
$419
(50)
(3)
$366
($420)
(197)
(11)
($628)
(38)
$521
($160)
0
$361
$4
(35)
2
$331
(54)
(4)
$274
$1.34
$0.50
$1.55
$0.50
$1.62
$0.50
$1.56
$0.50
52%
51%
51%
48%
35%
54%
47%
51%
48%
36%
53%
54%
53%
50%
38%
50%
54%
51%
48%
36%
October 14, 2014
Ensco plc
Assets
Cash & equivalents
Accounts receivable
Other
Current assets
PPE
Goodwill
Other
Total assets
2004
2005
2006
2007
2008
2009
$267
183
44
$494
2,431
341
56
$3,322
$269
269
41
$578
2,664
336
40
$3,618
$566
339
83
$987
2,960
336
51
$4,334
$630
383
117
$1,129
3,359
336
144
$4,969
$790
483
129
$1,401
3,871
336
222
$5,830
$1,141
325
187
$1,653
4,477
336
281
$6,747
$1,051
$431
$487
$166
$909
$319
215
838
811
856
885
904
171
376
425
514
826
844
$1,437
$1,645
$1,724
$1,535
$2,620
$2,066
5,050
12,424
13,146
14,311
13,748
15,140
336
3,289
3,274
3,274
3,274
3,274
229
514
422
353
340
340
$7,052 $17,871 $18,565 $19,473 $19,982 $20,820
$17
19
195
$231
475
345
33
$1,085
0
2,533
$3,618
$167
12
205
$385
309
357
69
$1,118
0
3,216
$4,334
$19
19
466
$504
291
352
70
$1,217
0
3,752
$4,969
$17
30
381
$428
274
341
111
$1,153
0
4,677
$5,830
$17
159
309
$485
257
377
121
$1,240
0
5,507
$6,747
$17
$173
$48
$48
$48
$48
164
644
942
1,000
1,059
1,293
168
515
0
0
0
0
$349
$1,332
$990
$1,047
$1,107
$1,340
240
4,878
4,798
4,719
5,929
5,929
358
340
352
362
317
317
139
446
573
546
592
592
$1,087
$6,995
$6,713
$6,674
$7,945
$8,179
0
0
0
0
0
0
5,965
10,876
11,852
12,799
12,037
12,641
$7,052 $17,871 $18,565 $19,473 $19,982 $20,820
2007
2008
2009

Current maturities
$23
Accounts payable
16
Accrued liabilities
177
Current liabilities
$216
LT debt
527
Deferred taxes
375
22
Total liabilities
$1,140
Minority interest
0
Common stock
2,182
Total
$3,322
2010
2011
2012
2013
2014E
2015E

2004
2005
2006
2010
2011
2012
2013
2014E
2015E
($83)
556
(8)
0
0
992
(4)
593
(52)
$1,994
$1,296
580
0
0
0
0
0
0
197
$2,073
Net income
Depreciation
Tax benefit
Loss on asset sale
Impairment of assets
Amortization of other
Other
Working Capital Chg
$103
144
24
2
0
0
6
4
(25)
$258
$294
155
2
5
(7)
0
6
7
(106)
$356
$766
175
16
18
(1)
0
6
1
(38)
$944
$992
184
0
30
0
0
8
0
27
$1,242
$1,151
190
2
27
24
0
33
4
(289)
$1,140
$785
206
20
36
0
0
32
(3)
148
$1,222
Capex
Asset sales
Other
Cash from investing
($305)
3
(11)
($313)
($478)
140
(4)
($343)
($529)
27
0
($502)
($520)
8
0
($512)
($772)
50
0
($722)
($861)
8
0
($854)
Chg in LT debt
Dividend paid
Other
Cash flow financing
($23)
(15)
7
($31)
($58)
(15)
64
($9)
($18)
(15)
(115)
($148)
($171)
(15)
(479)
($665)
($19)
(14)
(227)
($260)
($17)
(14)
(3)
($34)
($17)
(154)
(22)
($193)
$2,343
(292)
(46)
$2,004
($173)
(348)
85
($436)
($52)
(526)
1
($577)
$1,226
(697)
(13)
$516
$0
(692)
0
($692)
(2)
(2)
(1)
18
(1)
136
16
(9)
($87)
354
$267
$1
267
$269
$297
269
$566
$64
566
$630
$160
630
$790
$352
790
$1,141
($91)
1,141
$1,051
($620)
1,051
$431
$56
431
$487
($322)
487
$166
$744
166
$909
($591)
909
$319
FX and other
Chg in cash
Beginning cash
Ending cash
139
$586
216
14
45
(26)
0
31
8
(57)
$817
$606
419
0
48
0
0
(42)
(33)
(264)
$732
$1,222
559
18
0
0
0
(27)
1
427
$2,200
$1,428
612
0
0
0
0
0
43
(103)
$1,980
($875)
($742) ($1,802) ($1,779) ($1,776) ($1,972)
158
47
0
0
0
0
2
(2,661)
(42)
39
19
0
($716) ($3,356) ($1,845) ($1,740) ($1,757) ($1,972)
October 14, 2014
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 companys 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.
140
October 14, 2014

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 Ensigns near term results.
With operations in Venezuela, the company is exposed to customer payment delay risks.
8x
ESI current trades at 4.4x, a -7% discount

to the group's 4.7x average but a -22%
7x
6x
5x
4x
ESI
3x
Onshore Drillers
2x
'06
'07
141
'08
'09
'10
'11
'12
'13
'14
October 14, 2014

2007
2008
2009
2010
2011
2012
2013
2014E
2015E
Revenues
Canada
United States
International
Total revenues
$777
555
245
$1,578
$743
635
327
$1,706
$426
407
304
$1,138
$546
493
316
$1,356
$786
728
377
$1,890
$774
945
478
$2,197
$661
891
546
$2,098
$685
1,007
675
$2,366
$746
1,094
757
$2,597
Expenses
Oilfield services expense
Total Gross Profit
General & Administrative Exp
Total EBITDA
D&A
Operating Income
Net Interest Exp.
Other income
Pretax income
Income Tax Expense
Net income
($1,054)
$523
(55)
$468
(93)
$376
(5)
7
$378
(128)
$250
($1,146)
$560
(63)
$497
(126)
$371
(7)
(1)
$363
(103)
$260
($781)
$357
(51)
$306
(111)
$195
(1)
(6)
$188
(62)
$125
($992)
$364
(53)
$311
(136)
$175
(1)
14
$188
(67)
$121
($1,323)
$567
(70)
$497
(178)
$319
(6)
(2)
$312
(99)
$212
($1,556)
$642
(81)
$561
(220)
$341
(18)
(3)
$320
(102)
$218
($1,524)
$574
(88)
$486
(248)
$238
(17)
(23)
$197
(68)
$129
($1,727)
$639
(98)
$540
(297)
$243
(22)
11
$233
(81)
$152
($1,872)
$725
(107)
$618
(320)
$297
(24)
0
$273
(96)
$178
Per Share Data

Diluted Earnings
Dividend
$1.61
$0.32
$1.68
$0.33
$0.82
$0.34
$0.79
$0.36
$1.39
$0.39
$1.42
$0.43
$0.84
$0.45
$0.99
$0.47
$1.15
$0.47
Margins Summary
Gross Margin
EBITDA Margin
Operating Margin
33%
30%
24%
33%
29%
22%
31%
27%
17%
27%
23%
13%
30%
26%
17%
29%
26%
16%
27%
23%
11%
27%
23%
10%
28%
24%
11%
142
October 14, 2014

2013
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
Revenues
Canada
United States
International
Total revenues
$256
200
125
$581
$85
220
133
$438
$161
235
147
$543
$158
236
142
$536
$226
248
149
$624
$111
246
155
$512
$172
251
180
$603
$176
261
190
$627
$249
266
172
$687
$121
272
191
$583
$185
274
194
$654
$191
281
201
$673
Expenses
Oilfield services
Total Gross Profit
G&A
Total EBITDA
D&A
Operating Income
Net Interest Exp.
Other income
Pretax income
Income Tax Expense
Net income
$397
$184
20
$164
57
$107
(4)
(3)
$101
(36)
$65
$329
$109
24
$86
55
$30
(4)
(17)
$9
(6)
$3
$399
$144
21
$123
66
$57
(4)
(2)
$51
(17)
$34
$400
$136
24
$112
69
$43
(5)
(2)
$37
(10)
$27
$442
$182
22
$160
73
$87
(5)
10
$92
(31)
$60
$391
$121
24
$97
69
$28
(5)
1
$24
(9)
$15
$440
$163
24
$139
77
$62
(5)
0
$57
(20)
$37
$455
$172
28
$144
78
$66
(6)
0
$60
(21)
$39
$483
$204
25
$179
79
$100
(6)
0
$94
(33)
$61
$439
$144
26
$117
74
$43
(6)
0
$37
(13)
$24
$467
$187
26
$161
83
$78
(6)
0
$72
(25)
$47
$483
$190
30
$160
84
$77
(6)
0
$71
(25)
$46
Per Share Data

Diluted Earnings
Dividend
$0.42
$0.11
$0.02
$0.11
$0.22
$0.11
$0.18
$0.12
$0.39
$0.12
$0.10
$0.12
$0.24
$0.12
$0.25
$0.12
$0.39
$0.12
$0.15
$0.12
$0.30
$0.12
$0.30
$0.12
Margins Summary
Gross Margin
EBITDA Margin
Operating Margin
32%
28%
18%
25%
20%
7%
27%
23%
10%
25%
21%
8%
29%
26%
14%
24%
19%
5%
27%
23%
10%
28%
23%
11%
30%
26%
15%
25%
20%
7%
29%
25%
12%
28%
24%
11%
143
October 14, 2014

2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$2
302
90
2
$396
1,391
0
$1,787
$96
360
61
1
$518
1,711
0
$2,229
$135
242
61
7
$445
1,675
8
$2,128
$90
331
68
0
$489
1,730
7
$2,225
$3
477
82
0
$562
2,480
7
$3,048
$33
423
76
0
$533
2,533
5
$3,071
$79
441
67
9
$595
2,788
4
$3,388
$34
516
78
5
$632
3,014
4
$3,651
$42
553
84
5
$685
3,119
4
$3,808

Account payable
$178
Short-Term Debt
118
Dividends payable
13
Other
27
Current liabilities
$336
LT debt
0
Share-based compensation
8
(15)
Other
214
Total liabilities
$542
1,244
Total
$1,787
$236
169
13
(7)
$411
20
4
28
215
$678
1,551
$2,229
$154
169
13
1
$337
0
1
23
235
$597
1,531
$2,128
$213
159
15
17
$404
0
11
50
213
$677
1,548
$2,225
$290
238
16
28
$572
406
16
72
258
$1,325
1,723
$3,048
$245
232
17
25
$519
297
14
57
327
$1,213
1,858
$3,071
$307
327
18
15
$666
317
15
25
402
$1,425
1,963
$3,388
$359
437
18
13
$827
319
13
18
430
$1,607
2,044
$3,651
$386
462
18
13
$878
319
13
0
448
$1,658
2,150
$3,808
2009
2010
2011
2012
2013
2014E
2015E
Assets
Cash & equivalents
Accounts receivable
Inventories
Other
Current assets
PP&E
Note receivable
Total assets

2007
Net Income
Other
Working Capital Chg
Acquisition
Other
Cash from investing
Change in Debt
Change in Equity
Other
Cash flow financing
change on cash and other
Chg in cash
Beginning cash
Ending cash
144
2008
$250
93
(15)
(31)
(41)
$255
$260
126
28
(7)
(40)
$367
$125
111
23
(2)
39
$296
$119
133
50
(2)
(28)
$272
$212
178
72
13
(72)
$403
$218
220
57
8
15
$517
$129
248
25
34
41
$476
$152
297
18
(9)
(27)
$432
$178
320
0
0
(17)
$481
($272)
0
0
($272)
($294)
0
0
($294)
($133)
(53)
0
($185)
($255)
0
0
($255)
($387)
(497)
0
($884)
($307)
0
0
($307)
($342)
(76)
0
($419)
($503)
0
0
($503)
($425)
0
0
($425)
$48
(49)
5
$4
$51
(51)
21
$22
($0)
(52)
(19)
($72)
($1)
(55)
(2)
($58)
$74
(60)
382
$396
($1)
(65)
(114)
($180)
$76
(69)
(4)
$3
$111
(72)
(5)
$34
$25
(73)
0
($48)
($13)
15
$2
$94
2
$96
$39
96
$135
($41)
135
$90
($85)
90
$3
$30
3
$33
$61
33
$78
($37)
78
$33
$8
33
$41
October 14, 2014
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 ERAs 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 companys
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, ERAs limited large aircraft
exposure limits the companys opportunities. ERAs 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.
145
October 14, 2014
Era Group
The companys 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.
9x
8x
7x
6x
ERA current trades at 6.4x, a -1% discount to the
group's 6.5x average.
5x
ERA
Offshore Technology
4x
'06
'07
146
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Era Group
2010
2011
2012
2013
2014E
2015E
Revenues
Operating Revenue
Operating Expenses
SG&A
Depreciation
Gains on Asset Disposals
Operating Income
Interest Expense
Other
Pretax income
Income Tax Expense
Equity in Earnings
Other
Net income
$235
(147)
(26)
(43)
1
$20
(22)
(6)
($8)
(4)
0
8
($4)
$258
(163)
(32)
(43)
15
$36
(25)
(9)
$2
0
0
(1)
$2
$273
(159)
(35)
(43)
4
$40
(11)
(1)
$29
7
(6)
(23)
$8
$299
(185)
(39)
(46)
18
$48
(18)
1
$31
12
1
(24)
$20
$324
(198)
(40)
(46)
11
$52
(16)
0
$36
13
1
(26)
$24
$340
(204)
(39)
(49)
11
$58
(18)
0
$41
14
1
(28)
$28
Per Share Data

Diluted Earnings
Dividend
$0.00
$0.00
$0.18
$0.00
$0.32
($4.45)
$0.97
($4.95)
$1.19
$0.00
$1.36
$0.00
Margins Summary
Gross Margin
EBITDAR Margin
EBITDA Margin
Pre-Tax Margin
37%
28%
26%
-3%
37%
26%
30%
1%
42%
29%
28%
11%
38%
27%
32%
10%
39%
28%
31%
11%
40%
30%
32%
12%
147
October 14, 2014
Era Group
2013
1Q13
Revenues
Operating Revenue
Operating Expenses
SG&A
Depreciation
Gains on Sales
Operating Income
Interest Expense
Other
Pretax income
Income Taxes
Equity in Earnings
Other
Net income
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$68
43
9
12
(117)
$15
(5)
(0)
$10
4
1
(8)
$6
$74
47
10
11
(131)
$11
(5)
0
$7
2
1
(5)
$5
$81
49
10
11
(138)
$13
(4)
0
$9
3
1
(5)
$7
$76
45
11
11
(133)
$10
(4)
0
$6
3
(1)
(6)
$2
$79
50
11
11
(142)
$10
(4)
0
$6
3
0
(5)
$4
$87
55
10
11
(149)
$14
(4)
0
$10
4
1
(7)
$7
$82
48
9
12
(137)
$15
(4)
0
$11
4
0
(7)
$7
$77
45
9
12
(129)
$13
(4)
0
$9
3
0
(6)
$6
$76
46
9
12
(132)
$12
(5)
0
$7
3
0
(5)
$5
$87
54
10
12
(150)
$13
(5)
0
$9
3
0
(6)
$6
$92
55
11
12
(154)
$17
(5)
0
$12
4
0
(9)
$8
$84
48
10
12
(138)
$17
(5)
0
$12
4
0
(8)
$8
Per Share Data

Diluted Earnings
Dividend
$0.28
($4.95)
$0.25
$0.00
$0.35
$0.00
$0.09
$0.00
$0.22
$0.00
$0.33
$0.00
$0.35
$0.00
$0.30
$0.00
$0.25
$0.00
$0.30
$0.00
$0.40
$0.00
$0.40
$0.00
Margins Summary
Gross Margin
EBITDAR Margin
EBITDA Margin
Pre-Tax Margin
36%
25%
39%
14%
37%
27%
31%
9%
39%
30%
31%
12%
41%
27%
26%
7%
38%
25%
27%
8%
37%
27%
29%
11%
41%
31%
33%
13%
41%
31%
33%
12%
40%
30%
32%
10%
38%
28%
30%
10%
40%
30%
32%
13%
43%
32%
34%
14%
148
October 14, 2014
Era Group
2010
Assets
Cash & equivalents
Trade Receivables
Inventories
Other
Current assets
PP&E
Investments
Goodwill
Other
Total assets
2011
2012
2013
2014E
2015E
$4
41
23
4
$72
612
28
0
7
$719
$79
43
25
11
$158
709
50
0
15
$933
$12
49
27
10
$97
788
35
0
18
$938
$31
38
27
9
$105
804
35
0
14
$959
$8
36
23
8
$75
864
36
0
16
$991
$34
37
24
7
$103
863
36
0
16
$1,018

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

2010
Net Income
Other
Working Capital Chg
2011
2012
2013
2014E
2015E
($4)
43
43
1
$84
$2
43
5
(9)
$41
$8
43
14
(51)
$14
$19
46
(10)
10
$64
$20
37
24
2
$82
$28
49
0
(2)
$74
Sale of PP&E
Other
Cash from investing
($131)
1
(3)
($133)
($159)
26
(16)
($149)
($113)
5
(7)
($115)
($110)
65
1
($43)
($119)
18
1
($100)
($68)
20
0
($48)
Change in Debt
Change in Equity
Dividends
Other
Cash flow financing
$0
39
0
8
$47
$0
246
0
(63)
$183
$50
(13)
(4)
0
$33
$0
2
(5)
1
($2)
$0
(7)
0
1
($6)
$0
0
0
0
$0
($4)
0
$0
$75
0
$0
($68)
79
$12
$20
12
$31
($24)
31
$8
$26
8
$34
FX and other
Chg in cash
Beginning cash
Ending cash
149
October 14, 2014
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, were
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.
150
October 14, 2014
Exterran Holdings
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 segments 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.
EXH current trades at
6.3x, a -55% discount to
its historical 6.6x.
9.5x
8.5x
7.5x
6.5x
5.5x
4.5x
'06
'07
151
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Exterran Holdings
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$342
215
180
429
$1,165
$351
233
226
540
$1,350
$384
263
225
733
$1,605
$548
340
407
1,277
$2,571
$791
517
382
1,490
$3,179
$695
424
311
1,319
$2,750
$608
465
322
1,066
$2,462
$604
445
409
1,225
$2,683
$609
464
394
1,348
$2,815
$631
476
396
1,661
$3,164
$717
494
412
1,302
$2,925
$799
534
424
1,485
$3,242
Expenses
NAM CO
Int'l CO
Aftermarket
Fabrication
Total COGS
G&A
EBITDA
D&A
Other
Operating income
Interest income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Other
Net income
($145)
(64)
(136)
(387)
($732)
(173)
$261
($175)
0
$85
$0
(147)
32
($29)
(25)
0
10
($44)
($139)
(77)
(169)
(482)
($867)
(182)
$300
($183)
0
$117
$0
(137)
10
($9)
(28)
0
(1)
($38)
($153)
(97)
(184)
(617)
($1,050)
(204)
$351
($181)
0
$170
$0
(118)
63
$115
(39)
0
11
$87
($228)
(128)
(333)
(1,047)
($1,736)
(271)
$564
($257)
0
$308
$0
(126)
54
$236
(72)
(6)
(122)
$35
($342)
(191)
(304)
(1,220)
($2,058)
(375)
$746
($374)
0
$373
$0
(130)
43
$286
(102)
(12)
(1,119)
($948)
($299)
(162)
(247)
(1,106)
($1,814)
(344)
$592
($364)
0
$229
$0
(123)
41
$147
(79)
(4)
(316)
($251)
($301)
(175)
(276)
(905)
($1,657)
(358)
$446
($401)
0
$45
$0
(136)
9
($83)
2
11
(77)
($147)
($310)
(184)
(349)
(1,102)
($1,945)
(359)
$379
($366)
0
$13
$0
(149)
5
($131)
39
(1)
(243)
($336)
($291)
(185)
(312)
(1,192)
($1,980)
(378)
$458
($353)
0
$105
$0
(134)
0
($29)
(18)
(2)
41
($10)
($285)
(197)
(309)
(1,409)
($2,200)
(359)
$606
($328)
0
$278
$0
(116)
23
$186
(84)
(33)
44
$114
($309)
(182)
(324)
(1,088)
($1,902)
(372)
$650
($399)
0
$250
$0
(112)
(3)
$135
(55)
(25)
46
$101
($338)
(203)
(335)
(1,221)
($2,097)
(403)
$742
($418)
0
$324
$0
(100)
0
$224
(84)
(25)
19
$133
Per Share Data

Diluted Earnings
Dividend
($0.64)
$0.00
($0.41)
$0.00
$0.72
$0.00
$1.79
$0.00
$2.58
$0.00
$1.05
$0.00
($1.11)
$0.00
($1.49)
$0.00
($0.78)
$0.00
$1.05
$0.00
$0.80
$0.60
$1.60
$0.60
58%
70%
25%
10%
37%
22%
7%
60%
67%
25%
11%
36%
22%
9%
60%
63%
18%
16%
35%
22%
11%
58%
62%
18%
18%
32%
22%
12%
57%
63%
20%
18%
35%
23%
12%
57%
62%
21%
16%
34%
22%
8%
51%
62%
14%
15%
33%
18%
2%
49%
59%
15%
10%
28%
14%
0%
52%
60%
21%
12%
30%
16%
4%
55%
59%
22%
15%
30%
19%
9%
57%
63%
21%
16%
35%
22%
9%
58%
62%
21%
18%
35%
23%
10%
5,869
6,014
12,947
5,961
12,987
6,074
11,597
5,555
9,609
4,901
9,548
4,892
8,683
4,641
8,757
4,684
5,354
5,414
86%
96%
88%
86%
94%
88%
80%
90%
83%
76%
91%
79%
66%
84%
70%
77%
82%
78%
79%
76%
78%
86%
80%
84%
84%
79%
83%
87%
78%
85%
91%
81%
89%
$85
288
0
$373
622
1.2x
$325
483
0
$808
1,167
1.6x
$322
788
0
$1,110
1,579
1.2x
$395
733
0
$1,128
1,508
1.0x
$297
516
0
$812
1,004
0.8x
$220
483
0
$704
957
0.9x
$250
416
0
$666
1,257
1.0x
$256
564
246
$1,066
1,679
1.2x
$158
476
46
$680
1,275
0.8x
$954
1,576
1.2x
$1,143
1,674
1.1x
Revenues
NAM CO
Int'l CO
Aftermarket
Fabrication
Total revenues
Margins Summary
Gross margins
NAM CO
Int'l CO
Aftermarket
Fabrication
Companywide
EBITDA margins
Operating margins
Compressor Fleet Summary

Number of Units
Aggregate HP (K)
5,735
% Utilization (period end)
NAM CO
82%
Int'l CO
93%
Total Utilization
84%
Fabrications Summary
Backlog
Compression
Prod'n & Processing
Installation
Total Backlog
Implied Bookings
Book-to-Bill
152
$57
234
0
$291
567
1.3x
October 14, 2014
Exterran Holdings
2013
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
Revenues
NAM CO
Int'l CO
Aftermarket
Fabrication
Total revenues
$159
110
84
459
$811
$164
118
99
456
$837
$153
118
102
403
$776
$155
131
110
342
$739
$157
111
88
287
$643
$182
134
100
323
$739
$188
122
106
340
$756
$191
126
117
353
$787
$194
130
91
328
$743
$198
134
103
368
$803
$202
135
109
387
$833
$205
135
121
402
$863
Expenses
NAM CO
Int'l CO
Aftermarket
Fabrication
Total COGS
G&A
EBITDA
D&A
Other
Operating income
Interest income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Other
Net income
($72)
(46)
(65)
(402)
($586)
(85)
$140
($83)
0
$58
$0
(28)
10
$40
(17)
(9)
32
$46
($71)
(50)
(78)
(382)
($581)
(91)
$166
($81)
0
$85
$0
(30)
7
$62
(26)
(15)
(16)
$5
($71)
(51)
(81)
(328)
($531)
(94)
$151
($81)
0
$70
$0
(29)
4
$45
(18)
(4)
18
$41
($70)
(50)
(85)
(296)
($502)
(89)
$149
($83)
0
$66
$0
(29)
2
$39
(23)
(5)
11
$23
($71)
(41)
(68)
(230)
($410)
(93)
$141
($86)
0
$55
$0
(28)
(2)
$26
(9)
(2)
19
$33
($78)
(47)
(79)
(280)
($483)
(96)
$160
($112)
0
$48
$0
(33)
(2)
$14
(10)
(8)
18
$13
($80)
(47)
(84)
(282)
($492)
(92)
$172
($100)
0
$72
$0
(26)
0
$46
(17)
(8)
5
$25
($81)
(48)
(93)
(296)
($517)
(92)
$177
($102)
0
$75
$0
(25)
0
$50
(19)
(6)
5
$30
($82)
(49)
(72)
(269)
($472)
(95)
$176
($103)
0
$73
$0
(25)
0
$48
(18)
(5)
5
$29
($84)
(51)
(82)
(299)
($516)
(101)
$187
($104)
0
$83
$0
(25)
0
$58
(22)
(10)
5
$31
($85)
(51)
(86)
(317)
($540)
(103)
$190
($105)
0
$85
$0
(25)
0
$60
(22)
(5)
5
$37
($87)
(51)
(95)
(336)
($569)
(105)
$189
($106)
0
$83
$0
(25)
0
$58
(22)
(5)
5
$36
Per Share Data

Diluted Earnings
Dividend
$0.21
$0.00
$0.31
$0.00
$0.34
$0.00
$0.18
$0.00
$0.20
$0.15
($0.07)
$0.15
$0.28
$0.15
$0.36
$0.15
$0.34
$0.15
$0.37
$0.15
$0.45
$0.15
$0.43
$0.15
55%
58%
22%
12%
28%
17%
7%
57%
58%
22%
16%
31%
20%
10%
53%
57%
21%
19%
32%
19%
9%
55%
62%
23%
14%
32%
20%
9%
55%
63%
23%
20%
36%
22%
9%
57%
65%
21%
13%
35%
22%
7%
58%
62%
21%
17%
35%
23%
9%
58%
62%
21%
16%
34%
23%
10%
58%
62%
21%
18%
36%
24%
10%
58%
62%
21%
19%
36%
23%
10%
58%
62%
21%
18%
35%
23%
10%
58%
62%
21%
17%
34%
22%
10%
4,669
4,680
4,684
4,730
5,224
5,344
5,354
5,369
5,384
5,399
5,414
84%
79%
83%
83%
78%
82%
84%
79%
83%
83%
78%
82%
86%
77%
84%
86%
77%
84%
87%
78%
85%
88%
80%
86%
89%
82%
87%
90%
81%
88%
91%
81%
89%
$194
424
129
$747
209
0.5x
$177
358
85
$619
276
0.7x
$158
476
46
$680
403
1.2x
$177
434
59
$669
277
1.0x
$193
532
93
$818
472
1.5x
$903
424
1.3x
$954
403
1.1x
$1,035
409
1.2x
$1,083
415
1.1x
$1,117
422
1.1x
$1,143
428
1.1x
Margins Summary
Gross margins
NAM CO
Int'l CO
Aftermarket
Fabrication
Companywide
EBITDA margins
Operating margins
Compressor Fleet Summary

Number of Units
Aggregate HP (K)
4,671
% Utilization (period end)
NAM CO
86%
Int'l CO
79%
Total Utilization
84%
Fabrications Summary
Backlog
Compression
Prod'n & Processing
Installation
Total Backlog
Implied Bookings
Book-to-Bill
153
$202
584
208
$994
387
0.8x
October 14, 2014
Exterran Holdings
Assets
Cash & equivalents
Accounts receivable
Other
Current assets
PP&E
Goodwill
Other
Total assets
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$38
206
305
$549
1,877
240
97
$2,762
$48
244
412
$704
1,823
245
91
$2,863
$73
283
524
$881
1,863
237
90
$3,071
$149
516
811
$1,477
3,534
1,767
86
$6,864
$126
625
943
$1,695
3,674
640
84
$6,093
$84
448
888
$1,419
3,404
469
0
$5,293
$45
429
687
$1,161
3,093
479
9
$4,742
$22
463
639
$1,124
3,004
232
0
$4,361
$35
452
752
$1,238
2,842
175
0
$4,255
$36
477
709
$1,221
2,820
165
21
$4,227
$5
531
768
$1,304
3,336
204
20
$4,863
$62
580
859
$1,501
3,333
204
20
$5,057
$5
93
254
$353
1,474
76
404
$1,953
0
910
$2,863
$5
137
412
$554
1,365
77
615
$2,057
0
1,014
$3,071
$1
221
584
$806
2,333
282
1,093
$3,708
(6)
3,162
$6,864
$0
224
693
$917
2,512
226
1,323
$4,061
(12)
2,044
$6,093
$0
131
706
$837
2,261
182
1,214
$3,657
(4)
1,640
$5,293
$16
157
585
$758
1,897
120
1,103
$3,121
11
1,609
$4,742
$6
216
447
$670
1,773
125
1,027
$2,924
(1)
1,437
$4,361
$0
232
542
$775
1,566
121
1,092
$2,779
(2)
1,479
$4,255
$0
177
463
$641
1,502
198
897
$2,597
(33)
1,662
$4,227
$0
199
423
$622
2,038
208
890
$3,135
(25)
1,753
$4,863
$0
219
465
$684
2,188
208
952
$3,348
(25)
1,735
$5,057
2014E
2015E

Current maturities
$7
Accounts payable
57
Other
182
Current liabilities
$246
LT debt
1,637
Deferred taxes
53
Other
312
Total liabilities
$2,002
Minority interest
0
Common stock
760
Total
$2,762

2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Net income
Depreciation
Other
Working Capital Chg
($44)
175
12
5
(16)
$132
($38)
183
19
28
(69)
$122
$87
181
0
(113)
54
$209
$35
253
(43)
97
(101)
$240
($947)
374
(48)
1,199
(93)
$484
($545)
353
(7)
628
49
$478
($113)
401
(129)
137
69
$364
($340)
366
(52)
287
(140)
$120
($37)
351
(94)
132
38
$390
$156
328
22
(16)
(134)
$356
$102
399
(13)
(6)
(169)
$314
$115
418
0
0
(78)
$455
Capex
Acquisitions
Asset sales
Other
Cash from investing
($90)
0
29
73
$11
($155)
(3)
54
1
($104)
($247)
0
78
0
($168)
($352)
0
36
14
($302)
($509)
(134)
57
3
($583)
($369)
0
75
(7)
($301)
($236)
0
141
102
$6
($283)
(3)
336
0
$51
($429)
0
36
187
($205)
($392)
0
101
94
($196)
($508)
(496)
13
85
($905)
($500)
0
0
85
($415)
Chg in ST debt
Chg in LT debt
Stock Issuance
Stock Repurchase
Dividend paid
Dividend to NCI
Other
Cash flow financing
($152)
(20)
10
0
0
0
(0)
($162)
($229)
41
184
0
0
0
(3)
($7)
$7
(28)
6
0
0
0
(2)
($18)
($752)
966
27
(100)
0
(3)
(2)
$136
($76)
254
9
(101)
0
(14)
15
$86
$335
(497)
3
(1)
0
(15)
(51)
($226)
($380)
0
3
(2)
0
(18)
(11)
($408)
($142)
0
2
(3)
0
(40)
(8)
($191)
($229)
0
117
(2)
0
(57)
0
($171)
($88)
0
10
(5)
0
(62)
(12)
($157)
$339
185
181
(6)
(41)
(77)
(16)
$564
$0
150
0
0
(43)
(90)
0
$17
(1)
(10)
(2)
(3)
(0)
(1)
(4)
($19)
57
$38
$10
38
$48
$25
48
$73
$76
73
$149
($23)
149
$126
($43)
126
$84
($39)
84
$45
($23)
45
$22
$13
22
$35
$1
35
$36
($31)
36
$5
$57
5
$62
FX and other
Chg in cash
Beginning cash
Ending cash
154
October 14, 2014
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 industrys 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.
155
October 14, 2014
FMC Technologies
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.
FTI current trades at 10.7x, a
25x
21x
17x
13x
9x
FTI
Capital Equipment
5x
'04
'05
'06
156
'07
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
FMC Technologies
2006
Revenues
Subsea Technologies
Surface Technologies
Energy Infrastructure
Intercompany Eliminations
Total revenues
$3,908
2007
$2,731
954
454
(14)
$4,126
2008
2009
2010
2011
2012
2013
2014E
2015E
$2,988
985
597
(20)
$4,551
$3,088
818
524
(24)
$4,405
$2,731
954
454
(14)
$4,126
$3,288
1,311
503
(1)
$5,101
$4,007
1,598
574
(28)
$6,151
$4,727
1,807
617
(25)
$7,126
$5,248
2,030
632
(13)
$7,896
$5,704
2,246
695
(15)
$8,631
$422
173
38
(40)
$544
(9)
$536
(175)
$360
$320
250
49
(39)
$557
(8)
$549
(157)
$393
$432
284
68
(42)
$641
(27)
$614
(166)
$448
$548
257
74
(46)
$776
(34)
$743
(213)
$530
$732
333
89
(67)
$1,010
(33)
$977
(306)
$671
$870
399
111
(64)
$1,240
(33)
$1,207
(374)
$833
Operating Income
Subsea Technologies
Corporate Expense
Net Interest expense
Pretax income
Taxes
Net income
$367
(7)
$360
(122)
$238
$492
(9)
$482
(164)
$318
$556
(2)
$554
(167)
$387
$415
138
66
(35)
$526
(10)
$516
(155)
$361
Per Share Data

Diluted Earnings
Dividend
$1.69
$0.00
$2.38
$0.00
$2.99
$0.00
$2.88
$0.00
$2.94
$0.00
$1.61
$0.00
$1.86
$0.00
$2.22
$0.00
$2.82
$0.00
$3.50
$0.00
9%
11%
11%
13%
11%
14%
12%
14%
13%
16%
11%
13%
10%
13%
11%
14%
13%
16%
14%
17%
Margins Summary
EBITDA Margin
157
October 14, 2014
FMC Technologies
2013
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$1,349
501
160
(3)
$2,007
$1,369
538
177
(4)
$2,080
$1,382
527
160
(4)
$2,066
$1,422
562
164
(4)
$2,144
$1,450
552
176
(4)
$2,174
$1,451
605
195
(4)
$2,247
$194
79
18
(17)
$257
8
$248
77
$172
$197
75
24
(18)
$258
8
$249
77
$172
$200
91
31
(18)
$285
8
$276
85
$191
$204
90
24
(16)
$283
8
$275
85
$190
$212
99
25
(16)
$301
8
$293
91
$202
$226
98
28
(16)
$318
8
$310
96
$214
$227
112
34
(16)
$338
8
$329
102
$227
$0.57
$0.00
$0.72
$0.00
$0.73
$0.00
$0.80
$0.00
$0.80
$0.00
$0.85
$0.00
$0.90
$0.00
$0.95
$0.00
0%
14%
0%
16%
0%
16%
0%
17%
0%
17%
0%
17%
0%
18%
0%
18%
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
$1,093
422
134
(4)
$1,646
$1,124
440
158
(14)
$1,708
$1,120
456
152
(4)
$1,725
$1,390
489
173
(4)
$2,048
$1,202
480
146
(3)
$1,824
$1,329
511
149
(3)
$1,985
Operating Income
Subsea
Surface
Infrastructure
Corporate Expense
Operating Income
Pretax income
Taxes
Net income
$97
57
12
(10)
$139
8
$131
29
$102
$120
57
22
(13)
$165
9
$156
41
$114
$121
75
18
(10)
$185
8
$176
52
$125
$210
68
23
(13)
$288
9
$280
91
$189
$142
88
16
(15)
$210
8
$202
67
$135
Per Share Data

Diluted Earnings
Dividend
$0.43
$0.00
$0.48
$0.00
$0.52
$0.00
$0.79
$0.00
Margins Summary
Operating Margin
EBITDA Margin
0%
11%
0%
13%
0%
14%
0%
18%
Revenues
Subsea
Surface
Infrastructure
Eliminations
Total revenues
158
October 14, 2014
FMC Technologies
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$80
903
589
119
$1,690
26
446
187
$2,483
$130
957
675
343
$2,104
34
579
273
$3,211
$340
996
559
548
$2,444
151
495
199
$3,586
$461
879
592
294
$2,226
142
582
427
$3,510
$316
1,103
567
360
$2,345
148
609
415
$3,644
$344
1,342
712
390
$2,788
161
768
394
$4,271
$342
1,766
965
416
$3,488
37
1,244
945
$5,903
$399
2,067
980
576
$4,023
44
1,349
896
$6,606
$633
2,221
1,075
601
$4,530
40
1,498
879
$7,236
$1,125
2,490
1,173
650
$5,438
40
1,632
879
$8,278

Short-Term Debt
$6
Accounts Payable
423
Other
780
Current liabilities
$1,209
LT debt
213
Other
186
Total liabilities
$1,607
876
Total
$2,483
$7
504
1,274
$1,785
122
282
$2,190
1,022
$3,211
$23
1,266
673
$1,963
472
455
$2,890
697
$3,586
$29
344
1,306
$1,679
392
328
$2,398
1,112
$3,510
$12
344
1,139
$1,495
351
475
$2,322
1,322
$3,644
$588
547
1,099
$2,233
36
564
$2,833
1,438
$4,271
$60
664
1,246
$1,970
1,580
499
$4,050
1,853
$5,903
$43
751
1,822
$2,615
1,330
325
$4,269
2,336
$6,606
$21
746
1,856
$2,623
1,289
311
$4,223
3,013
$7,236
$21
806
2,005
$2,832
1,289
311
$4,431
3,846
$8,278
2008
2009
2010
2011
2012
2013
2014E
2015E
Assets
Cash & equivalents
Accounts receivable
Inventories
Other
Current assets
Investments
PP&E
Goodwill
Total assets

2006
2007
Net Income
Other
Working Capital Chg
$212
71
0
(2)
(126)
$155
$308
84
0
0
183
$575
$353
73
63
73
(301)
$262
$361
93
4
98
41
$597
$376
101
0
1
(282)
$195
Acquisitions
Other
Cash from investing
($139)
(10)
54
($94)
($203)
(64)
74
($193)
($165)
(121)
(1)
($288)
($110)
(153)
9
($254)
($113)
0
3
($109)
Change in Debt
Change in Equity
Dividends
Cash flow financing
($38)
(99)
0
($137)
($98)
(249)
0
($347)
$369
(123)
6
$253
($80)
(153)
(5)
($238)
($58)
(162)
(11)
($231)
$264
(113)
(10)
$141
$3
$15
($5)
$17
($0)
($73)
172
$99
$50
99
$149
$211
149
$360
$121
360
$480
($145)
480
$335
FX and other
Chg in cash
Beginning cash
Ending cash
159
$404
108
(15)
57
(389)
$165
$435
146
(10)
160
(593)
$138
$507
210
(20)
118
(19)
$795
$728
235
5
(33)
(273)
$663
$833
266
0
0
(207)
$892
($274)
($406)
0
(616)
0
1
($274) ($1,020)
($314)
0
3
($312)
($356)
0
109
($247)
($400)
0
0
($400)
$983
(90)
(11)
$881
($270)
(116)
(36)
($422)
($67)
(72)
(43)
($182)
$0
0
$0
$0
($4)
($2)
($5)
$0
$0
$28
335
$363
($2)
363
$362
$57
362
$419
$234
419
$653
$492
653
$1,144
October 14, 2014

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 cant be
manufactured within six months. While Forums 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 companys 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 doesnt 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 twoto-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
Forums high installed base of 400 active Perry ROVs. In contrast to OIIs higher mix of drilling-based
ROVs, FET competes with FTIs 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.
160
October 14, 2014

Forum guided to 3Q14 EPS of $0.42-0.48, with risk to the downside if planned shipments dont 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 dont 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 companys 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.
FET
18x

15x
12x
9x
FET current trades at 12.6x, a -9% discount
to the group's 13.9x average and a -3%
6x
3x
'04
'05
'06
161
'07
'08
'09
'10
'11
'12
'13
'14
October 14, 2014

2008
2009
2010
2011
2012
2014E
2015E
$941
585
(1)
$1,525
$1,140
595
(1)
$1,733
$1,455
642
(1)
$2,096
$161
97
(16)
$242
(16)
(2)
$224
(69)
(0)
$155
$156
87
(24)
$219
(18)
(5)
$195
(54)
0
$141
$207
105
(35)
$276
(31)
(5)
$240
(67)
0
$174
$276
115
(36)
$355
(33)
0
$322
(93)
0
$230
$1.38
$0.00
$1.77
$0.00
$1.49
$0.00
$1.82
$0.00
$2.40
$0.00
19%
13%
17%
23%
19%
18%
24%
19%
21%
21%
17%
18%
22%
20%
20%
22%
20%
20%
11%
8%
10%
18%
17%
14%
20%
17%
17%
17%
15%
14%
18%
18%
16%
19%
18%
17%
Revenues
Drilling & Subsea
Production & Infrastructure
Other
Total revenues
$659
314
0
$973
$455
222
0
$677
$474
273
0
$747
$659
469
0
$1,128
$827
589
(1)
$1,415
Operating income
Drilling & Subsea
Other
Operating income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
$67
23
0
$90
(23)
(0)
$67
(33)
(0)
$34
$38
12
0
$50
(18)
(1)
$31
(11)
(0)
$20
$54
23
(3)
$73
(29)
0
$44
(20)
(0)
$24
$118
78
(35)
$160
(19)
(0)
$141
(47)
(0)
$94
$0.72
$0.00
$0.40
$0.00
$0.44
$0.00
14%
10%
13%
15%
9%
13%
10%
7%
9%
8%
5%
7%
Per Share Data

Diluted Earnings
Dividend
Margins Summary
EBITDA margins
Drilling & Subsea
Companywide
Operating margins
Drilling & Subsea
Companywide
162
2013
October 14, 2014

1Q13
2013
2Q13
3Q13
4Q13
1Q14
2014
2Q14
3Q14E
4Q14E
1Q15E
2015
2Q15E 3Q15E
4Q15E
Revenues
Drilling & Subsea
Other
Total revenues
$222
151
(0)
$373
$209
159
(0)
$368
$248
143
(1)
$390
$261
133
(0)
$394
$262
143
(0)
$404
$279
149
(0)
$428
$291
156
(0)
$446
$308
147
(0)
$455
$327
154
(0)
$481
$349
161
(0)
$510
$378
168
(0)
$546
$401
159
(0)
$559
Operating income
Drilling & Subsea
Other
Operating income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
$35
21
(7)
$49
(3)
2
$47
(15)
0
$32
$33
23
(9)
$47
(3)
(1)
$43
(13)
0
$30
$43
21
(1)
$64
(4)
(4)
$55
(13)
0
$42
$45
21
(7)
$59
(8)
(1)
$50
(13)
0
$37
$47
24
(9)
$62
(8)
(1)
$53
(15)
0
$38
$50
27
(10)
$67
(8)
(3)
$56
(14)
0
$42
$52
28
(8)
$72
(8)
0
$64
(19)
0
$45
$57
26
(8)
$75
(8)
0
$67
(19)
0
$48
$63
25
(9)
$79
(8)
0
$71
(20)
0
$51
$64
30
(9)
$85
(8)
0
$77
(22)
0
$55
$71
31
(9)
$93
(8)
0
$85
(24)
0
$61
$78
29
(9)
$98
(8)
0
$89
(26)
0
$64
$0.34
$0.00
$0.32
$0.00
$0.44
$0.00
$0.39
$0.00
$0.40
$0.00
$0.44
$0.00
$0.47
$0.00
$0.50
$0.00
$0.53
$0.00
$0.57
$0.00
$0.63
$0.00
$0.66
$0.00
21%
16%
17%
20%
16%
16%
21%
17%
20%
22%
18%
19%
22%
18%
19%
21%
20%
19%
22%
20%
20%
22%
20%
20%
22%
19%
20%
22%
20%
20%
22%
20%
20%
22%
20%
20%
16%
14%
13%
16%
14%
13%
17%
15%
16%
17%
16%
15%
18%
17%
15%
18%
18%
16%
18%
18%
16%
19%
18%
16%
19%
17%
16%
18%
18%
17%
19%
18%
17%
19%
18%
17%
Per Share Data

Diluted Earnings
Dividend
Margins Summary
EBITDA margins
Drilling & Subsea
Companywide
Operating margins
Drilling & Subsea
Companywide
163
October 14, 2014

2008
Assets
Cash & equivalents
Other
Current assets
PP&E
Goodwill
Other
Total assets
Current maturities
Other
Current liabilities
LT debt
Total liabilities
Stockholder Equity
Total
2009
$20
109
$961
322
(0)
377
$961
2010
2011
2012
2013
2014E
2015E
$27
313
$340
97
301
103
$840
$20
322
$342
91
294
91
$818
$21
598
$619
125
601
263
$1,607
$41
734
$775
153
696
269
$1,893
$40
786
$825
180
1,098
81
$2,185
$89
854
$943
188
1,120
77
$2,328
$129
1,050
$1,179
182
1,120
77
$2,558
$35
114
$149
237
52
$438
(0)
402
$840
$3
124
$127
205
24
$355
(0)
463
$818
$98
157
$255
660
37
$952
(0)
654
$1,607
$21
260
$281
400
50
$731
(0)
1,162
$1,893
$1
227
$228
512
114
$854
0
1,330
$2,185
$1
240
$240
437
118
$795
0
1,533
$2,328
$1
240
$240
437
118
$795
0
1,762
$2,558
2013
2014E
2015E

2008
2009
2010
2011
2012
Net income
Depreciation
Other
$34
21
57
$112
$19
24
64
$108
$24
22
20
$66
$94
41
(95)
$39
$152
52
(58)
$145
$130
61
21
$211
$169
64
(32)
$200
$230
66
(196)
$100
Capex
Asset sales
Acquisitions
Cash from investing
($40)
13
(134)
($161)
($15)
6
(2)
($11)
($20)
0
0
($19)
($41)
1
(510)
($550)
($50)
5
(140)
($185)
($60)
0
(229)
($289)
($60)
9
(38)
($89)
($60)
0
0
($60)
$132
(96)
0
23
$59
$8
(102)
0
(0)
($95)
$324
(407)
0
29
($54)
$520
(62)
0
52
$510
$203
(454)
(18)
328
$59
$808
(716)
(11)
(4)
$77
$0
(76)
0
11
($64)
$0
0
0
0
$0
(23)
(1)
($13)
33
$20
$7
20
$27
($7)
27
$20
$0
20
$21
$21
21
$41
($2)
41
$40
$49
40
$89
$40
89
$129
Proceeds from LT debt
Repayment of LT debt
Payment of contingent consideration
Other
Cash flow financing
FX and other
Chg in cash
Beginning cash
Ending cash
164
October 14, 2014
Franks 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
Franks 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 companys strong balance sheet ($444MM of cash and essentially no
debt) has encouraged persistent questions regarding M&A activity. Franks 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 companys 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.
165
October 14, 2014
Dividend growth/special dividend. As of 6/30/14, Franks 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 FIs
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 FIs proprietary equipment (elevators and
spiders) becomes more apparent, thus playing into FIs 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.
28x
24x
20x
16x
12x
FI
FI current trades at 13.5x, a -11% discount to the group's

8x
'04
'05
'06
166
'07
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
2012
2013
2014E
2015E
$469
445
215
(73)
$1,052
$475
435
167
0
$1,078
$521
439
174
0
$1,134
$561
491
181
0
$1,232
Adjusted EBITDA
International Services
U.S. Services
Tubular Sales
Corporate
Adjusted EBITDA
D&A
Operating income
Foreign Currency Loss
Other Income
Pretax income
Taxes
Net income
$219
199
28
(0)
$447
66
$380
0
(0)
(0)
$380
(32)
$348
$208
198
41
1
$447
78
$370
(0)
(3)
(4)
$363
(40)
$318
$206
186
41
0
$433
89
$344
0
0
(38)
$306
(69)
$237
$232
209
42
0
$484
105
$379
0
0
(22)
$357
(80)
$277
Per Share Data

Diluted Earnings
Dividends
$1.88
$0.00
$1.74
$0.08
$1.14
$0.45
$1.33
$0.60
47%
45%
13%
42%
36%
44%
46%
24%
42%
34%
40%
42%
24%
38%
30%
41%
43%
23%
39%
31%
Revenues
U.S. Services
Tubular Sales
Intersegment purchases
Total revenues
Margins Summary
EBITDA margins
INTL. Services
U.S. Services
Pipe and Products
EBITDA margins
Operating margins
167
October 14, 2014
2013
1Q13
Revenues
U.S. Services
Tubular Sales
Intersegment purchas
Total revenues
Adjusted EBITDA
U.S. Services
Tubular Sales
Corporate
Adjusted EBITDA
D&A
Operating income
Foreign Currency Los
Other Income
Pretax income
Taxes
Net income
Per Share Data
Diluted Earnings
Dividends
Margins Summary
EBITDA margins
INTL. Services
U.S. Services
Pipe and Products
EBITDA margins
Operating margins
168
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$110
98
25
0
$233
$121
116
56
0
$293
$122
108
40
0
$270
$122
114
46
0
$282
$119
104
42
0
$264
$129
106
38
0
$273
$133
111
44
0
$287
$140
119
50
0
$309
$133
121
44
0
$298
$141
122
39
0
$302
$143
122
45
0
$311
$143
126
52
0
$321
$50
43
7
(0)
$99
17
$82
0
(4)
$54
59
14
0
$128
19
$109
(0)
(2)
$57
47
5
1
$110
20
$90
0
0
$46
49
15
0
$110
21
$89
(0)
(5)
$51
42
9
0
$102
21
$81
(0)
(5)
$49
45
9
0
$103
22
$81
0
(15)
$51
48
10
0
$109
22
$87
0
(9)
$55
52
12
0
$119
24
$95
0
(9)
$54
51
10
0
$115
26
$88
0
(6)
$59
52
9
0
$119
26
$93
0
(6)
$60
52
11
0
$123
26
$97
0
(6)
$60
54
12
0
$126
26
$100
0
(6)
$78
(6)
$72
$107
(6)
$101
$90
(22)
$68
$83
(6)
$77
$76
(16)
$60
$66
(16)
$50
$78
(17)
$60
$86
(19)
$67
$83
(19)
$64
$88
(20)
$68
$92
(21)
$71
$95
(21)
$73
$0.42
$0.00
$0.59
$0.00
$0.36
$0.00
$0.37
$0.08
$0.29
$0.08
$0.24
$0.08
$0.29
$0.15
$0.32
$0.15
$0.31
$0.15
$0.33
$0.15
$0.34
$0.15
$0.35
$0.15
45%
44%
27%
43%
35%
45%
51%
25%
44%
37%
47%
44%
13%
41%
33%
38%
43%
32%
39%
31%
43%
40%
22%
39%
31%
38%
43%
25%
38%
30%
38%
43%
24%
38%
30%
39%
43%
23%
38%
31%
40%
42%
23%
39%
30%
41%
43%
23%
39%
31%
42%
43%
23%
40%
31%
42%
43%
24%
39%
31%
October 14, 2014
2012
2013
2014E
2015E
$153
314
109
17
$592
427
15
2
73
$1,108
$405
365
186
16
$971
511
15
0
64
$1,561
$369
408
242
16
$1,034
612
15
0
64
$1,725
$520
424
251
16
$1,210
595
15
0
64
$1,884

Current maturities
$330
Accounts payable
19
Other
22
Current liabilities
$477
LT debt
147
Deferred taxes
7
31
Total liabilities
$661
Shareholder's Equity
447
Total
$1,108
$0
22
(15)
$176
0
13
38
$227
1,334
$1,561
$0
18
16
$184
0
15
41
$240
1,485
$1,725
$0
19
6
$191
0
15
41
$247
1,637
$1,884
2014E
2015E
Assets
Cash & equivalents
Accounts receivable
Inventory
Other
Current assets
PPE
Goodwill
Intangible assets
Other assets
Total assets

2012
Net income
D&A
Deferred tax provision
Provision for (recovery of) bad d
Gain on sale of assets
Changes in value of marketable
Other-CF
Change in working capital
2013
$351
66
1
(0)
(3)
(2)
(4)
(65)
$345
$351
78
4
13
(40)
(4)
8
(132)
$277
$237
89
3
(0)
(0)
(1)
20
(87)
$262
$277
105
0
0
0
0
0
(18)
$363
Capex
Asset sales
Marketable Securities
Other
Cash from investing
($180)
$5
(3)
(5)
($183)
($185)
$51
(2)
(2)
($138)
($190)
$2
(2)
0
($189)
($88)
$0
0
0
($88)
Chg in Debt
Change in Equity
Distributions to stockholders
Other
Cash flow financing
($20)
0
(87)
0
($107)
($473)
712
(128)
0
$110
($0)
0
(108)
0
($108)
$0
0
(125)
0
($125)
FX and other
($0.7)
$1.8
($1.2)
$0.0
Chg in cash
Beginning cash
Ending cash
$54.3
99
$153
$252.0
153
$405
($36.2)
407
$371
$151.2
369
$521
169
October 14, 2014
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 GLFs 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 companys 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.
170
October 14, 2014
Gulfmark Offshore
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
Brazils 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.
GLF current trades at 5.9x, a -8% discount to the group's

10x
9x
8x
7x
6x
GLF
5x
Offshore Technology
4x
'06
'07
171
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Gulfmark Offshore
2005
Revenues
North Sea
Southeast Asia
Americas
Total revenues
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$160
20
24
$204
$199
27
24
$251
$242
41
23
$306
$226
78
108
$412
$165
77
147
$389
$149
67
144
$360
$172
64
146
$382
$164
61
164
$389
$184
65
206
$455
$229
71
224
$525
$236
72
278
$586
($83)
(9)
(20)
(4)
$89
(29)
$60
(19)
1
$42
(3)
$38
($92)
(9)
(25)
0
$125
(28)
$97
(16)
11
$93
(3)
$90
($108)
(13)
(32)
0
$153
(31)
$122
(8)
15
$129
(30)
$99
($144)
(11)
(40)
2
$219
(44)
$174
(14)
3
$163
(13)
$150
($162)
(16)
(43)
0
$168
(53)
$115
(20)
(2)
$93
(6)
$87
($171)
(22)
(44)
0
$123
(57)
$66
(22)
1
$45
(2)
$43
($183)
(16)
(45)
(0)
$138
(60)
$78
(22)
(2)
$54
(5)
$50
($198)
(33)
(49)
0
$109
(60)
$49
(20)
(0)
$29
(3)
$26
($217)
(24)
(52)
(0)
$161
(64)
$97
(24)
(1)
$72
(6)
$66
($238)
(28)
(60)
0
$199
(76)
$123
(30)
2
$94
(7)
$87
($247)
(35)
(62)
0
$242
(83)
$159
(35)
0
$125
(12)
$112
Per Share Data

Diluted Earnings
Dividend
$1.86
$0.00
$4.26
$0.00
$4.28
$0.00
$6.16
$0.00
$3.43
$0.00
$1.69
$0.00
$1.89
$0.00
$0.99
$0.00
$2.52
$0.00
$3.30
$0.00
$4.24
$0.00
Margins Summary
Gross Margin
EBITDA Margin
Operating Margin
59%
43%
29%
62%
49%
37%
64%
50%
40%
65%
53%
42%
58%
42%
29%
52%
34%
18%
52%
36%
20%
49%
28%
12%
52%
35%
21%
55%
38%
23%
58%
41%
27%
Expenses
Subsea Technologies
Other
EBITDA
D&A
Operating Income
Interest Expense
Other
Pretax Income
Taxes
Net income
172
October 14, 2014
Gulfmark Offshore
2013
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
Revenues
North Sea
Southeast Asia
Americas
Total revenues
$41
10
47
$97
$43
17
52
$111
$51
19
52
$122
$50
20
55
$125
$53
18
49
$120
$58
17
56
$131
$60
18
58
$135
$59
18
62
$138
$58
18
66
$141
$58
18
70
$146
$60
18
70
$148
$60
18
72
$151
Expenses
Subsea Technologies
Other
EBITDA
D&A
Operating Income
Interest Expense
Other
Pretax Income
Taxes
Net income
($53)
(9)
(11)
0
$24
(15)
$9
(6)
1
$3
(0)
$3
($53)
(9)
(14)
(0)
$34
(15)
$19
(5)
(1)
$13
(2)
$11
($55)
(2)
(14)
0
$51
(16)
$34
(5)
(1)
$29
(2)
$26
($56)
(4)
(13)
(0)
$52
(18)
$34
(7)
(0)
$27
(1)
$26
($56)
(7)
(14)
0
$42
(18)
$23
(7)
1
$17
(1)
$17
($60)
(5)
(15)
0
$52
(19)
$33
(7)
1
$26
(2)
$24
($61)
(8)
(15)
0
$51
(19)
$32
(8)
0
$24
(2)
$22
($61)
(8)
(15)
0
$54
(20)
$35
(8)
0
$27
(2)
$24
($61)
(8)
(15)
0
$56
(20)
$36
(8)
0
$28
(3)
$25
($62)
(9)
(15)
0
$60
(21)
$39
(9)
0
$31
(3)
$28
($62)
(9)
(16)
0
$62
(21)
$41
(9)
0
$32
(3)
$29
($62)
(9)
(16)
0
$64
(22)
$43
(9)
0
$34
(3)
$30
Per Share Data

Diluted Earnings
Dividend
$0.11
$0.00
$0.44
$0.00
$1.00
$0.00
$0.97
$0.00
$0.63
$0.00
$0.91
$0.00
$0.84
$0.00
$0.92
$0.00
$0.95
$0.00
$1.05
$0.00
$1.10
$0.00
$1.15
$0.00
Margins Summary
Gross Margin
EBITDA Margin
Operating Margin
45%
25%
9%
52%
31%
17%
55%
42%
28%
55%
41%
27%
53%
35%
19%
55%
40%
25%
55%
38%
24%
56%
39%
25%
56%
40%
26%
58%
41%
27%
58%
42%
28%
59%
43%
28%
173
October 14, 2014
Gulfmark Offshore
2005
Assets
Cash & equivalents
Accounts receivable
Other
Current assets
PP&E
CIP
Goodwill
Other
Total assets
$24
38
7
$69
485
25
28
6
$614

Accounts Payable
$16
Accrued & Other
16
Current liabilities
$32
LT debt
250
9
Other
35
Total liabilities
$294
320
Total
$614
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$83
54
6
$143
525
47
30
6
$751
$40
87
7
$134
641
113
34
12
$934
$101
101
11
$213
1,035
134
157
17
$1,557
$92
77
16
$185
1,164
40
7
169
$1,566
$97
67
27
$191
1,191
3
59
20
$1,464
$129
85
28
$242
1,143
37
56
22
$1,500
$232
86
34
$352
1,136
169
55
33
$1,746
$69
100
29
$199
1,317
178
49
30
$1,773
$68
123
40
$231
1,603
12
48
21
$1,916
$156
137
45
$339
1,808
0
48
21
$2,215
$17
21
$37
160
7
42
$209
541
$751
$21
29
$50
160
3
96
$258
676
$934
$15
60
$75
463
116
123
$702
855
$1,557
$33
64
$97
326
113
139
$578
987
$1,566
$15
41
$56
326
103
90
$518
946
$1,464
$14
46
$61
307
105
95
$508
992
$1,500
$29
51
$80
501
106
111
$718
1,028
$1,746
$27
46
$74
501
105
104
$710
1,063
$1,773
$25
45
$70
546
105
102
$752
1,163
$1,916
$25
46
$71
496
105
102
$703
1,512
$2,215
2008
2009
2010

2005
Net Income
Depreciation
Deferred income tax pr
Other
Working Capital Chg
2006
2007
2011
2012
2013
2014E
2015E
$38
29
1
3
(7)
$65
$90
28
(2)
(6)
(5)
$105
$99
31
0
(6)
5
$129
$184
44
7
(25)
(5)
$205
$51
53
(3)
51
19
$171
($35)
57
(8)
98
(20)
$92
$50
60
(0)
(12)
0
$97
$19
60
(3)
4
22
$103
$71
64
0
6
(14)
$127
$77
76
1
37
(37)
$154
$112
83
2
47
(19)
$225
Dispositions
Other
Cash from investing
($43)
0
0
($43)
($47)
19
0
($28)
($191)
16
0
($175)
($109)
43
(122)
($187)
($77)
9
0
($68)
($73)
20
0
($54)
($52)
3
0
($49)
($192)
41
0
($152)
($262)
14
0
($248)
($175)
0
0
($175)
($61)
0
0
($61)
Change in Debt
Change in Equity
Cash flow financing
Other
Cash flow financing
($17)
2
0
0
($16)
($98)
1
77
0
($21)
($1)
1
0
0
$0
$56
0
0
0
$57
($123)
1
2
0
($120)
($103)
2
1
68
($33)
($19)
3
0
0
($16)
$193
2
(26)
(19)
$151
$0
(12)
(26)
(2)
($40)
$45
1
(27)
0
$19
($50)
0
(26)
0
($76)
$1
$3
$4
($15)
$9
$0
($0)
$2
($2)
$0
$0
$7
18
$24
$59
24
$83
($43)
83
$40
$61
40
$101
($9)
101
$92
$5
92
$97
$32
97
$129
$103
129
$232
($163)
232
$69
($1)
60
$68
$88
68
$156
FX and other
Chg in cash
Beginning cash
Ending cash
174
October 14, 2014
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
Halliburtons 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 companys 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.
175
October 14, 2014
Halliburton
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.
28x
HAL current trades at 10.8x, a -7%

historical 14.8x.
24x
20x
16x
12x
8x
HAL
Big Four Average
4x
'04
'05
'06
176
'07
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Halliburton
2004
Revenues
North America
Latin America
Europe, Africa, CIS
Middle East, APAC
Total revenues
EBITDA
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$3,609
$4,819
$6,458
$7,133
$8,340
$5,662
$8,827 $14,413 $16,004 $15,212 $17,303 $19,501
1,082
1,344
1,514
1,798
2,425
2,181
2,229
2,982
3,694
3,909
3,875
4,326
1,665
2,274
2,750
3,700
4,346
3,948
3,914
3,956
4,510
5,225
5,777
6,531
1,642
1,663
2,185
2,633
3,168
2,884
3,003
3,478
4,295
5,056
5,896
6,871
$20,466 $10,100 $12,907 $15,264 $18,279 $14,675 $17,973 $24,829 $28,503 $29,402 $32,851 $37,229
$1,760
$2,668
$3,724
$4,109
$4,728
$2,987
$4,178
$6,215
$6,115
$6,185
$7,229
$9,127
$509
$504
$527
$583
$738
$931
$1,119
$1,359
$1,628
$1,900
$2,121
$2,369
$701
123
175
230
(80)
$1,251
$1,411
203
410
340
(200)
$2,164
$2,071
300
539
510
(223)
$3,197
$1,980
349
744
669
(215)
$3,526
$2,045
521
857
814
(247)
$3,990
$459
381
703
699
(186)
$2,056
$1,876
290
584
545
(236)
$3,059
$3,982
464
332
453
(375)
$4,856
$2,980
607
593
687
(380)
$4,487
$2,613
526
698
877
(429)
$4,285
$3,098
485
894
1,018
(388)
$5,108
$3,882
705
1,277
1,307
(413)
$6,758

($185)
Currency Gains (Losse
(3)
Other Income
2
Pretax income
$1,065
Taxes
(392)
Minority interest
(25)
Net income
$648
($143)
(13)
(14)
$1,994
(555)
(56)
$1,383
($13)
(22)
0
$3,162
(1,127)
(33)
$2,002
($31)
(3)
(5)
$3,487
(1,106)
(29)
$2,352
($121)
0
(16)
$3,853
(1,191)
(19)
$2,643
($285)
0
(15)
$1,756
(543)
(10)
$1,203
($297)
0
(26)
$2,736
(850)
(5)
$1,881
($262)
0
(25)
$4,569
(1,473)
(3)
$3,093
($296)
0
(39)
$4,152
(1,355)
(10)
$2,787
($331)
0
(43)
$3,911
(1,057)
(10)
$2,844
($375)
0
(55)
$4,678
(1,313)
3
$3,367
($376)
0
0
$6,382
(1,819)
(4)
$4,559
$0.73
$0.25
$1.33
$0.24
$1.90
$0.29
$2.48
$0.33
$2.92
$0.35
$1.33
$0.36
$2.06
$0.37
$3.35
$0.36
$3.00
$0.36
$3.17
$0.52
$3.95
$0.60
$5.31
$0.60
19%
11%
11%
14%
6%
9%
29%
15%
18%
20%
21%
26%
32%
20%
20%
23%
25%
29%
28%
19%
20%
25%
23%
27%
25%
21%
20%
26%
22%
26%
8%
17%
18%
24%
14%
20%
21%
13%
15%
18%
17%
23%
28%
16%
8%
13%
20%
25%
19%
16%
13%
16%
16%
21%
17%
13%
13%
17%
15%
21%
18%
13%
15%
17%
16%
22%
20%
16%
20%
19%
18%
25%
D&A
Operating Income
North America
Latin America
Europe, Africa, CIS
Middle East, APAC
Corporate
Operating Income
Per Share Data

Diluted Earnings
Dividend
Margins Summary
Operating Margins
North America
Latin America
Europe, Africa, CIS
Middle East, APAC
Companywide
EBITDA margins
177
October 14, 2014
Halliburton
2013
Revenues
North America
Latin America
Europe, Africa, CIS
Middle East, APAC
Total revenues
EBITDA
D&A
Operating Income
North America
Latin America
Europe, Africa, CIS
Middle East, APAC
Corporate
Operating Income
Currency Gains (Losse
Other Income
Pretax income
Taxes
Minority interest
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Operating Margins
North America
Latin America
Europe, Africa, CIS
Middle East, APAC
Companywide
EBITDA margins
178
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$4,534
1,040
1,474
1,499
$8,547
$4,524
1,079
1,623
1,679
$8,905
$4,681
970
1,494
1,573
$8,719
$4,829
1,024
1,554
1,643
$9,051
$5,014
1,144
1,658
1,724
$9,541
$4,976
1,187
1,826
1,931
$9,919
$1,718
$1,923
$2,108
$2,048
$2,187
$2,373
$2,519
$510
$524
$534
$553
$572
$586
$599
$612
$651
157
209
264
(99)
$1,182
$602
100
146
211
(89)
$970
$790
61
186
264
(107)
$1,194
$857
152
246
229
(94)
$1,390
$850
172
316
314
(98)
$1,554
$895
154
271
262
(105)
$1,476
$951
164
292
293
(100)
$1,601
$1,030
188
328
329
(103)
$1,774
$1,006
199
387
422
(107)
$1,907
($91)
0
(12)
$1,059
(312)
(2)
$745
($98)
0
(6)
$1,078
(278)
(2)
$798
($93)
0
(31)
$846
(229)
6
$623
($94)
0
(24)
$1,076
(299)
(1)
$776
($94)
0
0
$1,296
(369)
(1)
$925
($94)
0
0
$1,460
(416)
(1)
$1,043
($94)
0
0
$1,382
(394)
(1)
$987
($94)
0
0
$1,507
(429)
(1)
$1,076
($94)
0
0
$1,680
(479)
(1)
$1,200
($94)
0
0
$1,813
(517)
(1)
$1,296
$0.73
$0.13
$0.83
$0.13
$0.93
$0.15
$0.73
$0.15
$0.91
$0.15
$1.09
$0.15
$1.22
$0.15
$1.15
$0.15
$1.25
$0.15
$1.40
$0.15
$1.50
$0.15
18%
11%
12%
17%
14%
21%
18%
16%
15%
17%
16%
22%
17%
15%
15%
19%
15%
22%
15%
12%
11%
16%
13%
20%
18%
7%
13%
18%
15%
21%
19%
15%
17%
15%
16%
23%
19%
16%
19%
19%
17%
24%
19%
16%
18%
17%
17%
23%
20%
16%
19%
18%
18%
24%
21%
16%
20%
19%
19%
25%
20%
17%
21%
22%
19%
25%
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
$3,706
945
1,187
1,136
$6,974
$3,802
944
1,299
1,272
$7,317
$3,881
1,002
1,340
1,249
$7,472
$3,823
1,018
1,399
1,399
$7,639
$3,901
859
1,299
1,289
$7,348
$4,344
897
1,381
1,429
$8,051
$1,350
$1,513
$1,643
$1,679
$1,480
$448
$474
$481
$497
$605
109
121
187
(120)
$902
$666
101
161
219
(108)
$1,039
$691
159
207
207
(102)
$1,162
($71)
0
(14)
$817
(191)
(2)
$624
($71)
0
(11)
$957
(276)
(4)
$677
$0.67
$0.13
16%
12%
10%
16%
13%
19%
October 14, 2014
Halliburton
2004
Assets
Cash & equivalents
Accounts receivable
Inventories
Other-CA
Current assets
PPE
Goodwill
Deferred Taxes
Other
Total assets
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$2,808
$2,391
$4,379
$1,847
$1,124
$2,082
$1,398
$2,698
$2,484
$2,356
$2,553
$4,654
5,751
4,608
4,674
3,093
3,795
2,964
3,924
5,084
5,787
6,181
7,500
8,355
723
953
1,261
1,459
1,828
1,598
1,940
2,570
3,186
3,305
3,903
4,348
680
1,375
869
1,174
664
1,994
1,624
1,225
1,629
1,862
1,653
1,842
$9,962
$9,327 $11,183
$7,573
$7,411
$8,638
$8,886 $11,577 $13,086 $13,704 $15,609 $19,199
2,553
2,648
3,048
3,630
4,782
5,759
6,842
8,492
10,257
11,322
12,515
13,646
795
0
0
790
1,072
1,100
1,315
1,776
2,135
2,168
2,267
2,267
780
0
0
348
157
0
0
0
0
0
0
0
815
2,832
2,589
794
963
1,041
1,254
1,832
1,932
2,029
2,375
2,375
$14,905 $14,807 $16,820 $13,135 $14,385 $16,538 $18,297 $23,677 $27,410 $29,223 $32,766 $37,487

Short-Term Debt
$347
$361
$45
$159
$26
$750
$0
$0
$0
$0
$0
$0
Accounts Payable
2,271
1,967
1,931
768
898
787
1,139
1,826
2,041
2,365
3,016
3,360
Accrued Empl Comp
473
648
496
575
643
514
716
862
930
1,029
1,040
1,158
Taxes Payable
0
0
146
209
67
0
0
0
0
0
0
0
Other
1,012
2,109
2,751
700
1,147
838
902
1,433
1,781
1,632
1,882
2,097
Current liabilities
$4,103
$5,085
$5,369
$2,411
$2,781
$2,889
$2,757
$4,121
$4,752
$5,026
$5,938
$6,615
LT debt
3,593
2,813
2,786
2,627
2,586
3,824
3,824
4,820
4,820
7,816
7,816
7,816
Deferred taxes
427
1,388
1,484
1,137
1,274
1,068
1,329
1,520
2,048
2,766
2,712
2,712
(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 $17,168
Shareholders Equity $6,674
$5,376
$7,112
$6,866
$7,725
$8,728 $10,373 $13,198 $15,765 $13,581 $16,275 $20,319
Total
$14,905 $14,807 $16,820 $13,135 $14,385 $16,538 $18,297 $23,677 $27,410 $29,223 $32,766 $37,487

2004
2005
Net income
Depreciation
Other
Working Capital Chg
($979)
1,364
509
(176)
(220)
430
$928
$2,358
(1)
504
(235)
(151)
(459)
$2,017
Capex
Sales of PP&E
Acq. & Sales
Other
CF from Disc. Ops
Cash from investing
($575)
166
102
81
0
($226)
($651)
132
191
838
0
$510
Change in Debt
Change in Equity
Dividends
Other
CF from Disc. Ops
Cash flow financing
$469
56
(221)
81
0
$283
FX and other
Chg in cash
Beginning cash
Ending cash
179
2006
$2,348
10
527
682
(199)
(27)
$3,491
2007
$3,499
(944)
583
(111)
(23)
(278)
$2,726
2008
$1,538
423
738
0
885
(910)
$2,674
2009
$1,155
9
931
274
(417)
0
$2,406
2010
$1,842
(40)
1,119
124
(177)
(656)
$2,212
2011
$2,844
166
1,359
(30)
(6)
(649)
$3,684
2012
$2,645
(58)
1,628
165
300
(1,026)
$3,654
2013
$2,135
(19)
1,900
(132)
1,000
(437)
$4,447
2014E
2015E
$3,359
0
2,121
0
0
(1,032)
$4,448
$4,559
0
2,369
0
0
(811)
$6,117
($891) ($1,583) ($1,824) ($1,864) ($2,069) ($2,953) ($3,566) ($2,934) ($3,300) ($3,500)
158
203
191
0
0
0
395
241
0
0
347
(493)
(183)
(1,375)
(523)
(880)
(214)
(94)
0
0
(40)
(1,775)
(40)
154
837
643
(303)
(83)
(145)
0
0
0
0
0
0
0
0
0
0
0
($426) ($3,648) ($1,856) ($3,085) ($1,755) ($3,190) ($3,688) ($2,870) ($3,445) ($3,500)
($789)
($357)
$2
($861)
330
(672)
(1,264)
(343)
(254)
(306)
(314)
(319)
838
(40)
(1,775)
(40)
0
0
0
0
($720) ($1,280) ($1,570) ($1,523)
$1,944
(17)
(324)
154
0
$1,670
$0
0
(336)
837
0
($387)
$978
117
(330)
643
0
$833
$0
$2,968
74
(4,356)
(333)
(465)
(303)
(83)
0
0
($172) ($1,754)
$0
(500)
(510)
(145)
0
($780)
$0
0
(515)
0
0
($515)
(17)
38
(27)
(7)
(33)
(18)
(27)
(8)
49
(27)
$993
1,925
$2,918
$1,790
2,918
$4,708
$1,823
4,708
$6,531
($2,519)
6,531
$4,012
($712)
4,012
$3,300
$958
3,300
$4,258
$52
4,258
$4,310
$1,300
4,310
$5,610
($214)
5,610
$5,396
($128)
5,396
$5,268
$197
5,268
$5,464
$2,101
$5,464
$7,566
October 14, 2014
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 HPs 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. HPs 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
HPs 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 HPs 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 HPs 36 international rigs making it the companys biggest international market).
180
October 14, 2014
Helmerich & Payne

x

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
Argentinas 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.
9x
HP current trades at 4.6x, a -1% discount

HP
Onshore Drillers
8x
7x
6x
5x
4x
3x
2x
'06
'07
181
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Helmerich & Payne

2005
Revenues
Total Domestic Drilling
International Operations
Other
Total Revenue
Expenses
Intersegment Eliminations
Other
Total Operating Expenses
G&A
EBITDA
D&A
Other Income
Operating income
Interest expense
Pretax income
Taxes
Minority interest
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Gross Margin
EBITDA Margin
Operating Margin
Pretax Margin
182
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$613
177
$790
11
$801
$962
253
$1,214
10
$1,225
$1,284
334
$1,618
11
$1,630
$1,696
328
$2,025
12
$2,037
$1,646
237
$1,883
11
$1,894
$1,615
254
$1,869
13
$1,882
$2,302
227
$2,529
15
$2,544
$2,868
270
$3,138
14
$3,152
$3,007
362
$3,369
13
$3,382
$3,357
344
$3,701
14
$3,715
$3,891
451
$4,342
17
$4,359
($347)
(136)
(2)
($481)
(4)
($484)
(41)
$275
($96)
$5
$184
12
$196
(71)
2
$127
($487)
(173)
(2)
($658)
(4)
($662)
(52)
$511
($102)
$10
$420
(7)
$414
(145)
7
$276
$1.62
$0.17
$2.59
$0.17
$3.53
$0.18
$4.22
$0.19
$3.29
$0.20
$2.57
$0.22
$3.94
$0.26
$5.25
$0.28
$5.68
$0.87
$6.31
$2.44
$7.47
$2.75
40%
34%
22%
24%
46%
42%
33%
34%
47%
44%
35%
35%
47%
44%
34%
33%
47%
44%
31%
30%
43%
38%
24%
23%
44%
40%
28%
27%
44%
41%
29%
29%
46%
41%
28%
28%
46%
42%
29%
29%
46%
42%
29%
29%
($664)
($861)
($797)
($904) ($1,252) ($1,534) ($1,561) ($1,737) ($2,030)
(197)
(225)
(214)
(173)
(176)
(216)
(282)
(264)
(351)
(3)
(3)
(2)
0
0
0
0
0
0
($858) ($1,083) ($1,009) ($1,077) ($1,428) ($1,750) ($1,843) ($2,002) ($2,381)
(4)
(4)
(2)
(2)
(2)
(0)
0
7
13
($862) ($1,087) ($1,011) ($1,079) ($1,430) ($1,751) ($1,843) ($1,995) ($2,368)
(47)
(57)
(59)
(82)
(91)
(112)
(141)
(145)
(156)
$720
$893
$824
$721
$1,023
$1,289
$1,398
$1,575
$1,835
($146)
($199)
($236)
($267)
($315)
($374)
($456)
($508)
($572)
$3
$5
($7)
($6)
($14)
($1)
($0)
$0
$1
$577
$699
$581
$448
$693
$914
$943
$1,068
$1,264
(10)
(19)
(10)
(16)
(15)
(7)
(4)
(4)
(4)
$567
$680
$571
$432
$678
$898
$938
$1,064
$1,261
(205)
(248)
(231)
(155)
(249)
(328)
(326)
(375)
(441)
10
17
10
0
0
0
0
0
0
$371
$449
$350
$276
$429
$571
$613
$689
$820
October 14, 2014
Helmerich & Payne

2013
1Q13
Revenues
Other
Total Revenue
Expenses
Intersegment Eliminations
Other
Total Operating Expenses
G&A
EBITDA
D&A
Other Income
Operating income
Interest expense
Pretax income
Taxes
Minority interest
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Gross Margin
EBITDA Margin
Operating Margin
Pretax Margin
183
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$754
87
$841
4
$845
$741
89
$830
3
$833
$750
87
$837
4
$840
$763
99
$861
3
$865
$791
95
$886
3
$889
$805
86
$891
3
$893
$867
81
$948
4
$952
$894
82
$976
4
$980
$933
99
$1,032
4
$1,036
$945
113
$1,058
4
$1,062
$991
118
$1,109
4
$1,113
$1,022
121
$1,143
4
$1,148
($398)
(69)
0
($467)
0
($467)
(36)
$342
($107)
($2)
$233
(1)
$232
(82)
0
$150
($386)
(72)
0
($458)
0
($458)
(37)
$339
($112)
$0
$226
(1)
$232
(79)
0
$146
($383)
(68)
0
($451)
0
($451)
(35)
$354
($118)
($1)
$235
(2)
$232
(77)
0
$156
($393)
(74)
0
($467)
0
($467)
(34)
$364
($119)
$3
$248
(1)
$232
(86)
0
$161
($402)
(72)
0
($474)
(0)
($474)
(37)
$379
($120)
($0)
$258
(1)
$232
(88)
0
$169
($417)
(64)
0
($481)
0
($480)
(38)
$375
($124)
($0)
$251
(1)
$232
(91)
0
$159
($451)
(64)
0
($515)
3
($512)
(38)
$402
($129)
$0
$273
(1)
$232
(93)
0
$179
($467)
(65)
0
($532)
3
($529)
(32)
$419
($134)
$0
$285
(1)
$232
(102)
0
$182
($487)
(78)
0
($565)
3
($562)
(38)
$436
($138)
$0
$299
(1)
$232
(104)
0
$194
($493)
(88)
0
($581)
3
($578)
(39)
$445
($141)
$0
$304
(1)
$232
(106)
0
$197
($517)
(92)
0
($608)
3
($605)
(39)
$469
($145)
$0
$325
(1)
$232
(113)
0
$210
($532)
(94)
0
($626)
3
($623)
(40)
$485
($148)
$0
$337
(1)
$232
(118)
0
$218
$1.40
$0.07
$1.35
$0.15
$1.44
$0.15
$1.49
$0.50
$1.56
$0.50
$1.45
$0.63
$1.64
$0.63
$1.66
$0.69
$1.77
$0.69
$1.80
$0.69
$1.92
$0.69
$1.99
$0.69
45%
40%
28%
28%
45%
41%
27%
27%
46%
42%
28%
28%
46%
42%
28%
29%
47%
43%
29%
29%
46%
42%
28%
28%
46%
42%
29%
29%
46%
43%
29%
29%
46%
42%
29%
29%
46%
42%
29%
29%
46%
42%
29%
29%
46%
42%
29%
29%
October 14, 2014
Helmerich & Payne

2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$289
163
21
27
$500
982
178
3
$1,663
$83
289
26
31
$429
1,483
218
5
$2,135
$90
340
29
40
$499
2,153
223
10
$2,885
$122
463
33
73
$691
2,682
199
16
$3,588
$141
247
45
77
$523
3,266
356
16
$4,161
$63
458
43
89
$653
3,275
321
17
$4,265
$364
461
54
77
$956
3,677
348
23
$5,004
$96
620
79
100
$895
4,352
451
23
$5,721
$448
621
89
100
$1,258
4,676
316
14
$6,265
$376
717
109
91
$1,293
5,187
254
20
$6,754
$1,155
734
92
103
$2,085
5,196
150
20
$7,450

Accounts Payable
$45
Accrued Liabilities
45
Current Maturities
0
Current liabilities
$89
LT debt
200
Deferred taxes
247
48
Total liabilities
$584
Common stock
1,079
Total
$1,663
$139
97
0
$236
200
270
43
$749
1,386
$2,135
$125
102
0
$227
445
364
35
$1,070
1,816
$2,885
$154
128
0
$282
502
480
59
$1,323
2,265
$3,588
$70
127
0
$197
525
682
75
$1,478
2,683
$4,161
$81
152
0
$233
360
771
94
$1,458
2,807
$4,265
$104
198
0
$302
350
975
107
$1,734
3,270
$5,004
$159
182
0
$341
235
1,209
101
$1,886
3,835
$5,721
$144
193
0
$337
80
1,223
66
$1,706
4,559
$6,265
$144
196
115
$454
80
1,231
60
$1,825
4,929
$6,754
$231
280
115
$626
80
1,231
56
$1,993
5,457
$7,450
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
Assets
Cash & equivalents
Accounts receivable
Inventories
Prepaid Expenses and Other
Current assets
PPE
Investments
Other
Total assets

2005
Net income
Depreciation
Other
Working Capital Chg
Capex
Asset sales
Sale (purchase) of equity securiti
Other
Cash from investing
Chg in LT debt
Chn in equity
Dividend paid
Other
Cash flow financing
Chg in cash
Beginning cash
Ending cash
184
2006
$127
96
17
(16)
(11)
$212
$276
102
4
21
(106)
$296
$371
146
6
(20)
57
$561
$449
199
12
25
(74)
$611
$350
236
0
234
77
$897
$276
267
2
39
(122)
$462
$429
315
188
(34)
80
$978
$571
374
197
(113)
(28)
$1,000
$613
456
(2)
(100)
31
$997
$689
508
(1)
(95)
(51)
$1,049
$820
572
0
(35)
190
$1,547
($87)
29
61
0
$3
($529)
12
(35)
3
($549)
($894)
52
128
16
($699)
($706)
23
26
2
($655)
($881)
1
9
(13)
($884)
($330)
8
13
(0)
($309)
($694) ($1,098)
23
40
4
0
0
8
($668) ($1,050)
($809)
28
232
15
($534)
($1,000)
21
75
0
($903)
($580)
0
103
0
($477)
$0
0
(17)
25
$8
$4
(28)
(18)
40
($2)
$241
(18)
(19)
(12)
$193
$57
39
(19)
0
$77
$23
0
(21)
5
$7
($167)
0
(22)
3
($186)
($10)
28
(27)
0
($9)
($115)
(78)
(30)
4
($218)
($40)
21
(93)
6
($112)
$0
25
(265)
23
($217)
$0
11
(302)
0
($291)
$223
65
$289
($257)
289
$32
$55
83
$138
$32
90
$122
$20
122
$141
($33)
141
$108
$302
63
$365
($268)
364
$96
$352
96
$448
($72)
448
$376
$779
376
$1,155
October 14, 2014
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 companys 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 companys 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, HEROs liftboats are
concentrated in West Africa and the Middle East, where offshore activity continues to grow. While we
applaud some of HEROs recent moves to high-grade its fleet, we think the unfolding bifurcation
between new and older equipment poses a structural disadvantage to the companys 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 HEROs 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. Were 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.
185
October 14, 2014
Hercules Offshore
Were 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
HEROs 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 nonmarketable 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).
10x
HERO current trades at 4.0x, a

HERO
Offshore Drillers
8x
6x
4x
2x
'06
'07
186
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Hercules Offshore
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
Revenues
Domestic Offshore Drilling
International Offshore Drilling
International Liftboats
Other
Total revenues
$103
0
0
58
$161
$161
30
19
134
$344
$241
145
63
317
$767
$382
328
86
317
$1,113
$141
394
89
120
$743
$124
292
117
125
$657
$217
237
116
92
$662
$356
124
127
92
$699
$523
190
145
19
$877
$518
282
124
0
$924
$556
383
127
0
$1,067
Expenses
Other
Total COGS
G&A
EBITDA
D&A
Other
Operating income
Interest income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
($48)
0
0
(29)
($78)
(14)
$70
($14)
0
$56
$0
(10)
1
$47
(4)
0
$43
($52)
(13)
(10)
(49)
($124)
(30)
$190
($32)
0
$158
$0
(9)
4
$153
(53)
0
$99
($122)
(60)
(32)
(163)
($376)
(50)
$341
($109)
0
$231
$0
(36)
8
$204
(64)
0
$139
($228)
(148)
(39)
(219)
($634)
(78)
$402
($193)
0
$209
$0
(59)
3
$153
(58)
0
$95
($175)
(169)
(48)
(121)
($514)
(93)
$136
($201)
0
($65)
$0
(78)
4
($139)
64
0
($75)
($148)
(130)
(56)
(95)
($429)
(57)
$171
($191)
0
($20)
$0
(83)
4
($99)
46
0
($53)
($201)
(134)
(58)
(74)
($468)
(66)
$129
($174)
0
($45)
$0
(80)
(4)
($128)
44
0
($85)
($246)
(112)
(69)
(69)
($496)
(69)
$133
($166)
0
($33)
$0
(79)
2
($111)
19
0
($92)
($265)
(134)
(81)
(18)
($498)
(80)
$299
($158)
0
$141
$0
(75)
(2)
$65
(27)
0
$39
($274)
(218)
(80)
0
($571)
(78)
$275
($174)
0
$102
$0
(101)
1
$1
6
0
$8
($299)
(242)
(86)
0
($627)
(84)
$356
($195)
0
$161
$0
(114)
1
$48
(16)
0
$33
Per Share Data

Diluted Earnings
Dividend
$1.71
$0.00
$3.06
$0.00
$2.34
$0.00
$1.07
$0.00
($0.77)
$0.00
($0.46)
$0.00
($0.65)
$0.00
($0.59)
$0.00
$0.24
$0.00
$0.05
$0.00
$0.20
$0.00
52%
43%
35%
64%
55%
46%
51%
44%
30%
43%
36%
19%
31%
18%
-9%
35%
26%
-3%
29%
19%
-7%
29%
19%
-5%
43%
34%
16%
38%
30%
11%
41%
33%
15%
Margins Summary
Gross margins
EBITDA margins
Operating margins
187
October 14, 2014
Hercules Offshore
2013
1Q13
Revenues
Other
Total revenues
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$121
32
33
19
$205
$127
49
36
0
$211
$139
46
40
0
$225
$136
64
36
0
$235
$143
81
33
0
$257
$140
72
31
0
$243
$121
69
29
0
$219
$114
61
31
0
$206
$124
80
31
0
$235
$130
101
33
0
$265
$134
102
31
0
$267
$168
100
32
0
$300
Expenses
Other
Total COGS
G&A
EBITDA
D&A
Other
Operating income
Interest income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
($61)
(32)
($66)
(34)
($74)
(28)
($65)
(40)
($73)
(48)
($71)
(55)
($65)
(58)
($65)
(58)
($65)
(57)
($71)
(58)
($77)
(59)
($85)
(67)
(38)
($131)
(20)
$55
($41)
0
$14
$0
(18)
0
($4)
2
0
($3)
(20)
($119)
(21)
$71
($38)
0
$33
$0
(18)
(2)
$14
(12)
0
$2
(21)
($123)
(19)
$83
($38)
0
$45
$0
(19)
(0)
$26
(8)
0
$17
(21)
($126)
(20)
$90
($41)
0
$49
$0
(19)
0
$30
(8)
0
$22
(20)
($141)
(18)
$98
($40)
0
$58
$0
(23)
0
$35
1
0
$36
(19)
($145)
(23)
$76
($44)
0
$32
$0
(26)
0
$6
(13)
0
($6)
(20)
($143)
(19)
$57
($45)
0
$12
$0
(26)
0
($13)
6
0
($7)
(20)
($143)
(19)
$44
($45)
0
($1)
$0
(26)
0
($26)
12
0
($15)
(21)
($143)
(20)
$73
($47)
0
$26
$0
(27)
0
($1)
0
0
($0)
(21)
($151)
(21)
$94
($48)
0
$46
$0
(28)
0
$18
(6)
0
$12
(22)
($158)
(22)
$87
($50)
0
$37
$0
(29)
0
$8
(3)
0
$6
(23)
($174)
(23)
$103
($51)
0
$52
$0
(30)
0
$23
(7)
0
$15
Per Share Data

Diluted Earnings
Dividend
($0.02)
$0.00
$0.01
$0.00
$0.11
$0.00
$0.14
$0.00
$0.22
$0.00
($0.04)
$0.00
($0.05)
$0.00
($0.09)
$0.00
($0.00)
$0.00
$0.07
$0.00
$0.03
$0.00
$0.09
$0.00
36%
27%
7%
44%
34%
16%
46%
37%
20%
47%
38%
21%
45%
38%
22%
40%
31%
13%
35%
26%
6%
31%
22%
0%
39%
31%
11%
43%
35%
17%
41%
33%
14%
42%
34%
17%
Margins Summary
Gross margins
EBITDA margins
Operating margins
188
October 14, 2014
Hercules Offshore
2005
Assets
Cash & equivalents
Accounts receivable
Other
Current assets
PPE
Goodwill
Other
Total assets
$48
38
14
$100
247
0
7
$355

Accounts payable
Other
Current liabilities
LT debt
Deferred taxes
Total liabilities
Common stock
Total
$13
15
$29
95
16
0
$139
0
216
$355
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$73
89
18
$180
416
0
9
$606
$212
222
158
$592
2,060
940
50
$3,643
$106
293
60
$460
2,089
0
42
$2,591
$141
134
47
$321
1,924
0
32
$2,277
$148
144
37
$329
1,635
0
32
$1,995
$144
154
52
$350
1,592
0
65
$2,007
$261
168
49
$479
1,463
0
75
$2,017
$198
220
38
$456
1,809
0
26
$2,291
$109
168
57
$334
1,819
0
27
$2,180
$54
245
83
$382
1,804
0
27
$2,213
$29
39
$68
93
43
7
$211
0
395
$606
$106
137
$242
912
457
20
$1,631
0
2,011
$3,643
$100
152
$252
1,054
330
47
$1,683
0
908
$2,591
$52
120
$172
862
246
20
$1,299
0
979
$2,277
$52
90
$142
858
136
7
$1,142
0
853
$1,995
$49
104
$153
840
84
21
$1,098
0
909
$2,007
$59
136
$194
865
57
18
$1,134
0
883
$2,017
$80
155
$235
1,211
4
18
$1,467
0
824
$2,291
$70
45
$115
1,211
15
7
$1,348
0
832
$2,180
$70
45
$115
1,211
15
7
$1,348
0
864
$2,213
2007
2008
2009
2010
2011
2012
2013
2014E
2015E

2005
Net income
Depreciation
Other
Working Capital Chg
Acquisitions
Capex
Asset sales
Other
Cash from investing
Chg in LT debt
Issuance (repurchase) of preferred
Issuance (repurchase) of equity
Dividend paid
Other
Cash flow financing
Chg in cash
Beginning cash
Ending cash
189
2006
$27
14
15
5
(8)
$53
$119
32
27
2
(57)
$124
$137
109
3
6
(76)
$178
($1,071)
193
(112)
1,299
(40)
$270
($92)
201
(89)
66
53
$139
($135)
191
(98)
122
(56)
$24
($76)
174
(59)
(7)
20
$52
($127)
166
(33)
50
12
$68
($68)
163
(31)
147
(29)
$182
$5
174
(5)
(3)
(98)
$73
$33
195
0
0
(103)
$125
$0
($168)
0
(5)
($173)
($125)
($80)
6
(76)
($150)
($728)
($155)
110
(779)
($825)
($321)
($264)
39
(291)
($516)
$0
($76)
26
(10)
($61)
($22)
$0
23
(45)
($21)
($25)
($39)
80
(73)
($33)
($40)
($127)
73
2
($52)
($201)
($537)
117
(153)
($573)
$0
($190)
24
9
($158)
$0
($180)
0
0
($180)
$39
$0
$116
0
(2)
$153
($1)
($4)
$55
0
1
$51
$801
$0
$0
0
(14)
$786
$186
$0
($44)
0
(2)
$140
($120)
$0
$90
0
(14)
($44)
($8)
$0
$0
0
0
($7)
($22)
$0
$0
0
0
($22)
$19
$0
$97
0
(7)
$109
$339
$0
$0
0
(9)
$329
$0
$0
$0
0
(4)
($4)
$0
$0
$0
0
0
$0
$33
14
$48
$25
48
$73
$140
73
$212
($106)
212
$106
$34
106
$141
($4)
141
$137
($2)
137
$134
$125
134
$259
($61)
259
$198
($89)
198
$109
($55)
109
$54
October 14, 2014
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 companys 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 Mexicos and Brazils offshore fields.
190
October 14, 2014
Hornbeck Offshore
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 Hornbecks 2013 revenues were generated domestically with the vast majority coming
from the Gulf of Mexico where 57% of HOS total vessels and 85% of HOSs 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 Mexicos energy sector is well underway and the hopes are that opening the industry to
foreign investments will lead to increased deepwater activity. Mexicos deepwater potential is
enormous with over 50% of the countrys 52.6 Bboe of prospective resources located in the
deepwater space. Currently, Mexicos 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 shortterm supply disruptions further benefitting HOS.
The October 26th Brazilian election holds the possibility to significantly alter the dynamics of Brazils
energy industry. Currently, Petrobras, Brazils 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 Incio 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
191
October 14, 2014
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.
HOS current trades at 4.6x, an -28%
discount to the group's 6.5x average and
10x
9x
8x
7x
6x
5x
4x
HOS
Offshore Technology
3x
'06
'07
192
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Hornbeck Offshore
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
Revenues
Upstream
Other
Total revenues
$75
57
$132
$117
66
$183
$166
108
$275
$228
111
$339
$334
98
$432
$323
59
$382
$375
46
$421
$331
51
$382
$463
49
$513
$548
32
$580
$670
0
$670
$867
0
$867
Expenses
Upstream
Other
Total Expenses
$30
29
$59
$36
31
$67
$55
40
$96
$79
48
$127
$111
53
$164
$121
40
$161
$170
30
$200
$179
30
$209
$229
29
$258
$239
14
$254
$300
na
$300
$379
na
$379
G&A
EBITDA
$15
$59
$20
$95
$29
$151
$33
$180
$37
$230
$31
$190
$37
$184
$36
$137
$48
$209
$55
$271
$61
$310
$68
$420
D&A
Operating Income
$23
$36
$27
$68
$32
$119
$36
$144
$52
$178
$67
$123
$72
$112
$82
$55
$88
$121
$93
$179
$117
$193
$124
$296
Interest Expense
Interest Income
Other Income
Pretax income
Taxes
Net income
$18
0
0
$36
6
$29
$13
3
1
$68
22
$46
$18
16
0
$119
42
$76
$16
18
(0)
$144
53
$91
($6)
2
0
$178
62
$116
($21)
0
(1)
$123
38
$85
($55)
1
0
$57
21
$36
($60)
1
(1)
($4)
(1)
($3)
($58)
2
(0)
$65
25
$41
($47)
3
0
$134
49
$85
($34)
1
0
$160
60
$100
($51)
1
0
$247
91
$156
Per Share Data

Diluted 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 Summary
Gross Margins
Upstream
Other
Companywide
EBITDA margins
Operating Margin
61%
49%
56%
45%
27%
70%
53%
63%
52%
37%
67%
63%
65%
55%
43%
66%
56%
63%
53%
43%
67%
46%
62%
53%
41%
62%
33%
58%
50%
32%
55%
35%
52%
44%
27%
46%
41%
45%
36%
14%
50%
42%
50%
41%
24%
56%
55%
56%
47%
31%
55%
na
55%
46%
29%
56%
na
56%
48%
34%
193
October 14, 2014
Hornbeck Offshore
2013
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
Revenues
Upstream
Other
Total revenues
$133
15
$148
$138
17
$154
$133
na
$133
$145
na
$145
$137
na
$137
$171
na
$171
$174
na
$174
$189
na
$189
$201
na
$201
$211
na
$211
$222
na
$222
$233
na
$233
Expenses
Upstream
Other
Total Expenses
$56
7
$63
$59
7
$66
$59
na
$59
$65
na
$65
$69
na
$69
$71
na
$71
$77
na
$77
$83
na
$83
$89
na
$89
$93
na
$93
$97
na
$97
$101
na
$101
G&A
EBITDA
$14
$70
$14
$75
$14
$60
$13
$67
$14
$54
$15
$84
$15
$82
$16
$89
$16
$96
$17
$102
$17
$108
$18
$114
D&A
Operating Income
$23
$47
$24
$51
$22
$37
$23
$44
$29
$25
$28
$57
$29
$53
$31
$59
$31
$65
$31
$71
$31
$77
$31
$83
Interest income
($14)
($13)
($12)
($9)
($7)
($7)
($9)
($11)
($13)
($13)
($13)
($13)
Interest expense
Pretax income
Taxes
Net income
(0)
$34
13
$21
0
$38
14
$24
0
$26
8
$18
0
$36
14
$22
(0)
$18
7
$11
0
$50
19
$31
0
$44
16
$27
0
$48
18
$30
0
$53
20
$33
0
$58
22
$37
0
$65
24
$41
0
$71
26
$44
Per Share Data

Diluted 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
Margins Summary
Gross margins
Upstream
Other
Companywide
EBITDA margins
Operating Margin
57%
54%
57%
48%
32%
57%
56%
57%
48%
33%
55%
na
55%
45%
28%
55%
na
55%
46%
30%
50%
na
50%
40%
18%
58%
na
58%
49%
33%
56%
na
56%
47%
30%
56%
na
56%
47%
31%
56%
na
56%
48%
32%
56%
na
56%
48%
34%
56%
na
56%
49%
35%
57%
na
57%
49%
36%
194
October 14, 2014
Hornbeck Offshore
2004
Assets
Cash & equivalents
Accounts receivable
Prepaid Insurance
Property Taxes Recei
Other Current Assets
Current assets
PPE
Goodwill
Deferred Taxes
Other
Total assets
2005
$54
22
1
3
2
$82
361
3
15
0
$461

Accounts Payable
$5
Accrued Interest
2
Accrued Expenses
4
Current Maturities
15
Other
2
Current liabilities
$29
Credit Facility
0
LT Debt
225
Deferred Taxes
22
Other Liabilities
1
Total liabilities
$278
Shareholders Equity
$183
Total
$461
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$272
36
1
4
3
$316
462
3
16
0
$797
$474
46
0
0
7
$527
532
3
32
5
$1,098
$174
78
0
0
9
$261
953
0
41
8
$1,262
$20
88
0
0
26
$134
1,405
0
38
18
$1,596
$51
62
0
0
14
$127
1,603
0
41
16
$1,786
$127
72
0
0
18
$216
1,606
0
41
15
$1,878
$357
86
0
0
26
$469
1,606
0
48
14
$2,136
$577
103
0
0
52
$732
1,812
0
75
13
$2,632
$439
94
0
0
88
$621
2,125
0
74
14
$2,834
$194
138
0
0
98
$430
2,462
0
80
15
$2,987
$437
163
0
0
93
$693
2,463
0
80
15
$3,250
$16
2
7
0
1
$25
0
299
42
1
$367
$429
$797
$18
2
8
0
9
$38
0
549
54
2
$644
$455
$1,098
$16
2
11
0
17
$46
0
550
101
3
$700
$562
$1,262
$17
2
10
0
39
$68
125
494
170
2
$859
$737
$1,596
$16
10
7
0
8
$41
0
747
199
3
$989
$797
$1,786
$25
9
13
0
7
$54
0
758
222
2
$1,037
$842
$1,878
$37
9
13
0
9
$67
0
771
224
2
$1,073
$1,063
$2,136
$48
15
14
0
28
$105
0
1,089
270
1
$1,466
$1,166
$2,632
$53
15
13
0
20
$102
0
1,064
368
5
$1,539
$1,295
$2,834
$75
17
13
0
17
$123
0
1,069
432
2
$1,627
$1,360
$2,987
$73
21
27
0
61
$182
0
1,069
519
2
$1,772
$1,478
$3,250
2007
2008
2009
2010
2011
2012
2013
2014E
2015E

2004
2005
2006
Net income
Depreciation
Other
Working Capital Chg
($2)
23
(0)
(1)
24
(22)
$21
$37
27
0
22
0
(11)
$76
$76
32
0
42
4
(22)
$132
$95
35
0
48
7
(51)
$135
$117
52
1
45
4
(20)
$199
$50
93
(1)
24
21
(4)
$183
$36
77
(0)
21
13
(25)
$131
($3)
82
1
(2)
21
0
$64
$37
88
2
22
27
(27)
$145
$64
86
0
32
68
(29)
$222
$100
117
0
58
11
(65)
$221
$156
124
0
87
0
38
$405
Capex
Acquisition of Vessels
Acq. & Sales
Other
Cash from investing
($42)
(10)
0
0
($61)
($72)
(46)
4
0
($121)
($62)
(16)
4
0
($87)
($236)
(186)
6
0
($439)
($452)
(12)
18
0
($480)
($257)
0
11
0
($263)
($36)
0
5
0
($57)
($43)
0
11
0
($62)
($239)
0
4
0
($260)
($465)
0
16
0
($527)
($398)
0
0
0
($473)
($124)
0
0
0
($170)
$81
5
(4)
$81
$207
55
0
$262
($11)
174
(5)
$158
$3
0
(0)
$3
$2
125
(0)
$127
$0
108
2
$111
$2
(0)
0
$2
$243
0
(15)
$229
$53
375
(93)
$334
$10
(50)
208
$167
$6
0
0
$7
$9
0
0
$9
(0)
(0)
(1)
$41
13
$54
$217
54
$272
$203
272
$474
($301)
474
$174
($153)
174
$20
$31
20
$51
$76
51
$127
$230
127
$357
$220
357
$577
($137)
577
$439
($245)
439
$194
$243
194
$437
Change in Equity
Change in Debt
Other
Cash flow financing
FX and other
Chg in cash
Beginning cash
Ending cash
195
October 14, 2014
Independent Contract Drilling

Investment Thesis
A pure play land drilling contractor with a fleet consisting of only AC rigs operating in the Permian?
Whats not to love. There are AC rigs and there are ShaleDrillers. ICDs 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
ICDs 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. ICDs 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
ICDs 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 wouldnt 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.
196
October 14, 2014

Continuing improvements in U.S. land pricing. ICDs 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 ICDs 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. ICDs 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.
12x
ICD
11x
ICD current trades at 7.5x, a 57%

premium to the group's 4.7x average.
Onshore Drillers
10x
9x
8x
7x
6x
5x
4x
3x
2x
'06
'07
197
'08
'09
'10
'11
'12
'13
'14
October 14, 2014

2012
2013
2014
$15.1
$42.8
$66.0
($15.4)
($28.4)
($41.8)
($76.5)
($7.8)
0.0
($8.1)
($8.9)
0.1
$1.2
($10.4)
0.2
$14.0
($13.6)
0.0
$36.7
D&A
Operating Income
(5.9)
($14.0)
(10.2)
($4.7)
(15.5)
($1.5)
(24.3)
$12.4
Interest Income
Interest Expense
Other Income
Pretax income
Taxes
Net income
0.0
(0.0)
0.0
($14.0)
6.7
($7.3)
0.0
(0.3)
0.0
($4.9)
1.9
($3.0)
0.0
(1.1)
0.0
($2.5)
2.0
($0.5)
0.0
(1.0)
0.0
$11.4
(3.4)
$8.0
Per Share Data

Diluted Earnings
($0.72)
($0.25)
($0.03)
$0.35
Margins Summary
Operating Margins
EBITDA margins
Gross Margin
-93%
-53%
-2%
-11%
3%
34%
-2%
21%
37%
10%
29%
40%
Revenues:
Total revenues
Total Expenses
G&A
Other Exp.
EBITDA
198
2015
$126.8
October 14, 2014

2013
1Q13
Revenues
Total revenues
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
2015
2Q15E
3Q15E
4Q14E
1Q15E
4Q15E
$18.1
$19.7
$24.3
$28.4
$34.0
$40.1
$8.3
$9.8
$0.0
$0.0
$13.5
$14.7
($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)
($2.1)
0.0
$0.2
($2.0)
0.0
$1.0
$0.0
0.0
$0.0
$0.0 e
0.0 s
$0.0 A
($2.1)
0.2
$2.9
($2.1)
0.0
$3.3
($3.3)
0.0
$3.5
($3.0)e
0.0 s
$4.3 A
($2.6)
0.0
$6.6
($3.1)
0.0
$8.0
($3.7)
0.0
$9.9
($4.3)
0.0
$12.1
D&A
Operating Income
(2.1)
($1.9)
(2.4)
($1.4)
0.0
$0.0
0.0
$0.0
(3.4)
($0.5)
(3.9)
($0.6)
(3.9)
($0.4)
(4.3)
$0.0
(4.7)
$1.9
(5.5)
$2.5
(6.8)
$3.2
(7.3)
$4.8
Interest Income
Interest Expense
Other Income
Pretax income
Taxes
Net income
0.0
0.0
0.0
($1.9)
0.6
($1.3)
0.0
(0.1)
0.0
($1.5)
0.4
($1.0)
0.0
0.0
0.0
$0.0
0.0
$0.0
0.0
0.0
0.0
$0.0
0.0
$0.0
0.0
(0.4)
0.0
($0.9)
1.9
$0.9
0.0
(0.6)
0.0
($1.2)
0.0
($1.2)
0.0
(0.1)
0.0
($0.5)
0.1
($0.3)
0.0
0.0
0.0
$0.0
(0.0)
$0.0
0.0
(0.1)
0.0
$1.7
(0.5)
$1.2
0.0
(0.3)
0.0
$2.2
(0.7)
$1.5
0.0
(0.3)
0.0
$2.9
(0.9)
$2.0
0.0
(0.3)
0.0
$4.5
(1.4)
$3.2
Per Share Data

Diluted 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
21%
35%
23%
37%
19%
37%
22%
37%
27%
38%
28%
39%
29%
40%
30%
41%
Total Expenses
G&A
Other Exp.
EBITDA
Margins Summary
Operating Margins
EBITDA margins
Gross Margin
199
3%
28%
10% #DIV/0!
31% #DIV/0!
#DIV/0!
#DIV/0!
October 14, 2014

2012
2013
2014
2015
Assets
Cash & equivalents
Accounts receivable
Inventory
Vendor Advances
Prepaid expenses and other
Current Assets
PPE
Other
Total Assets
$2.7
9.1
1.1
6.2
2.0
$21.2
129.5
33.4
1.0
$185.0
$8.7
13.6
2.5
10.4
5.3
$40.5
210.6
32.0
(2.6)
$280.6
$3.4
27.7
5.0
21.2
10.9
$68.2
346.3
32.0
(11.4)
$435.1

Current Maturities
Accounts payable
Accrued Liabilities and Other
Current liabilities
LT Debt
Deferred Taxes
Other Liabilities
Total liabilities
Common stock
Total
$0.0
9.1
4.5
$13.5
19.8
3.6
3.2
$40.1
$144.9
$185.0
$0.0
22.1
7.2
$29.3
0.0
2.4
1.8
$33.5
$247.1
$280.6
$0.0
42.1
13.8
$55.9
120.0
2.4
1.8
$180.1
$255.1
$435.1

2012
Net income
Depreciation
Deferred taxes
Other
Working Capital Chg
CF from ops
Capex
Asset Disposal
Other
CF from investing
Change in LT debt
Chg. in Preferred Equity
Chg. in Common Equity
Dividend Paid
Other
CF from financing
FX and other
Chg in cash
Beginning cash
Ending cash
200
2013
2014
2015
($2.5)
15.5
(1.2)
(0.4)
(3.9)
$10.7
$8.0
24.3
0.0
0.0
(6.4)
$26.6
($4.9)
5.9
(5.4)
(1.5)
(2.4)
($8.3)
($2.0)
10.2
(2.0)
0.8
(1.2)
$6.0
($66.9)
0.0
17.1
($49.7)
($59.7)
0.4
0.0
($59.3)
($2.1)
0.0
97.8
0.0
0.0
$95.7
$19.8
0.0
0.0
0.0
(1.2)
$18.6
($19.8)
0.0
103.5
0.0
(1.2)
$82.4
$120.0
0.0
0.0
0.0
(0.0)
$120.0
$0.0
$0.0
$0.0
$0.0
$37.6
0.0
$37.6
($34.7)
37.4
$2.7
$6.0
2.7
$8.7
($5.3)
8.7
$3.4
($93.7) ($160.0)
0.5
0.0
6.1
8.2
($87.1) ($151.8)
October 14, 2014
ION Geophysical
Investment Thesis
We believe the companys Ocean Bottom Services Segment has the potential to significantly change the
companys 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 companys Ocean Bottom Services Segment has the potential to significantly change the
companys 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.
201
October 14, 2014
ION Geophysical
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.
14x
IO current trades at 2.1x, a -69%

12x
10x
8x
6x
4x
2x
'06
'07
202
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
ION Geophysical
2004
2005
2006
2007
2008
Revenues
Systems
Software
Total I/O Systems
Solutions
Ocean Bottom Service
Corporate and Other
Total Revenue
$196
44
0
1
$241
$241
122
0
0
$363
$357
147
0
0
$504
$540
173
0
0
$713
$420
259
0
0
$680
COGS
Gross Profit
Operating Expenses
Other
Income from Operatio
Interest Expense
Other
Pretax Income
Taxes
Net income
(175)
$66
(69)
0
($3)
(6)
1
($8)
(1)
($9)
(256)
$106
(82)
0
$25
(6)
2
$20
(1)
$19
(349)
$154
(114)
0
$40
(6)
(0)
$34
(6)
$29
(509)
$204
(139)
(0)
$65
(6)
1
$59
(9)
$50
($0.12)
$0.18
$0.30
9%
-1%
-3%
-4%
16%
7%
6%
5%
17%
8%
7%
5%
Per Share Data

Diluted Earnings
Margins Summary
EBITDA Margin
Operating Margin
Pretax Margin
Net Margin
203
2009
2010
2011
2012
2013
2014E
2015E
$251
180
0
0
$431
$112
37
$148
277
0
0
$425
$153
38
$191
263
0
0
$455
$132
43
$175
351
0
0
$526
$122
39
$162
387
0
0
$549
$95
42
$121
306
99
0
$542
$99
45
$145
319
106
0
$570
(458)
$222
(155)
0
$67
(10)
11
$68
(3)
$65
(295)
$136
(147)
1
($10)
(29)
4
($35)
(4)
($39)
(279)
$147
(113)
19
$53
(12)
(14)
$27
(6)
$21
(281)
$173
(107)
3
$70
(6)
(17)
$47
(11)
$36
(311)
$216
(128)
0
$87
(5)
(1)
$81
(18)
$63
(348)
$201
(143)
3
$61
(12)
(8)
$40
(2)
$38
(355)
$187
(147)
0
$40
(20)
(8)
$13
(5)
$7
(357)
$213
(153)
0
$60
(20)
7
$47
(12)
$35
$0.52
$0.61
($0.39)
$0.08
$0.22
$0.39
$0.23
$0.03
$0.21
18%
9%
8%
7%
27%
10%
10%
9%
20%
-2%
-8%
-10%
38%
12%
6%
4%
35%
15%
10%
8%
38%
17%
15%
12%
30%
11%
7%
7%
18%
7%
2%
1%
17%
10%
8%
6%
October 14, 2014
ION Geophysical
2013
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
Revenues
Systems
Software
Total I/O Systems
Solutions
Ocean Bottom Service
Corporate and Other
Total Revenue
$32
9
$41
89
0
0
$130
$24
8
$32
89
0
0
$121
$26
10
$36
43
0
0
$80
$40
12
$53
166
0
0
$219
$25
10
$35
89
21
0
$145
$22
11
$33
63
26
0
$121
$21
10
$31
69
26
0
$127
$27
12
$38
84
26
0
$149
$25
11
$36
92
26
0
$154
$25
11
$36
72
26
0
$134
$22
11
$33
68
26
0
$127
$28
13
$41
88
26
0
$155
COGS
Gross Profit
Operating Expenses
Other
Income from Operatio
Interest Expense
Other
Pretax Income
Taxes
Net income
(95)
$35
(33)
3
$5
(1)
2
$6
(2)
$4
(84)
$37
(30)
0
$7
(3)
(3)
$1
(0)
$1
(53)
$27
(41)
0
($15)
(4)
(7)
($26)
6
($19)
(116)
$103
(39)
0
$64
(4)
(1)
$59
(6)
$53
(88)
$57
(37)
0
$20
(5)
(3)
$12
(5)
$7
(83)
$38
(34)
0
$4
(5)
(2)
($3)
(0)
($4)
(85)
$42
(36)
0
$6
(5)
(2)
($1)
(0)
($1)
(100)
$50
(40)
0
$10
(5)
(0)
$5
0
$5
(106)
$47
(36)
0
$11
(5)
2
$8
(2)
$6
(86)
$49
(37)
0
$11
(5)
2
$8
(2)
$6
(75)
$52
(38)
0
$14
(5)
2
$11
(3)
$8
(90)
$65
(41)
0
$24
(5)
2
$21
(5)
$15
$0.02
$0.00
($0.12)
$0.33
$0.04
($0.03)
($0.00)
$0.03
$0.03
$0.03
$0.05
$0.09
21%
4%
5%
3%
24%
6%
0%
0%
6%
-18%
-32%
-24%
48%
29%
27%
24%
30%
14%
8%
4%
23%
3%
-3%
-4%
9%
5%
-1%
-1%
10%
7%
3%
3%
13%
7%
5%
4%
16%
8%
6%
4%
19%
11%
8%
6%
21%
15%
13%
10%
Per Share Data

Diluted Earnings
Margins Summary
EBITDA Margin
Operating Margin
Pretax Margin
Net Margin
204
October 14, 2014
ION Geophysical
2004
Assets
Cash & equivalents
Accounts receivable
Inventory
Other
Current assets
PPE
Goodwill
Net Multi-client Data
Other
Total assets
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$16
89
(41)
163
$226
24
155
16
83
$504
$16
121
8
109
$254
29
155
19
81
$538
$17
168
(33)
194
$346
38
156
33
82
$655
$36
188
(11)
188
$401
37
153
60
58
$709
$35
151
(90)
428
$523
59
50
90
140
$861
$16
111
19
250
$396
79
52
131
91
$748
$84
95
(16)
276
$439
(60)
52
131
91
$653
$42
131
(7)
136
$302
25
54
176
117
$674
$61
127
(7)
193
$374
34
55
230
127
$821
$148
149
(9)
144
$433
47
56
239
80
$854
$118
105
(16)
204
$412
85
52
246
85
$879
$113
109
(3)
209
$429
110
52
246
85
$922

Accrued Expenses
$29
Accounts payable
24
Other
28
Current liabilities
$82
LT debt
79
Deferred taxes
5
5
Total liabilities
$170
Shareholders Equity
$334
Total
$504
$49
32
20
$100
71
4
4
$179
$358
$538
$51
48
77
$176
72
4
5
$256
$399
$655
$67
45
54
$166
25
3
4
$198
$511
$709
$77
95
46
$218
233
23
4
$536
$325
$861
$66
40
77
$183
151
1
4
$466
$282
$748
$60
74
91
$225
151
1
4
$354
$299
$653
$61
22
49
$133
105
0
8
$246
$428
$674
$124
29
53
$206
105
0
8
$319
$501
$821
$73
23
67
$163
220
0
211
$594
$260
$854
$97
43
53
$194
180
0
143
$517
$362
$879
$88
39
41
$168
180
0
143
$491
$430
$922

2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
Net income
D&A
Other Non-Cash Exp.
Working Capital Chg
($9)
24
3
(38)
($20)
$19
34
1
(52)
$2
$29
47
6
(24)
$58
$50
64
2
(23)
$94
$65
114
(42)
(25)
$112
($39)
96
(15)
10
$52
$21
111
50
(48)
$133
$36
91
8
(6)
$130
$63
105
16
(15)
$169
$38
105
(15)
19
$148
$7
57
7
(1)
$71
$35
39
9
(23)
$60
Capex
Investments in MCL
Other
Cash from investing
($5)
(4)
(164)
($174)
($5)
(20)
(3)
($28)
($14)
(39)
3
($50)
($11)
(64)
(0)
($76)
($18)
(110)
(227)
($355)
($3)
(90)
1
($92)
($7)
(64)
99
$27
($11)
(144)
(27)
($182)
($15)
(146)
16
($144)
($17)
(115)
(27)
($159)
($15)
(58)
13
($60)
($17)
(48)
0
($65)
Chg in Debt
Change in Equity
Dividends
Other
Cash flow financing
($6)
155
0
0
$149
($4)
32
(2)
(0)
$28
($10)
4
(2)
(2)
($8)
($8)
5
(2)
4
$1
$208
35
(4)
1
$244
($15)
38
(4)
(4)
$20
($129)
38
(2)
(1)
($93)
($6)
0
(1)
16
$10
($5)
0
(1)
(2)
($7)
$108
(2)
(1)
(7)
$99
($41)
0
0
(0)
($41)
$0
0
0
0
$0
$0
($1)
$1
$1
($3)
$1
$0
($0)
$0
($0)
($0)
$0
($45)
60
$15
$1
15
$16
$1
16
$17
$19
17
$36
($1)
36
$35
($19)
35
$16
$68
16
$84
($42)
84
$42
$19
42
$61
$87
61
$148
($30)
148
$118
($5)
118
$113
FX and other
Chg in cash
Beginning cash
Ending cash
205
October 14, 2014
Key Energy Services

Investment Thesis
Keys 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, KEGs bread and butter, has lagged behind drilling and completion activity. Slightly offsetting
these headwinds is KEGs 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 Mexicos energy reform. All in, we are bullish about KEGs 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, KEGs completion driven
business will perform strongly. The real opportunity for Key comes from its production services business
which is responsible for 60% of the companys 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.
206
October 14, 2014
Key Energy Services

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 companys 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 companys
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 KEGs 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.
11x
KEG current trades at 4.9x, a 2%

KEG
10x
9x
8x
7x
6x
5x
4x
3x
2x
'06
'07
207
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Key Energy Services

Revenues
Rig Services
Fluid Management Services
Coiled Tubing Services
Fishing and Rental Services
Total U.S. Operations
Total Revenue
$988
EBITDA
Direct Operating Expenses
Gross Income
G&A
D&A
Operating Income
U.S. Operations
Functional Support
Other
Pretax income
Taxes
Minority interest
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
U.S. Operations
EBITDA Margin
Pretax Margin
208
$140
(690)
(298)
158
103
$37
$1,190
$1,546
$1,662
$1,972
$494
169
32
63
$758
197
$956
$259
$430
$446
$464
$31
(1,250)
(722)
258
171
(779)
(176)
179
170
(930)
(223)
197
144
(1,197)
(650)
232
170
(1,309)
(651)
230
214
(1,114)
(477)
220
225
(1,061)
(384)
221
209
(1,123)
(538)
241
217
132
(23)
(120)
($11)
358
27
(139)
$246
285
63
(141)
$207
195
(18)
(135)
$42
119
(16)
(147)
($44)
196
24
(140)
$80
(49)
(1)
$29
(11)
0
$19
(782)
(408)
149
112
$147
(938)
(608)
178
126
(986)
(676)
230
130
$304
$316
$293
(64)
31
(106)
($139)
$562
228
88
83
$961
192
$1,154
$726
388
232
184
$1,530
317
$1,847
$789
354
216
269
$1,627
333
$1,960
$673
272
193
239
$1,377
215
$1,592
$680
253
188
212
$1,333
112
$1,445
$769
279
212
244
$1,505
156
$1,661
$133
$1,847
$1,960
$1,592
$1,445
$1,661
(27)
(38)
($28)
3
(1)
($27)
(38)
(25)
$84
(35)
0
$49
(45)
15
$274
(103)
0
$171
(41)
13
$289
(111)
0
$177
(42)
10
$261
(99)
0
$162
(39)
0
($178)
32
1
($145)
(42)
3
($50)
13
3
($34)
(43)
4
$208
(75)
1
$134
(54)
7
$160
(57)
(2)
$101
(55)
1
($13)
1
(1)
($12)
(54)
3
($95)
36
0
($59)
($0.20)
$0.00
$0.37
$0.00
$1.27
$0.00
$1.33
$0.00
$1.29
$0.00
($1.19)
$0.00
($0.27)
$0.00
$0.91
$0.00
$0.67
$0.00
($0.08)
$0.00
($0.38)
$0.00
$0.12
$0.00
0%
0%
4%
14%
-3%
0%
0%
12%
22%
7%
0%
0%
20%
28%
18%
0%
0%
19%
27%
17%
0%
0%
15%
24%
13%
-8%
16%
-15%
3%
-19%
14%
-12%
-1%
12%
-4%
23%
9%
13%
23%
11%
18%
19%
11%
21%
8%
14%
-8%
3%
17%
-1%
9%
-14%
-3%
11%
-7%
13%
15%
5%
18%
2%
October 14, 2014
Key Energy Services

2013
1Q13
Revenues
Rig Services
Fluid Management
Coiled Tubing
Fishing and Rental
Total U.S.
International
Total Revenue
EBITDA
Direct Expenses
Gross Income
G&A
D&A
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$162
70
49
65
$346
82
$428
$174
70
54
64
$362
50
$411
$172
67
48
58
$345
45
$390
$166
64
41
53
$324
38
$362
$165
62
44
53
$324
32
$356
$170
62
43
49
$325
26
$351
$174
64
50
54
$342
27
$368
$171
65
51
56
$342
27
$370
$185
66
50
61
$363
45
$408
$195
71
52
57
$375
37
$412
$196
72
55
62
$385
37
$422
$192
70
56
64
$382
37
$419
$428
$411
$390
$362
$356
$351
$368
$370
$408
$412
$422
$419
(299)
(129)
61
54
(287)
(124)
58
58
(268)
(121)
53
57
(260)
(102)
48
56
(258)
(98)
53
51
(263)
(88)
58
52
(270)
(99)
55
53
(270)
(100)
55
53
(290)
(117)
59
53
(276)
(136)
60
54
(278)
(144)
61
55
(279)
(140)
61
55
38
12
(38)
$12
57
(6)
(35)
$17
52
(7)
(33)
$12
47
(17)
(29)
$2
36
(9)
(31)
($5)
24
(7)
(38)
($21)
31
(1)
(39)
($9)
28
1
(39)
($9)
35
4
(35)
$5
52
5
(35)
$22
57
7
(35)
$28
53
7
(35)
$25
Interest Expense
Other
Pretax income
Taxes
Minority interest
Net income
(14)
1
($1)
2
(0)
$1
(14)
(0)
$2
(0)
(0)
$2
(14)
0
($2)
(3)
(0)
($5)
(14)
(0)
($12)
2
0
($10)
(14)
0
($18)
8
0
($11)
(13)
3
($32)
15
0
($17)
(13)
0
($23)
7
0
($16)
(13)
(0)
($23)
7
0
($16)
(12)
(0)
($8)
3
0
($5)
(12)
(0)
$9
(3)
0
$6
(12)
(0)
$16
(6)
0
$10
(12)
(0)
$12
(4)
0
$8
Per Share Data

Diluted Earnings
Dividend
$0.01
$0.00
$0.01
$0.00
($0.03)
$0.00
($0.06)
$0.00
($0.07)
$0.00
($0.11)
$0.00
($0.10)
$0.00
($0.10)
$0.00
($0.03)
$0.00
$0.04
$0.00
$0.06
$0.00
$0.05
$0.00
11%
14%
3%
15%
0%
16%
-12%
4%
18%
1%
15%
-16%
3%
18%
-1%
14%
-44%
0%
16%
-3%
11%
-29%
-1%
13%
-5%
7%
-27%
-6%
9%
-9%
9%
-5%
-2%
12%
-6%
8%
5%
-2%
12%
-6%
10%
10%
1%
14%
-2%
14%
15%
5%
18%
2%
15%
18%
7%
20%
4%
14%
19%
6%
19%
3%
Operating Income
U.S.
International
Support
Total Operating Incom
Margins Summary
U.S. Operations
EBITDA Margin
Pretax Margin
209
October 14, 2014
Key Energy Services

2004
2005
2006
2007
Assets
Cash & equivalents
Accounts receivable
Inventories
Deferred Taxes Assets
Other
Current assets
PPE
Goodwill
Other
Total assets
$59
343
23
28
3
$488
911
424
36
$1,859

Accounts Payable
Short-Term Debt
Accrued Liabilities
Other
Current liabilities
LT debt
Deferred taxes
Total liabilities
Shareholders Equity
Total
$35
2
183
13
$233
497
160
80
970
889
$1,859
2008
2009
2010
2011
2012
$93
377
35
27
(16)
$559
1,052
321
85
$2,017
$37
215
27
25
0
$384
865
346
70
$1,664
$57
262
24
32
36
$414
937
448
95
$1,893
$35
421
34
57
(22)
$601
1,210
623
165
$2,599
$46
404
39
0
(43)
$590
1,437
626
109
$2,762
$46
26
197
(21)
$248
659
189
61
1,156
861
$2,017
$46
10
131
(7)
$180
535
147
61
922
743
$1,664
$56
4
217
0
$278
431
144
58
911
982
$1,893
$79
2
198
11
$290
774
0
321
1,384
1,215
$2,599
2010
2011
2013
2014E
2015E
$28
349
32
0
6
$506
1,366
625
91
$2,587
($11)
344
43
0
(5)
$463
1,301
602
78
$2,444
($15)
377
21
0
22
$470
1,284
602
78
$2,434
$104
0
201
0
$305
848
259
62
1,474
1,287
$2,762
$59
4
170
0
$232
764
284
56
1,336
1,251
$2,587
$68
0
168
0
$235
719
276
58
1,287
1,157
$2,444
$72
0
184
0
$256
669
276
58
1,259
1,176
$2,434
2012
2013
2014E
2015E

2004
2005
2006
2007
2008
2009
Net income
Depreciation
Other
Working Capital Chg
($32)
103
(11)
54
(44)
$70
$46
112
14
37
11
$219
$171
126
7
(0)
(45)
$259
$169
130
25
14
(87)
$250
$84
171
30
93
(10)
$367
($156)
170
(41)
169
44
$185
$70
144
(12)
(141)
69
$129
$101
170
86
52
(220)
$188
$9
214
36
100
11
$370
($21)
225
(12)
16
20
$229
($96)
209
(8)
43
5
$154
$19
217
0
0
10
$246
Capex
Asset sales
Acquisition
Other
Cash from investing
($53)
(17)
0
5
($64)
($118)
19
6
60
($33)
($196)
12
(61)
0
($246)
($213)
(150)
62
(2)
($303)
($219)
8
(118)
0
($329)
($128)
6
0
12
($111)
($180)
258
(87)
0
($9)
($546)
14
12
0
($520)
($447)
19
0
(1)
($429)
($164)
17
1
(15)
($161)
($151)
7
0
2
($142)
($200)
0
0
0
($200)
Change in Debt
Change in Equity
Other
Cash Flow from Financing
($90)
2
54
($88)
($111)
0
37
($111)
($17)
(1)
(0)
($19)
$37
(14)
14
$23
$123
(139)
93
($8)
($126)
(0)
169
($127)
($103)
1
(141)
($100)
$305
2
52
$306
$73
(8)
100
$74
($80)
(3)
16
($85)
($49)
(2)
43
($52)
($50)
0
0
($50)
($0)
($1)
($0)
($0)
$4
($2)
($2)
$10
($4)
$0
($0)
$0
($83)
103
$20
$74
20
$94
($6)
94
$88
($30)
88
$58
$34
58
$93
($55)
93
$37
$19
37
$57
($16)
57
$41
$11
41
$51
($18)
51
$34
($40)
34
($6)
($4)
(6)
($10)
FX and other
Chg in cash
Beginning cash
Ending cash
210
October 14, 2014
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 companys
record Q2 backlog of $1.125B. Internationally, the companys 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 companys
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 years record backlog.
211
October 14, 2014
MRC Global
Projected increased spending by Williams (WMB), one of MRCs 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 segments core business could grow ten percent
YoY.
12x
MRC
DNOW
11x
MRC current trades at 7.7x, a

-3.% discount to its historical
8.0x.
10x
9x
8x
7x
'06
'07
212
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
MRC Global
2008
Revenues
Upstream
Midstream
Downstream
Total Revenue
Cost of Sales
Total Gross Income
SG&A
Operating Income
Other
Pretax Income
Income Tax
Net Income
Increase in LIFO Reserve
Amortization of Intangibles
Tax Impact of Adjustments
Adjusted Net Income
EBITDA (GAAP)
Adjusted EBITDA
Per Share Data
Diluted Earnings
Adjusted Diluted EPS
Dividend
Margins Summary
Gross Margin
Adjusted Gross Margin
Operating Margin
EBITDA Margin
213
2009
2010
2011
2012
2013
2014E
2015E
$2,365
1,261
1,629
$5,255
(4,273)
$982
(482)
$500
(85)
(9)
$407
153
$253
126
44
(64)
$360
$1,620
883
1,159
$3,662
(3,114)
$548
(387)
$121
(117)
11
$15
(15)
$30
(116)
47
(67)
($105)
$1,744
927
1,174
$3,845
(3,256)
$589
(520)
$69
(128)
(16)
($75)
(23)
($51)
75
54
(48)
$29
$2,262
1,239
1,332
$4,832
(4,057)
$776
(581)
$195
(128)
(11)
$56
27
$29
74
51
(52)
$101
$2,535
1,527
1,510
$5,573
(4,557)
$1,014
(607)
$407
(114)
7
$300
106
$194
(24)
49
(9)
$211
$2,315
1,491
1,425
$5,231
(4,276)
$955
(636)
$319
(61)
(7)
$251
87
$164
(20)
52
(12)
$185
$2,742
1,576
1,499
$5,816
(4,741)
$1,027
(714)
$314
(61)
0
$252
89
$163
4
70
(26)
$211
$2,919
1,620
1,583
$6,122
(4,943)
$1,084
(735)
$350
(80)
5
$275
96
$179
2
54
(20)
$225
11
$511
$744
15
$135
$589
17
$85
$225
17
$212
$360
19
$426
$463
22
$341
$386
22
$335
$415
23
$373
$449
$3.26
$4.63
$0.00
$0.38
($1.32)
$0.00
($0.61)
$0.34
$0.00
$0.34
$1.20
$0.00
$1.99
$2.18
$0.00
$1.60
$1.82
$0.00
$1.60
$2.06
$0.00
$1.75
$2.20
$0.00
19%
20%
10%
10%
15%
16%
3%
4%
15%
19%
2%
2%
16%
19%
4%
4%
18%
19%
7%
8%
18%
19%
6%
7%
18%
19%
5%
6%
18%
19%
6%
6%
October 14, 2014
MRC Global
2013
Revenues
Upstream
Midstream
Downstream
Total Revenue
Cost of Sales
Total Gross Income
SG&A
Operating Income
Other
Pretax Income
Income Tax
Net Income
Increase in LIFO Reserve
Amortization of Intangibles
Tax Impact of Adjustments
Adjusted Net Income
EBITDA (GAAP)
Adjusted EBITDA
Per Share Data
Diluted Earnings
Adjusted Diluted EPS
Dividend
Margins Summary
Gross Margin
Adjusted Gross Margin
Operating Margin
EBITDA Margin
214
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$714
428
381
$1,523
(1,227)
$272
(181)
$91
(15)
1
$77
29
$49
1
18
(7)
$60
$693
420
377
$1,490
(1,202)
$263
(181)
$82
(15)
1
$68
25
$43
1
18
(7)
$55
$714
329
393
$1,436
(1,161)
$252
(172)
$79
(20)
1
$61
21
$39
0
18
(6)
$51
$728
422
398
$1,548
(1,251)
$273
(186)
$88
(20)
1
$69
24
$45
0
18
(6)
$56
$728
428
394
$1,551
(1,253)
$274
(186)
$88
(20)
1
$70
24
$45
0
18
(6)
$57
$748
441
398
$1,587
(1,278)
$285
(190)
$95
(20)
1
$76
27
$49
0
18
(6)
$61
5
$85
$106
5
$97
$117
6
$88
$108
6
$85
$104
6
$93
$112
6
$94
$113
6
$100
$120
$0.28
$0.39
$0.00
$0.42
$0.54
$0.00
$0.48
$0.59
$0.00
$0.42
$0.54
$0.00
$0.39
$0.50
$0.00
$0.44
$0.55
$0.00
$0.44
$0.55
$0.00
$0.48
$0.60
$0.00
18%
19%
5%
5%
17%
19%
5%
6%
18%
19%
6%
6%
18%
19%
6%
6%
18%
19%
6%
6%
18%
19%
6%
6%
18%
19%
6%
6%
18%
19%
6%
6%
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
$578
346
381
$1,305
(1,059)
$247
(161)
$86
(15)
1
$71
25
$46
(3)
13
(4)
$53
$542
376
350
$1,268
(1,024)
$244
(154)
$90
(15)
(12)
$63
19
$44
(13)
13
(0)
$44
$588
377
348
$1,314
(1,075)
$238
(159)
$79
(15)
(0)
$64
22
$41
(6)
13
(3)
$46
$606
392
346
$1,344
(1,118)
$226
(162)
$64
(15)
4
$53
20
$33
1
13
(5)
$42
$635
307
364
$1,306
(1,074)
$232
(171)
$61
(15)
(4)
$42
13
$29
1
16
(5)
$40
$700
420
377
$1,497
(1,238)
$259
(180)
$79
(15)
1
$65
22
$43
1
18
(6)
$55
5
$91
$104
6
$96
$99
6
$85
$96
6
$69
$87
5
$66
$84
$0.45
$0.52
$0.00
$0.43
$0.43
$0.00
$0.40
$0.45
$0.00
$0.32
$0.41
$0.00
19%
20%
7%
7%
19%
20%
7%
8%
18%
19%
6%
6%
17%
18%
5%
5%
October 14, 2014
MRC Global
2008
2009
2010
2011
2012
2013
2014E
2015E
$12
545
830
39
$1,426
108
544
839
1,003
$3,920
$56
606
804
42
$1,508
109
551
831
84
$3,083
$55
596
765
42
$1,458
105
549
817
59
$2,988
$46
791
899
11
$1,748
107
561
772
39
$3,228
$37
823
970
20
$1,851
122
610
749
37
$3,370
$25
812
972
37
$1,846
119
632
708
30
$3,336
$165
1,033
1,075
43
$2,317
126
866
721
27
$4,056
$304
1,096
1,191
46
$2,638
133
866
650
27
$4,312

Accounts Payable
$362
Taxes Payable
0
Other
168
Current liabilities
$530
LT debt
1,749
Deferred taxes
310
(282)
Total Liabilities
$2,307
Common Shareholders' Equit
$987
Total
$3,294
$371
0
205
$576
1,453
307
11
$2,347
$744
$3,090
$427
0
198
$625
1,360
297
20
$2,302
$687
$2,988
$480
12
182
$673
1,527
289
18
$2,507
$721
$3,228
$438
0
212
$650
1,250
261
22
$2,184
$1,186
$3,370
$550
0
212
$762
979
241
15
$1,997
$1,338
$3,336
$650
0
235
$884
1,390
246
28
$2,548
$1,507
$4,056
$692
0
270
$962
1,390
246
28
$2,626
$1,686
$4,312
2009
2010
2011
2012
2013
2014E
2015E
Assets
Cash & equivalents
Accounts receivable
Inventories
Other-CA
Current assets
PPE
Goodwill
Deferred Taxes
Other
Total assets

2008
Net income
Depreciation
Other
Working Capital Chg
($28)
35
22
(31)
($1)
($38)
53
54
(42)
$27
($51)
70
71
22
$113
$29
68
82
(281)
($103)
$118
68
96
(41)
$240
$152
74
(7)
104
$324
$155
91
(4)
(149)
$93
$179
94
0
(104)
$169
Capex
Business Acquisition
Other
Cash from investing
($6)
(3)
5
($4)
($10)
(12)
4
($18)
($11)
(12)
7
($16)
($15)
(40)
7
($48)
($26)
(152)
(4)
($183)
($22)
(47)
(1)
($69)
($21)
(347)
0
($367)
($30)
0
0
($30)
Change in Long Term Debt
Change in Equity
Other
Net Cash From Financing
($3)
0
0
($3)
($11)
0
0
($11)
($94)
0
(4)
($98)
$141
0
0
$141
($375)
335
(20)
($60)
($269)
5
(1)
($265)
$411
1
(0)
$412
-4
-6
-1
($11)
11
$0
($2)
0
($2)
($0)
56
$56
($10)
56
$46
($9)
46
$37
($12)
37
$25
FX and other
Chg in cash
Beginning cash
Ending cash
215
$140
25
$165
$0
0
0
$0
0
$139
165
$304
October 14, 2014
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 NBRs high spec
newbuild PACE-X rigs. We added upside from ownership interest in CJES shares post the merger with
Nabors 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&Js
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
NBRs 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, Nabors 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.
216
October 14, 2014
Nabors Industries
Nabors operates in 25 international countries and the new Global Alliance Agreement with C&J
Energy Services serves to accelerate the companys international expansion by leveraging NBRs
existing footprint and relationships. While the company retains a 53% stake in the new CJES, Nabors
is not required to contribute capital for CJESs fleet growth or geographic expansion, which should
allow NBRs 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.
9x
NBR current trades at 4.3x, a -8%

NBR
Onshore Drillers
8x
7x
6x
5x
4x
3x
2x
'06
'07
217
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Nabors Industries
Revenues
U.S.
Canada
International
Rig Services
Total Drilling
Completion Services
Production Services
Total C&P Services
Other
Revenues
2004
2005
2006
2007
2008
2009
$749
427
444
206
1,826
0
360
360
418
$2,604
$1,307
578
553
331
2,768
0
492
492
537
$3,797
$1,890
687
746
627
3,950
0
704
704
813
$5,468
$1,711
545
1,095
646
3,996
0
715
715
873
$5,585
$1,878
503
1,372
683
4,436
0
759
759
337
$5,532
$1,083
297
1,265
448
3,093
0
412
412
218
$3,723
EBITDA
U.S.
Canada
International
Rig Services
Total Drilling
Completion Services
Production Services
Total C&P Services
Other
EBITDA
2010
2011
2012
$1,598
271
1,094
427
3,390
321
563
884
(106)
$4,168
$1,999
426
1,104
674
4,204
1,237
850
2,087
126
$6,418
$1,860
573
1,265
840
4,538
1,463
858
2,320
69
$6,927
$651
74
502
71
1,298
99
121
220
(107)
$1,410
$803
147
397
90
1,437
331
177
508
(154)
$1,791
2013
2014E
2015E
$1,915
362
1,464
595
4,336
1,049
1,035
2,084
(192)
$6,228
$2,187
335
1,704
582
4,808
1,236
1,073
2,308
(242)
$6,874
$2,512
310
2,117
617
5,556
0
0
0
(213)
$5,343
$917
151
422
124
1,613
301
213
514
(153)
$1,974
$756
119
524
44
1,443
176
191
367
(149)
$1,661
$841
109
621
63
1,634
109
246
354
(184)
$1,805
$996
104
795
66
1,961
0
0
0
(186)
$1,775
Operating Income
U.S.
Canada
International
Rig Services
Total Drilling
Completion Services
Production Services
Total C&P Services
Other
Operating income
$94
91
89
(5)
269
0
58
58
(2)
$324
$465
137
136
34
771
0
108
108
35
$914
$829
187
212
77
1,305
0
213
213
62
$1,580
$596
87
332
57
1,073
0
156
156
44
$1,272
$629
61
408
69
1,166
0
149
149
38
$1,352
$295
(7)
366
14
667
0
29
29
(32)
$664
$335
18
255
42
651
67
37
103
(105)
$649
$443
89
124
56
712
229
80
309
(153)
$867
$510
91
91
79
772
189
109
297
(150)
$919
$315
61
178
4
558
52
102
154
(146)
$566
$361
53
230
33
676
3
128
130
(186)
$620
$444
50
309
35
838
0
0
0
(122)
$716
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
(49)
45
$321
(37)
0
$284
(45)
117
$986
(229)
0
$756
(47)
127
$1,661
(448)
16
$1,229
(54)
(7)
$1,212
(240)
8
$981
(92)
(654)
$607
(340)
0
$266
(265)
(421)
($22)
(48)
0
($70)
(273)
26
$402
(49)
0
$353
(256)
371
$982
(170)
0
$812
(252)
650
$1,317
(192)
(68)
$1,057
(223)
55
$398
(35)
(11)
$352
(184)
10
$446
(85)
(3)
$358
(185)
0
$531
(98)
150
$583
Per Share Data

Diluted Earnings
Dividend
$0.87
$0.00
$2.34
$0.00
$4.12
$0.00
$3.42
$0.00
$0.93
$0.00
($0.24)
$0.00
$1.22
$0.00
$2.77
$0.00
$3.62
$0.00
$1.19
$0.16
$1.21
$0.20
$2.00
$0.24
38%
25%
34%
34%
24%
28%
36%
22%
28%
33%
18%
27%
34%
15%
26%
35%
19%
12%
16%
17%
15%
14%
17%
13%
13%
13%
7%
9%
14%
6%
9%
15%
Margins Summary
EBITDA margins
Drilling
C&P
Companywide
Operating margins
Drilling
C&P
Companywide
218
15%
16%
12%
28%
22%
24%
33%
30%
29%
27%
22%
23%
26%
20%
24%
22%
7%
18%
33%
13%
October 14, 2014
Nabors Industries
2013
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$568
86
447
138
1,239
361
274
635
(59)
$1,815
$575
82
490
139
1,287
370
264
635
(67)
$1,855
$619
77
464
152
1,312
0
0
0
(68)
$1,244
$634
56
498
171
1,359
0
0
0
(46)
$1,314
$643
90
564
146
1,444
0
0
0
(48)
$1,395
$615
87
591
147
1,440
0
0
0
(51)
$1,389
$206
14
139
17
377
28
58
86
(46)
$416
$221
28
162
15
425
43
64
107
(46)
$486
$226
27
182
15
450
44
63
108
(46)
$511
$249
30
187
16
483
0
0
0
(46)
$436
$248
15
180
18
461
0
0
0
(46)
$415
$254
30
207
16
505
0
0
0
(46)
$459
$245
29
222
16
512
0
0
0
(46)
$465
$72
26
48
9
156
(34)
31
(3)
(43)
$109
$90
0
51
9
150
(1)
30
29
(46)
$133
$98
13
60
8
178
11
34
44
(46)
$177
$101
14
71
8
193
26
34
59
(51)
$201
$110
21
76
9
215
0
0
0
(10)
$205
$110
1
67
10
187
0
0
0
(35)
$152
$114
14
79
8
215
0
0
0
(37)
$177
$111
15
88
8
222
0
0
0
(39)
$182
(47)
12
$124
26
(4)
$147
(45)
2
$67
(14)
(1)
$51
(46)
7
$94
(18)
(1)
$75
(46)
0
$131
(24)
0
$107
(46)
0
$154
(29)
0
$126
(46)
0
$158
(29)
37
$166
(46)
0
$106
(20)
37
$124
(46)
0
$131
(24)
37
$144
(46)
0
$136
(25)
37
$148
$0.20
$0.04
$0.49
$0.04
$0.17
$0.04
$0.25
$0.04
$0.36
$0.06
$0.43
$0.06
$0.57
$0.06
$0.42
$0.06
$0.49
$0.06
$0.51
$0.06
31%
16%
24%
35%
18%
28%
35%
17%
27%
34%
11%
25%
33%
16%
26%
34%
17%
27%
35%
17%
28%
37%
34%
35%
36%
35%
32%
33%
33%
10%
6%
6%
15%
8%
11%
14%
7%
10%
14%
-1%
7%
13%
5%
8%
14%
7%
10%
15%
9%
11%
16%
14%
15%
15%
16%
12%
13%
13%
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
Revenues
U.S.
Canada
International
Rig Services
Total Drilling
Completion Services
Production Services
Total C&P Services
Other
Revenues
$485
127
322
179
1,112
262
252
514
(45)
$1,582
$467
65
351
152
1,036
254
245
499
(41)
$1,493
$492
81
384
131
1,088
267
247
513
(53)
$1,548
$471
89
408
133
1,100
266
292
558
(53)
$1,605
$510
112
375
144
1,141
228
275
503
(57)
$1,587
$533
55
391
162
1,141
277
258
535
(59)
$1,616
EBITDA
U.S.
Canada
International
Rig Services
Total Drilling
Completion Services
Production Services
Total C&P Services
Other
EBITDA
$185
46
107
20
357
47
51
98
(32)
$423
$179
18
117
8
322
33
48
82
(42)
$361
$205
26
143
11
384
40
51
91
(36)
$439
$187
29
158
6
380
56
41
96
(39)
$437
$188
40
138
16
382
(7)
60
53
(44)
$391
Operating Income
U.S.
Canada
International
Rig Services
Total Drilling
Completion Services
Production Services
Total C&P Services
Other
Operating income
$78
31
21
8
137
18
26
44
(32)
$150
$70
4
32
(4)
102
7
23
30
(42)
$91
$93
12
54
2
162
13
26
39
(35)
$166
$75
15
70
(2)
157
14
27
41
(39)
$160
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
(60)
27
$117
(2)
(1)
$113
(60)
15
$45
(7)
(6)
$32
(56)
1
$111
(52)
0
$59
Per Share Data

Diluted Earnings
Dividend
$0.39
$0.04
$0.11
$0.04
32%
19%
27%
12%
9%
9%
Margins Summary
EBITDA margins
Drilling
C&P
Companywide
Operating margins
Drilling
C&P
Companywide
219
October 14, 2014
Nabors Industries
Assets
Cash
Accounts receivable
Other
Current assets
PP&E
Goodwill
Other
Total assets
2004
2005
$813
540
228
$1,581
3,275
327
679
$5,863
$1,424
822
372
$2,617
3,887
342
384
$7,230
$1,140
$767
$584
$1,091
$801
$941
$1,162
$750
$468
$496
1,110
1,039
1,161
724
1,117
1,577
1,383
1,400
1,617
1,211
255
399
422
362
695
571
588
604
731
542
$2,505
$2,205
$2,167
$2,177
$2,613
$3,088
$3,133
$2,754
$2,817
$2,250
5,410
6,689
7,332
7,646
7,815
8,630
8,712
8,598
9,127
6,198
362
368
176
164
494
501
472
513
513
2,433
865
841
844
658
724
693
339
295
279
3,139
$9,142 $10,103 $10,518 $10,645 $11,647 $12,912 $12,656 $12,160 $12,736 $14,020
$337
248
$585
2,020
717
151
$3,472
0
0
3,758
$7,230
$459
$349
$425
$226
$355
$783
$499
$546
$689
$503
395
446
479
382
420
744
633
756
783
571
$854
$794
$904
$608
$775
$1,527
$1,132
$1,301
$1,472
$1,074
4,004
4,006
3,826
3,941
4,443
4,624
4,380
3,914
4,156
3,406
584
542
623
673
770
798
599
516
482
482
163
247
262
240
246
293
519
378
597
597
$5,606
$5,589
$5,614
$5,463
$6,235
$7,242
$6,630
$6,109
$6,707
$5,558
0
0
0
0
0
0
0
0
200
1,470
0
0
0
0
69
69
69
69
0
0
3,537
4,514
4,904
5,182
5,343
5,601
5,957
5,981
6,029
6,542
$9,142 $10,103 $10,518 $10,645 $11,647 $12,912 $12,656 $12,160 $12,736 $13,570

Accounts payable
$212
Other
183
Current liabilities
$395
Total debt
2,006
Deferred taxes
386
Other
146
Total liabilities
$2,933
Minority Interest
0
Preferred stock
0
Common stock
2,929
Total
$5,863
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E

2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$348
1,180
(10)
94
$1,613
$583
1,123
25
217
$1,948
($1,178) ($1,795)
321
69
(117)
(10)
159
21
($815) ($1,715)
($1,100)
2,860
0
(940)
$820
Net income
Depreciation
Other
$302
300
13
(52)
$563
Capex
Asset sales
Acquisitions
Other
Cash from investing
($544)
0
0
(5)
($549)
Chg in LT debt
Dividend paid
Other
Cash flow financing
($302)
0
93
($209)
$10
0
99
$109
$1,952
0
(1,533)
$418
$0
0
(79)
($79)
$143
0
(238)
($95)
$43
0
(24)
$19
$285
0
(5)
$280
$146
0
17
$163
($246)
0
(8)
($254)
($690)
(47)
8
($730)
($195)
580
$385
$180
385
$564
$136
565
$701
($164)
701
$536
($89)
531
$442
$486
442
$928
($286)
928
$642
($243)
642
$399
$126
399
$525
($135)
525
$390
Chg in cash
Beginning cash
Ending cash
220
$649
339
195
(152)
$1,030
$1,021
410
218
(163)
$1,486
$931
544
(25)
(80)
$1,370
$551
658
62
175
$1,446
($86)
679
(219)
1,242
$1,617
$95
794
56
163
$1,107
$244
972
(35)
276
$1,456
$164
1,056
(145)
488
$1,563
($907) ($1,927) ($2,014) ($1,490) ($1,093)

($930) ($2,043) ($1,519)
27
18
356
70
31
31
211
309
(82)
(47)
(8)
(0)
0
(734)
(55)
0
4
188
204
(20)
(101)
(40)
27
30
($958) ($1,768) ($1,463) ($1,440) ($1,163) ($1,673) ($1,859) ($1,180)
$140
1,100
(103)
282
$1,418
$170
($750)
(59)
(70)
(232)
(1,920)
($120) ($2,740)
($230)
390
$160
$28
160
$188
October 14, 2014

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 builtrigs, 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. NOVs wellbore technology segments is also adding significant roofline
capacity and machinery investments, targeting downhole tools, instrumentation and solids control.
221
October 14, 2014

NOVs 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.
NOV current trades at 10.7x, a
23x
18x
13x
8x
NOV
Capital Equipment
3x
'04
'05
'06
222
'07
'08
'09
'10
'11
'12
'13
'14
October 14, 2014

2005
Revenues
Rig Systems
Rig Aftermarket
Wellbore Technologies
Completion & Production Solutions
Eliminations
Total Revenue
Rig Technology
Petroleum Services and Supplies
Distribution and Transmission
Eliminations
Operating Income
Rig Systems
Rig Aftermarket
Eliminations
Rig Technology
Petroleum Services and Supplies
Distribution and Transmission
Corporate
$4,645
$2,217
$1,646
$1,075
($293)
2006
$7,026
$3,585
$2,425
$1,370
($354)
2007
2008
2009
2010
2011
2012
2013
$9,789 $13,431 $12,712 $12,156 $14,658 $20,041 $22,869

$5,745
$7,528
$8,093
$6,965
$7,788 $10,107 $11,716
$3,061
$4,651
$3,745
$4,182
$5,654
$6,967
$7,184
$1,424
$1,772
$1,350
$1,546
$1,873
$3,927
$5,117
($440)
($520)
($476)
($537)
($657)
($960) ($1,148)
2014E
2015E
$9,479
$9,685
$3,116
$3,298
$5,747
$6,333
$4,613
$5,812
($1,822) ($1,900)
$21,133 $23,228
$1,976
$845
$1,070
$670
($808)
$3,753
$2,096
$914
$1,250
$886
($875)
$4,270
$546
$264
$306
$47
($70)
$1,119
$621
$556
$96
($155)
$2,044
$1,394
$732
$94
($175)
$3,010
$1,970
$1,131
$130
($220)
$2,549
$2,287
$453
$50
($241)
$2,465
$2,071
$585
$78
($269)
$2,978
$2,070
$1,095
$136
($323)
$3,688
$2,380
$1,519
$253
($464)
$3,468
$2,447
$1,305
$274
($558)
Net Interest Income (Expense)

Equity Income in Unconsolidated Aff
Other
Pretax income
Income Tax
Minority Interest
Net Income
($52)
$0
$5
$499
($162)
($4)
$333
($31)
$0
($31)
$1,057
($358)
($10)
$689
$2
$0
($18)
$2,029
($676)
($16)
$1,337
($23)
$53
$24
$3,065
($999)
($17)
$2,049
($44)
$47
($110)
$2,442
($789)
($4)
$1,649
($37)
$36
($22)
$2,442
($739)
$8
$1,711
($22)
$46
($39)
$2,963
($945)
$7
$2,025
($38)
$58
($60)
$3,648
($1,118)
($7)
$2,523
($99)
$63
($32)
$3,400
($1,037)
($1)
$2,362
($87)
$86
$0
$3,753
($1,197)
($3)
$2,553
($83)
$101
($92)
$4,195
($1,364)
($4)
$2,828
Total EBITDA
$660
$115
$1,280
$161
$2,259
$214
$3,412
$402
$3,039
$490
$2,972
$507
$3,533
$555
$4,316
$628
$4,232
$764
$4,598
$782
$5,106
$836
$1.03
$0.00
$1.95
$0.00
$3.75
$0.00
$5.10
$0.00
$3.94
$1.20
$4.09
$0.41
$4.77
$0.45
$5.91
$0.49
$5.53
$0.91
$5.95
$1.64
$6.80
$1.93
NA
NA
4%
12%
14%
17%
23%
7%
16%
18%
24%
24%
7%
21%
23%
26%
24%
7%
22%
25%
28%
12%
4%
20%
24%
30%
14%
5%
20%
24%
27%
19%
7%
20%
24%
24%
22%
6%
18%
22%
21%
18%
5%
15%
19%
21%
18%
5%
18%
22%
23%
19%
6%
18%
22%
Per Share Data

Diluted Earnings
Dividend
Margins Summary
Operating Margins
Rig Technology OP
Petroleum Services and Supplies OP
Distribution and Transmission OP
Companywide
EBITDA margins
223
October 14, 2014

2013
1Q13
Revenues
Rig Systems
Rig Aftermarket
Eliminations
Total Revenue
$5,307
Rig Technology
2,628
Petroleum Services
1,701
Distribution
1,227
Eliminations?
(249)
Operating Income
Rig Systems
Rig Aftermarket
Eliminations
$816
Rig Technology
557
Petroleum Services
311
Distribution
65
Corporate
(117)
2Q13
$5,601
2,833
1,749
1,295
(276)
3Q13
$5,789
2,945
1,809
1,342
(307)
4Q13
$6,172
3,310
1,925
1,253
(316)
1Q14
$5,777
3,009
1,789
1,281
(302)
$826
587
304
71
(136)
$853
606
324
78
(155)
$973
697
366
60
(150)
$880
635
326
68
(149)
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$2,372
785
1,446
1,127
(475)
$5,255
$2,408
801
1,504
1,212
(475)
$5,449
$2,444
781
1,519
1,272
(475)
$5,540
$2,480
800
1,564
1,348
(475)
$5,718
$2,480
816
1,525
1,416
(475)
$5,763
$2,356
833
1,602
1,487
(475)
$5,802
$2,368
849
1,642
1,561
(475)
$5,945
$501
217
269
158
(200)
$945
$508
221
286
179
(207)
$988
$516
216
291
190
(209)
$1,003
$527
222
307
203
(218)
$1,041
$527
226
295
215
(217)
$1,046
$520
231
318
227
(219)
$1,078
$522
235
330
240
(222)
$1,106
Interest Income
Equity Income
Other
Pretax income
Income Tax
Minority Interest
Net Income
(25)
19
(13)
$797
(246)
2
$553
(27)
15
13
$827
(259)
0
$568
(24)
13
(15)
$827
(255)
0
$572
(23)
16
(17)
$949
(277)
(3)
$669
(22)
10
0
$868
(266)
0
$602
(22)
23
(21)
$925
(295)
(1)
$630
(22)
25
(21)
$970
(315)
(1)
$654
(21)
28
(21)
$989
(322)
(1)
$667
(21)
25
(23)
$1,021
(332)
(1)
$688
(21)
25
(23)
$1,027
(334)
(1)
$692
(21)
25
(23)
$1,060
(344)
(1)
$714
(20)
26
(23)
$1,088
(354)
(1)
$733
Total EBITDA
Depreciation
$990
174
$1,016
190
$1,053
200
$1,173
200
$1,075
195
$1,135
190
$1,184
197
$1,204
200
$1,247
206
$1,254
208
$1,286
208
$1,319
214
Per Share Data

Diluted Earnings
Dividend
$1.29
$0.13
$1.33
$0.26
$1.34
$0.26
$1.56
$0.26
$1.40
$0.26
$1.46
$0.46
$1.52
$0.46
$1.56
$0.46
$1.63
$0.46
$1.66
$0.46
$1.72
$0.51
$1.79
$0.51
21%
18%
5%
15%
19%
21%
17%
5%
15%
18%
21%
18%
6%
15%
18%
21%
19%
5%
16%
19%
21%
18%
5%
15%
19%
21%
18%
5%
18%
22%
21%
18%
5%
18%
22%
22%
19%
5%
18%
22%
22%
19%
6%
18%
22%
22%
19%
6%
18%
22%
23%
19%
6%
19%
22%
24%
20%
6%
19%
22%
Margins Summary
Operating Margins
Rig Technology
Petroleum Services
Distribution
Companywide
EBITDA margins
224
October 14, 2014

2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
Assets
Cash & equivalents
Accounts Receivable
Inventories
Costs in Excess of Billings
Other
Current assets
PPE
Deferred Taxes
Goodwill
Intangibles
Other
Total Assets
$209
1,139
1,198
0
59
393
$2,999
878
52
2,118
0
633
$6,679
$957
$1,842
$1,543
$2,622
$3,333
$3,535
$3,319
$3,436
$4,641
$5,209
1,615
2,100
3,136
2,187
2,425
3,291
4,320
4,896
4,667
5,008
1,829
2,575
3,806
3,490
3,388
4,030
5,891
5,603
5,097
5,469
0
132
209
290
316
336
349
373
349
374
70
644
619
740
815
593
1,225
1,539
1,652
1,773
464
303
283
269
258
325
574
576
627
673
$4,934
$7,594
$9,595
$9,598 $10,535 $12,110 $15,678 $16,423 $17,034 $18,507
1,022
1,197
1,677
1,836
1,840
2,445
2,945
3,408
3,381
3,145
78
56
109
92
341
267
413
372
472
472
2,937
2,445
5,225
5,489
5,790
6,151
7,172
9,049
8,640
8,640
0
774
4,300
4,052
4,103
4,073
4,743
5,055
4,808
4,808
26
49
494
465
441
469
533
505
464
464
$8,997 $12,115 $21,399 $21,532 $23,050 $25,515 $31,484 $34,812 $34,799 $36,036

Accounts Payable
Accrued Liabilities
Billings in Excess of Costs
Accrued Income Taxes
Other
Current liabilities
LT debt
Deferred taxes
Minority Interest
Total Liabilities
Shareholders' equity
Total
$568
0
0
613
6
$1,187
836
373
88
0
$2,484
$4,195
$6,679
$1,044
$604
$852
$584
$628
$901
$1,200
$1,275
$1,242
$1,333
564
1,761
2,376
2,267
2,105
2,376
2,571
2,763
3,012
3,232
0
1,396
2,161
1,090
511
865
1,189
1,771
2,294
2,462
1,039
112
233
226
919
923
688
868
742
796
6
153
4
7
373
351
1
1
0
0
$2,653
$4,027
$5,627
$4,174
$4,536
$5,416
$5,649
$6,678
$7,290
$7,823
835
738
874
876
514
159
3,148
3,149
3,148
3,148
378
564
2,042
2,091
1,885
1,852
1,997
2,292
2,002
2,002
107
62
128
163
253
360
334
363
344
344
0
63
96
115
114
109
117
0
0
0
$3,973
$5,454
$8,766
$7,419
$7,302
$7,896 $11,245 $12,482 $12,784 $13,317
$5,024
$6,661 $12,633 $14,113 $15,748 $17,619 $20,239 $22,330 $22,015 $22,719
$8,997 $12,115 $21,399 $21,532 $23,050 $25,515 $31,484 $34,812 $34,799 $36,036

2005
Net income
Depreciation
Other
Working Capital Chg
2006
2007
$287
115
48
(372)
$78
$684
161
45
327
$1,217
PP&E
Acquisition
Other
Net Cash From Investing
($126)
164
0
$38
($200)
(330)
0
($530)
Change in Debt
Change in Equity
Cash Dividends Paid
Other
Cash flow financing
($152)
112
0
0
($40)
($5)
46
0
0
$41
$35
114
0
0
$150
($8)
$20
$67
143
$210
$748
210
$958
FX and other
Chg in cash
Beginning cash
Ending cash
225
$1,337
214
84
(447)
$1,188
2008
2009
2010
$1,659
507
7
(631)
$1,542
2011
$1,985
555
(233)
(164)
$2,143
2012
$2,483
628
45
(2,536)
$620
2013
2014E
2015E
$2,328
755
(174)
488
$3,397
$2,478
778
110
(188)
$3,177
$2,828
836
0
(373)
$3,291
($600)
0
0
($600)
$1,952
402
86
(145)
$2,294
$1,473
490
154
(22)
$2,095
($252)
($379)
(324)
(2,207)
1
112
($575) ($2,473)
($250)
(573)
271
($552)
($232)
($483)
($583)
($669)
(556)
(1,038)
(2,880)
(2,367)
45
63
35
72
($743) ($1,458) ($3,428) ($2,964)
($638)
(102)
(252)
($992)
($189)
115
0
0
($74)
($40)
8
(460)
1
($491)
($13)
83
(172)
0
($102)
($391)
96
(191)
22
($464)
$2,637
138
(209)
17
$2,583
($1)
58
(389)
27
($305)
$0
$0
(296)
(1,320)
(703)
(803)
12
0
($987) ($2,123)
$122
($46)
$27
$14
($19)
$9
($11)
$7
$0
$884
958
$1,842
($299)
1,842
$1,543
$1,079
1,543
$2,622
$711
2,622
$3,333
$202
3,333
$3,535
($216)
3,535
$3,319
$117
3,319
$3,436
$1,205
3,436
$4,641
$568
4,641
$5,209
October 14, 2014
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.
226
October 14, 2014
Noble Corp
th
Nobles October 9 fleet status report detailed incremental downtime for the Globetrotter I and
later contract starts for the Amos Runner and David Tinsley, putting managements 2014 unpaid
fleet operational downtime target of 5% at risk. Were modeling 3Q14 contract drilling costs near
the midpoint of managements $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 wont 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 Nobles 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.
Were 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. Were 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.
NE current trades at 6.4x, an
5.8x average and a 7%
premium to its historical 5.9x.
10x
8x
6x
4x
NE
Offshore Drillers
2x
'06
'07
227
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Noble Corp
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
Revenues
Contract drilling services
Reimbursables
Other
Total revenues
$937
50
79
$1,066
$1,209
86
86
$1,382
$1,887
92
121
$2,100
$2,714
121
160
$2,995
$3,299
91
57
$3,447
$3,510
99
32
$3,641
$2,695
77
35
$2,807
$2,557
79
60
$2,696
$3,349
115
82
$3,547
$4,052
112
52
$4,216
$3,991
132
33
$4,156
$3,546
127
33
$3,706
Expenses
Reimbursables
Other
Operating costs
G&A
EBITDA
D&A
Other
Operating income
Interest Expense
Interest Income
Other
Pretax income
Taxes
Minority interest
Net income
($522)
(45)
(70)
($636)
(34)
$396
(209)
0
$187
(34)
9
0
$162
(16)
0
$146
($599)
(76)
(81)
($757)
(40)
$585
(242)
0
$343
(20)
11
0
$334
(62)
0
$272
$0.54
$0.00
$0.99
$0.05
$2.63
$0.08
$4.47
$0.12
$5.77
$0.91
$6.52
$0.18
$3.02
$0.88
$1.40
$0.60
$1.95
$0.54
$2.89
$0.76
$2.91
$1.50
$2.50
$1.50
40%
37%
18%
45%
42%
25%
58%
56%
44%
62%
59%
50%
67%
65%
55%
69%
67%
56%
55%
52%
33%
45%
42%
17%
46%
44%
22%
49%
46%
25%
50%
48%
28%
50%
48%
29%
Per Share Data

Diluted Earnings
Dividend
Margins Summary
Gross margins
EBITDA margins
Operating margins
228
($696)
($880) ($1,012) ($1,007) ($1,178) ($1,384) ($1,776) ($2,025) ($1,950) ($1,745)
(80)
(106)
(79)
(85)
(59)
(58)
(94)
(86)
(98)
(90)
(108)
(143)
(43)
(19)
(22)
(34)
(47)
(37)
(25)
(25)
($884) ($1,129) ($1,134) ($1,111) ($1,259) ($1,477) ($1,917) ($2,147) ($2,073) ($1,860)
(46)
(86)
(74)
(80)
(92)
(91)
(100)
(118)
(102)
(86)
$1,170
$1,780
$2,239
$2,450
$1,456
$1,128
$1,530
$1,951
$1,981
$1,761
(253)
(293)
(357)
(408)
(540)
(659)
(759)
(879)
(823)
(682)
0
0
0
0
0
0
0
0
0
0
$917
$1,487
$1,882
$2,042
$916
$469
$771
$1,072
$1,158
$1,079
(16)
(13)
(4)
(2)
(9)
(56)
(86)
(106)
(147)
(170)
10
11
8
7
10
1
5
0
(2)
0
0
0
0
(17)
(7)
(4)
(5)
0
0
0
$911
$1,485
$1,886
$2,030
$909
$411
$685
$966
$1,010
$909
(187)
(282)
(347)
(342)
(143)
(67)
(158)
(167)
(183)
(173)
0
0
0
0
(0)
7
(34)
(68)
(86)
(91)
$723
$1,203
$1,539
$1,687
$766
$352
$493
$732
$742
$645
October 14, 2014
Noble Corp
2013
1Q13
Revenues
Contract drilling
Reimbursables
Other
Total revenues
Expenses
Contract drilling
Reimbursables
Other
Operating costs
G&A
EBITDA
D&A
Other
Operating income
Interest Expense
Interest Income
Other
Pretax income
Taxes
Minority interest
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Gross margins
EBITDA margins
Operating margins
229
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$929
21
21
$971
$957
28
14
$999
$1,041
29
9
$1,079
$1,125
33
9
$1,167
$1,206
37
8
$1,251
$1,200
32
8
$1,240
$798
32
8
$838
$786
32
8
$826
$834
32
8
$873
$864
32
8
$904
$884
32
8
$924
$965
32
8
$1,005
($484)
(15)
(12)
($511)
(26)
$434
(206)
0
$228
(27)
(0)
0
$200
(34)
(18)
$149
($492)
(23)
(9)
($524)
(27)
$448
(213)
0
$236
(25)
1
0
$212
(36)
(17)
$159
($488)
(24)
(8)
($520)
(34)
$525
(224)
0
$301
(23)
1
0
$279
(45)
(19)
$216
($560)
(24)
(7)
($591)
(32)
$544
(237)
0
$307
(31)
(1)
0
$275
(52)
(15)
$208
($561)
(31)
(6)
($598)
(26)
$628
(246)
0
$382
(40)
(1)
(4)
$336
(62)
(17)
$257
($577)
(22)
(6)
($606)
(27)
$607
(254)
0
$353
(36)
(0)
(4)
$313
(54)
(23)
$236
($400)
(22)
(6)
($428)
(25)
$385
(160)
0
$225
(33)
0
0
$192
(37)
(23)
$133
($412)
(22)
(6)
($440)
(24)
$361
(163)
0
$198
(38)
0
0
$161
(31)
(23)
$108
($415)
(22)
(6)
($444)
(23)
$407
(166)
0
$241
(40)
0
0
$201
(38)
(23)
$140
($430)
(22)
(6)
($459)
(22)
$423
(169)
0
$254
(42)
0
0
$213
(40)
(23)
$150
($441)
(22)
(6)
($470)
(21)
$433
(172)
0
$261
(44)
0
0
$218
(41)
(23)
$154
($459)
(22)
(6)
($488)
(20)
$497
(175)
0
$322
(46)
0
0
$277
(53)
(23)
$201
$0.59
$0.13
$0.63
$0.13
$0.85
$0.25
$0.82
$0.25
$1.01
$0.38
$0.93
$0.38
$0.52
$0.38
$0.42
$0.38
$0.55
$0.38
$0.58
$0.38
$0.60
$0.38
$0.78
$0.38
47%
45%
23%
48%
45%
24%
52%
49%
28%
49%
47%
26%
52%
50%
31%
51%
49%
28%
49%
46%
27%
47%
44%
24%
49%
47%
28%
49%
47%
28%
49%
47%
28%
51%
49%
32%
October 14, 2014
Noble Corp
Assets
Cash & equivalents
Accounts receivable
Other
Current assets
PP&E
Other
Total assets
2004
2005
2006
2007
2008
$59
205
161
$425
2,744
139
$3,308
$122
277
124
$522
2,999
825
$4,346
$62
408
100
$570
3,858
158
$4,586
$161
613
86
$860
4,796
220
$5,876
$513
645
82
$1,240
5,643
219
$7,102
$735
$338
$239
$282
$114
$91
$918
647
387
587
744
949
593
721
100
187
233
274
327
254
309
$1,483
$912
$1,060
$1,300
$1,391
$938
$1,948
6,634
10,048
11,897
13,026
14,558
15,551
14,869
279
343
538
276
269
304
304
$8,397 $11,302 $13,495 $14,603 $16,218 $16,793 $17,121
$94
79
78
$250
1,138
228
6
$1,623
(8)
2,732
$4,346
$196
93
127
$417
694
220
34
$1,364
(7)
3,229
$4,586
$198
116
168
$482
785
241
66
$1,573
(6)
4,308
$5,876
$259
75
172
$506
923
265
121
$1,816
(4)
5,291
$7,102
$198
$375
$436
$350
$347
$266
$294
100
126
118
133
151
108
119
136
221
273
423
554
281
311
$434
$721
$827
$906
$1,052
$655
$725
751
2,767
4,072
4,634
5,556
6,014
6,014
300
259
243
226
225
233
233
123
268
255
348
334
339
339
$1,608
$4,015
$5,397
$6,114
$7,168
$7,241
$7,311
0
125
691
765
727
725
725
6,788
7,163
7,407
7,723
8,323
8,826
9,085
$8,397 $11,302 $13,495 $14,603 $16,218 $16,793 $17,121

Accounts payable
$83
Accrued payroll
61
Other
62
Current liabilities
$206
LT debt
512
Deferred taxes
207
8
Total liabilities
$932
Noncontrolling interes
(9)
Common stock
2,384
Total
$3,308
2009
2010
2011
2012
2013
2014E
2015E

2004
Net income
Depreciation
Other
New construction
Major projects
Other capex
Capitalized interest
Asset sales
Other
Cash from investing
Change in ST debt
Change in LT debt
Dividend paid
Other
Cash flow financing
$146
209
(23)
$332
2005
2006
$297
242
(9)
$529
($111)
($212)
(150)
(222)
(73)
(80)
0
0
2
1
34
(635)
($297) ($1,147)
2007
$732
253
4
$989
2008
$1,206
293
(85)
$1,414
$1,561
357
(29)
$1,888
2009
2010
2011
$1,679
408
50
$2,137
$773
540
341
$1,654
2012
$364
659
(282)
$740
2013
$556
759
67
$1,382
$850
879
(28)
$1,702
2014E
2015E
$771
823
1
$1,595
$645
682
0
$1,327
($671)
($755)
($800)
($717)
($580) ($1,671)
($587) ($1,527) ($1,400)
($525)
(382)
(424)
(324)
(595)
(657)
(657)
0
0
0
0
(69)
(108)
(108)
(119)
(104)
(170)
(947)
(846)
(600)
(600)
31
45
41
0
(83)
(122)
(136)
(115)
(57)
(60)
695
18
39
0
0
0
0
61
0
0
46
0
22
(64)
(1,490)
100
(121)
(59)
(12)
0
($350) ($1,224) ($1,129) ($1,495) ($2,914) ($2,522) ($1,791) ($2,485) ($2,069) ($1,185)
($25)
(53)
0
39
($39)
$635
(9)
(14)
69
$681
($135)
(313)
(22)
(229)
($699)
$100
(10)
(32)
(149)
($91)
($100)
239
(244)
(301)
($407)
$0
(173)
(48)
(199)
($419)
$40
1,238
(227)
(189)
$862
$935
1,088
(151)
(190)
$1,683
($635)
1,187
(138)
39
$452
$1,221
(300)
(300)
(6)
$615
$1,207
(250)
(385)
(41)
$531
$100
0
(387)
0
($287)
FX and other
(77)
Chg in cash
Beginning cash
Ending cash
($81)
139
$59
$63
59
$122
($60)
122
$62
$99
62
$161
$352
161
$513
$222
513
$735
($398)
735
$338
($99)
338
$239
$43
239
$282
($168)
282
$114
$57
114
$171
230
($145)
171
$27
October 14, 2014
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 Russias 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. Were 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.
231
October 14, 2014

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.
NADL current trades at 5.1x,
a -11% discount to the
group's 5.8x average.
10x
9x
8x
7x
6x
5x
NADL
4x
Offshore Drillers
3x
'06
'07
232
'08
'09
'10
'11
'12
'13
'14
October 14, 2014

2011
2012
2013
2014E
2015E
$707
111
$672
25
0
14
$711
$793
234
$955
89
0
0
$1,045
$873
236
$1,117
194
12
12
$1,323
$853
302
$1,112
180
32
32
$1,323
$925
350
$1,275
180
0
0
$1,455
Expenses
Floaters
Jackups
Reimbursables
Gross Profit
G&A
EBITDA
D&A
Other
Operating income
Other income
Pretax income
Taxes
Minority interest
Net income
($189)
(44)
($238)
(22)
$451
(26)
$425
($106)
0
$319
(61)
(57)
$201
(21)
0
$181
($264)
(91)
($346)
(82)
$617
(50)
$567
($163)
0
$404
(83)
(29)
$291
(55)
0
$237
($284)
(95)
($527)
(184)
$612
(65)
$548
($188)
0
$360
(85)
(12)
$264
(29)
0
$235
($304)
(148)
($459)
(169)
$695
(76)
$619
($200)
0
$419
(118)
0
$301
(27)
0
$275
($353)
(178)
($531)
(169)
$755
(84)
$671
($224)
0
$447
(181)
0
$266
(24)
0
$243
Per Share Data

Diluted Earnings
Dividend
$0.18
$0.12
$1.07
$0.90
$1.03
$0.91
$1.14
$0.95
$1.00
$0.96
63%
60%
45%
59%
54%
39%
46%
41%
27%
53%
47%
32%
52%
46%
31%
Revenues
Floaters
Jackups
Reimbursables
Related Party
Other
Total revenues
Margins Summary
Gross margins
EBITDA margins
Operating margins
233
October 14, 2014

2013
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
Revenues
Floaters
Jackups
Reimbursables
Related Party
Other
Total revenues
$210
59
$272
46
0
0
$318
$223
59
$280
94
0
0
$374
$228
59
$294
28
0
0
$321
$213
59
$271
27
12
12
$310
$212
55
$226
32
16
16
$274
$200
70
$268
58
16
16
$343
$219
88
$307
45
0
0
$352
$222
88
$310
45
0
0
$355
$188
86
$274
45
0
0
$319
$220
87
$307
45
0
0
$352
$248
88
$337
45
0
0
$381
$269
88
$357
45
0
0
$402
Expenses
Floaters
Jackups
Reimbursables
Gross Profit
G&A
EBITDA
D&A
Other
Operating income
Other income
Pretax income
Taxes
Minority interest
Net income
($69)
(23)
($125)
(42)
$151
(15)
$135
($44)
0
$92
(19)
(10)
$62
(7)
0
$55
($70)
(24)
($136)
(90)
$148
(16)
$131
($45)
0
$86
(21)
6
$71
(8)
0
$63
($72)
(24)
($134)
(26)
$161
(18)
$144
($51)
0
$93
(21)
(1)
$71
(2)
0
$69
($73)
(24)
($132)
(26)
$153
(16)
$138
($48)
0
$89
(24)
(6)
$60
(12)
0
$48
($72)
(32)
($107)
(29)
$137
(18)
$119
($48)
0
$71
(23)
0
$48
(2)
0
$45
($74)
(37)
($115)
(55)
$173
(19)
$154
($49)
0
$105
(27)
0
$77
(9)
0
$68
($77)
(39)
($117)
(42)
$193
(19)
$174
($51)
0
$123
(31)
0
$92
(8)
0
$84
($81)
(41)
($121)
(42)
$192
(20)
$172
($52)
0
$120
(35)
0
$84
(7)
0
$77
($82)
(41)
($123)
(42)
$154
(20)
$133
($54)
0
$80
(39)
0
$40
(4)
0
$37
($86)
(43)
($130)
(42)
$180
(21)
$159
($55)
0
$104
(43)
0
$61
(5)
0
$55
($91)
(46)
($136)
(42)
$203
(21)
$182
($57)
0
$125
(47)
0
$78
(7)
0
$71
($94)
(48)
($142)
(42)
$218
(22)
$197
($58)
0
$138
(50)
0
$88
(8)
0
$80
Per Share Data

Diluted Earnings
Dividend
$0.24
$0.23
$0.28
$0.23
$0.30
$0.23
$0.21
$0.23
$0.19
$0.23
$0.28
$0.24
$0.35
$0.24
$0.32
$0.24
$0.15
$0.24
$0.23
$0.24
$0.29
$0.24
$0.33
$0.24
47%
43%
29%
39%
35%
23%
50%
45%
29%
49%
44%
29%
50%
44%
26%
50%
45%
31%
55%
49%
35%
54%
48%
34%
48%
42%
25%
51%
45%
30%
53%
48%
33%
54%
49%
34%
Margins Summary
Gross margins
EBITDA margins
Operating margins
234
October 14, 2014

2012
2013
2014E
2015E
Assets
Cash & equivalents
Restricted cash
Accounts receivable
Other
Current assets
Goodwill
Deferred tax assets
Newbuildings
Drilling units
Other
Total assets
2011
$98
24
212
295
$629
481
10
249
2,416
155
$3,939
$84
25
222
52
$383
481
3
313
2,378
142
$3,699
$326
14
282
84
$706
481
5
169
2,924
142
$4,426
$385
14
319
89
$808
481
5
209
2,760
142
$4,404

Current Portion of LT Debt
Related Party Liabilities
Trade Accounts Payable
Tax Payable
Deferred Taxes
Other
Current liabilities
LT debt
Related Party Liabilities
Deferred taxes
Total liabilities
Common stock
Total
167
47
6
71
12
399
$702
1,583
703
12
101
$3,100
0
838
$3,939
167
13
10
18
0
223
$431
1,581
700
0
129
$2,842
0
858
$3,699
218
18
13
1
0
239
$489
2,312
365
0
162
$3,328
0
1,098
$4,426
218
18
15
1
0
239
$491
2,188
905
0
162
$3,746
0
658
$4,404
2013
2014E
2015E

2011
Net income
Depreciation
Other
Working Capital Chg
2012
$237
163
1
(43)
(94)
$264
$236
188
20
(126)
107
$425
$241
200
47
(305)
74
$258
$243
224
189
(698)
11
($31)
Additions to newbuildings
Additions to rigs and equipment
Additions to other fixed assets
Other
Cash from investing
($195)
($4)
($1)
(11)
($211)
($64)
($37)
($1)
(1)
($104)
($455)
($35)
$0
1
($489)
($40)
($60)
$0
4
($96)
Equity issuance
Dividend paid
Other
Cash flow financing
$147
(198)
(52)
($102)
$0
(205)
(129)
($334)
$103
(229)
597
$471
$0
(231)
416
$185
(2)
($49)
0
($49)
($14)
98
$84
$242
84
$326
$59
326
$385
FX and other
Chg in cash
Beginning cash
Ending cash
235
October 14, 2014
NOW Inc.
Investment Thesis
Spun off from National Oilwell Varcos 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 companys 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 companys 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.
236
October 14, 2014
NOW Inc.
NOW Incs 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.
12x
DNOW current trades at a
19% premium to MRC
DNOW
MRC
11x
10x
9x
8x
7x
'06
'07
237
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
NOW Inc.
Revenues:
U.S.
Canada
International
Total revenues
Total Expenses
2011
2012
2013
2014E
2015E
$917
305
419
$1,641
$2,257
591
566
$3,414
$2,863
773
660
$4,296
$2,757
679
687
$4,123
$3,014
736
722
$4,472
($1,277) ($2,791) ($3,482) ($3,251) ($3,466)
Warehousing Exp.
G&A
Other Exp.
EBITDA
(157)
(73)
0
$134
(315)
(128)
0
$180
(412)
(161)
0
$118
(438)
(188)
0
$246
(493)
(192)
0
$320
D&A
Operating Income
(6)
$128
(12)
$168
(17)
$224
(22)
$224
(26)
$294
Interest Income
Interest Expense
Other Income
Pretax income
Taxes
Net income
0
0
0
$128
(43)
$85
0
0
(3)
$165
(57)
$108
0
0
(2)
$222
(75)
$147
0
0
0
$224
(79)
$145
0
0
0
$294
(103)
$191
$1.37
$1.35
$1.76
5%
6%
7%
5%
3%
19%
5%
6%
8%
5%
6%
21%
6%
6%
8%
7%
7%
22%
Per Share Data

Diluted Earnings
Margins Summary
Operating Margins
U.S.
Canada
International
Companywide
EBITDA margins
Gross Margin
238
8%
10%
6%
8%
8%
22%
4%
6%
7%
5%
5%
18%
October 14, 2014
NOW Inc.
2013
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$712
194
366
$1,078
$729
198
373
$1,102
$745
148
327
$1,072
$762
193
375
$1,137
$779
197
383
$1,161
($838)s
($857)
($837)
($878)
($893)
(112)
(48)
0
$61
(119))
(51)e
0s
$71 A
(121)
(47)
0
$76
(118)
(46)
0
$70
(125)
(49)
0
$84
(128)
(50)
0
$90
(6)
$43
(6)
$55
(6)
$64
(7)
$69
(7)
$64
(7)
$78
(6)
$84
0
0
0
$62
(21)
$41
0
0
0
$43
(16)
$27
0
0
0
$55
(19)
$35
0
0
0
$64
(22)
$42
0
0
0
$69
(24)
$45
0
0
0
$64
(22)
$41
0
0
0
$78
(27)
$51
0
0
0
$84
(29)
$54
$0.31
$0.38
$0.25
$0.33
$0.39
$0.41
$0.38
$0.46
$0.50
6%
3%
4%
5%
5%
19%
4%
8%
9%
6%
6%
20%
4%
2%
8%
5%
5%
21%
4%
6%
8%
5%
6%
22%
5%
7%
8%
6%
7%
22%
6%
7%
8%
6%
7%
22%
6%
3%
8%
6%
7%
22%
7%
7%
8%
7%
7%
23%
7%
7%
8%
7%
8%
23%
2Q13
Revenues
U.S.
Canada
International
Total revenues
$712
215
145
$1,072
$742
172
156
$1,070
$704
191
373
$1,077
$662
125
290
$952
$679
169
337
$1,016
Total Expenses
($870)
($871)
($865)
($753)
($795)
(101)
(39)
0
$62
(103)
(40)
0
$56
(102)
(44)
0
$66
(105)
(45)
0
$49
D&A
Operating Income
(4)
$58
(3)
$53
(4)
$62
Interest Income
Interest Expense
Other Income
Pretax income
Taxes
Net income
0
0
2
$60
(19)
$41
0
0
2
$55
(22)
$33
Per Share Data

Diluted Earnings
$0.38
5%
8%
6%
5%
6%
19%
Warehousing Exp.
G&A
Other Exp.
EBITDA
Margins Summary
Operating Margins
U.S.
Canada
International
Companywide
EBITDA margins
Gross Margin
239
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
1Q13
October 14, 2014
NOW Inc.
e
Assets
Cash & equivalents
Accounts receivable
Inventory
Current assets
PPE
Deferred Taxes
Other
Total assets
2012
2013
2014E
2015E
$138
692
1,015
37
$1,882
61
11
417
2
$2,373
$101
661
850
50
$1,662
102
15
401
3
$2,183
$126
875
999
62
$2,063
136
8
400
1
$2,607
$330
943
1,076
67
$2,416
121
8
400
1
$2,946

Current Maturities
Accounts payable
Current liabilities
LT Debt
Deferred Taxes
Other Liabilities
Total liabilities
Common stock
Total
$0
272
119
$391
0
11
2
$402
$1,971
$2,373
$0
264
99
$363
0
15
2
$381
$1,802
$2,183
$0
446
119
$565
0
8
2
$572
$2,035
$2,607
$0
476
127
$603
110
8
2
$720
$2,226
$2,946
2014E
2015E

2011
Net income
Depreciation
Deferred taxes
Other
Working Capital Chg
CF from ops
2012
$108
12
(7)
7
(132)
($12)
$147
17
3
12
138
$317
$145
22
1
5
(184)
($10)
$191
26
0
0
(112)
$106
Capex
Asset disposal (acquisitio
Other
CF from investing
($4)
($14)
(30)
(1,113)
0
0
($34) ($1,127)
($55)
0
1
($54)
($48)
0
8
($40)
($12)
0
0
($12)
Change in LT debt
Preferred issuance
Common issuance
Contributions from NOV
Dividend Paid
Other
CF from financing
$0
0
0
(37)
0
4
($38)
$0
0
0
1,185
0
7
$1,184
$0
0
0
(298)
0
12
($299)
$0
0
0
74
0
5
$74
$110
0
0
0
0
0
$110
(1)
($72)
163
$91
$47
91
$138
($37)
138
$101
$25
101
$126
$204
126
$330
FX and other
Chg in cash
Beginning cash
Ending cash
240
$85
6
(11)
4
(87)
($3)
2013
October 14, 2014
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 ORIGs 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 MLPs 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 companys
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 companys implied sub $450mm EV per UDW unit currently.
241
October 14, 2014
Ocean Rig
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.
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.
9x
7x
5x
ORIG
Offshore Drillers
3x
'06
'07
242
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Ocean Rig
2008
Revenues
Drilling revenues
Amortization of deferred revenue
Total revenues
$219
2009
$388
2010
$406
2011
$700
2012
$942
2013
2014E
2015E
$1,180
$1,587
183
$1,770
$1,896
154
$2,049
($734)
(81)
81
($734)
(140)
$1,175
(353)
0
$822
(291)
0
$532
(104)
0
$429
Expenses
Direct & onshore
Amortization of deferred
Other
Operating costs
G&A
EBITDA
D&A
Other
Operating income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
($86)
(15)
$117
(45)
(762)
($690)
(72)
1
($760)
(3)
(3)
($766)
($133)
(20)
$234
(75)
0
$159
(46)
16
$129
(13)
0
$116
($119)
(21)
$266
(75)
(1)
$189
(8)
(26)
$155
(20)
0
$135
($282)
(43)
$375
(163)
0
$212
(57)
(16)
$140
(27)
0
$113
($500)
(84)
$360
(224)
0
$136
(98)
(27)
$11
(43)
0
($32)
($505)
(127)
$542
(235)
0
$307
(150)
12
$169
(45)
0
$124
($595)
(113)
(27)
($735)
(129)
$905
(325)
0
$579
(241)
(6)
$332
(64)
0
$268
Per Share Data

Diluted Earnings
Dividend
($7.43)
$0.00
$1.12
$0.00
$1.30
$0.00
$0.86
$0.00
($0.24)
$0.00
$0.94
$0.00
$2.03
$0.57
$3.26
$0.76
Margins Summary
Gross margins
EBITDA margins
Operating margins
61%
54%
-315%
66%
60%
41%
71%
65%
47%
60%
54%
30%
47%
38%
14%
57%
46%
26%
59%
51%
33%
64%
57%
40%
243
October 14, 2014
Ocean Rig
2013
1Q13
Revenues
Drilling revenues
Amortization of deferred revenue
Total revenues
$246
Expenses
Direct & onshore
Amortization of deferred
Other
(121)
Operating costs
($121)
G&A
(23)
EBITDA
$103
D&A
(53)
Other
0
Operating income
$50
Interest expense
(31)
Other income
2
Pretax income
$21
Taxes
(14)
Minority interest
0
Net income
$6
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Gross margins
EBITDA margins
Operating margins
244
2Q13
$260
3Q13
$329
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$345
$328
33
$361
$393
49
$441
$441
53
$494
$426
48
$474
$420
40
$460
$488
38
$526
$494
38
$532
$494
38
$532
($144)
(30)
(10)
($183)
(28)
$230
(81)
0
$149
(58)
(7)
$85
(15)
0
$70
($161)
(33)
(7)
($201)
(33)
$261
(83)
0
$178
(63)
1
$116
(23)
0
$94
($162)
(30)
(7)
($199)
(33)
$242
(84)
0
$157
(68)
1
$91
(18)
0
$73
($165)
(24)
24
($165)
(35)
$260
(86)
0
$174
(73)
1
$103
(20)
0
$83
($187)
(19)
19
($187)
(35)
$305
(87)
0
$217
(73)
1
$146
(28)
0
$118
($190)
(19)
19
($190)
(35)
$306
(89)
0
$217
(73)
1
$146
(28)
0
$118
($192)
(19)
19
($192)
(35)
$304
(90)
0
$214
(73)
1
$143
(28)
0
$115
(117)
($117)
(24)
$113
(56)
0
$58
(30)
22
$49
(10)
0
$39
(129)
($129)
(40)
$160
(61)
0
$99
(41)
(7)
$50
(11)
0
$39
(138)
($138)
(41)
$166
(65)
0
$101
(47)
(5)
$49
(9)
0
$40
($128)
(20)
(4)
($152)
(35)
$172
(77)
0
$96
(53)
(2)
$40
(8)
0
$31
$0.05
$0.00
$0.29
$0.00
$0.30
$0.00
$0.30
$0.00
$0.24
$0.00
$0.53
$0.19
$0.71
$0.19
$0.55
$0.19
$0.63
$0.19
$0.89
$0.19
$0.88
$0.19
$0.86
$0.19
51%
42%
20%
55%
44%
22%
61%
49%
30%
60%
48%
29%
58%
48%
26%
59%
52%
34%
59%
53%
36%
58%
51%
33%
64%
56%
38%
65%
58%
41%
64%
58%
41%
64%
57%
40%
October 14, 2014
Ocean Rig
2008
2009
2010
2011
2012
2013
2014E
2015E
$273
93
$366
0
1,377
17
$1,761
$234
324
$559
1,178
1,318
55
$3,110
$96
576
$672
1,888
1,249
534
$4,344
$251
246
$496
755
4,539
225
$6,015
$510
242
$753
993
4,399
80
$6,225
$659
401
$1,060
662
5,777
121
$7,620
$83
556
$639
562
6,653
214
$8,067
$139
624
$763
562
7,227
214
$8,766

Total debt
$1,673
Other liabilities
64
Total liabilities
$1,737
0
Common stock
24
Total
$1,761
$1,345
64
$1,409
0
1,701
$3,110
$1,365
98
$1,463
0
2,881
$4,344
$2,736
281
$3,017
0
2,998
$6,015
$2,853
463
$3,317
0
2,909
$6,225
$3,993
647
$4,641
0
2,980
$7,620
$4,397
695
$5,093
0
2,975
$8,067
$5,197
695
$5,893
0
2,874
$8,766
2011
2012
2013
2014E
2015E
Assets
Cash & equivalents
Other
Current assets
Capex advances
PP&E
Other
Total assets

2008
Capex advances
Capex
Other
Cash from investing
Payments on LT debt
Dividend paid
Other
Cash flow financing
Chg in cash
Beginning cash
Ending cash
245
$21
(17)
($1,021)
2009
$211
2010
$222
$271
($1,865)
(82)
385
($147) ($1,441) ($1,562)
(14)
$1,257
($103)
$258
15
$273
($39)
273
$234
(7)
$1,081
($138)
234
$96
$278
$333
($212)
($233)
(98)
(1,051)
(10)
139
($320) ($1,144)
$152
($68)
($232)
(727)
(25)
($984)
$0
(574)
0
($574)
$2,420
(927)
0
(48)
$1,446
$800
(672)
0
(20)
$109
$2,800
(1,622)
0
(78)
$1,099
$950
(561)
(75)
(4)
$309
$100
700
(101)
0
$699
$155
96
$251
$66
251
$317
$288
317
$605
($523)
605
$83
$57
83
$139
October 14, 2014
Oceaneering
Investment Thesis
Oceaneering is a pioneer in underwater robotics, contracting ROVs for drill support services and vesselbased 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 OIIs 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.
246
October 14, 2014
Oceaneering
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.
28x
24x
20x
16x
12x
8x
OII current trades at 13.5x, a -11% discount to the group's

OII
4x
'04
'05
'06
247
'07
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Oceaneering
2004
Revenues
ROVs
Subsea Products
Subsea Projects
Asset Integrity
Advanced Technolog
Other
Total Revenue
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$224
160
70
146
131
49
$780
$315
239
122
155
118
50
$999
$410
365
155
169
128
53
$1,280
$531
522
258
220
162
50
$1,743
$626
650
257
249
157
39
$1,977
$649
488
241
216
194
33
$1,822
$662
549
248
223
235
0
$1,917
$755
770
167
267
233
0
$2,193
$854
829
380
435
285
0
$2,783
$982
1,028
509
482
286
0
$3,287
$1,086
1,249
577
511
268
0
$3,690
$1,257
1,362
635
572
284
0
$4,110
$131
66
$180
80
$278
80
$380
94
$436
115
$413
123
$455
143
$468
151
$605
176
$747
202
$860
233
$1,007
264
Operating Income
ROVs
Subsea Products
Subsea Projects
Asset Integrity
Advanced Technolog
Other
Unallocated Expenses
Operating Income
$44
13
4
4
15
15
(29)
$66
$64
17
21
9
11
14
(34)
$100
$109
53
58
16
11
15
(65)
$197
$144
93
89
23
14
11
(89)
$286
$190
96
73
31
10
10
(89)
$321
$208
61
67
26
12
7
(90)
$290
$208
109
52
26
17
0
(100)
$311
$225
142
14
31
17
0
(112)
$317
$249
171
63
45
21
0
(121)
$429
$282
231
94
55
25
0
(142)
$545
$325
274
108
60
5
0
(145)
$627
$394
289
130
72
5
0
(148)
$742
Net interest expense

Affiliate Income
Other
Pretax Income
Taxes
Net income
(7)
8
(2)
$65
(23)
$42
(10)
11
(1)
$101
(36)
$65
(12)
12
(3)
$194
(67)
$126
(14)
4
(2)
$274
(96)
$178
(13)
2
0
$311
(109)
$202
(7)
3
2
$288
(101)
$187
(3)
2
(3)
$308
(106)
$202
(0)
4
(1)
$320
(96)
$224
(2)
2
(6)
$422
(133)
$289
(2)
0
(1)
$542
(171)
$372
(1)
(0)
(0)
$626
(192)
$434
(0)
0
0
$742
(223)
$520
$0.41
$0.00
$0.60
$0.00
$1.15
$0.00
$1.60
$0.00
$2.18
$0.00
$1.69
$0.00
$1.82
$0.00
$2.06
$0.45
$2.66
$0.69
$3.42
$0.84
$3.99
$1.03
$4.70
$1.08
20%
8%
6%
3%
11%
8%
20%
7%
17%
5%
9%
10%
26%
15%
37%
9%
9%
15%
27%
18%
35%
10%
9%
16%
30%
15%
28%
12%
6%
16%
32%
12%
28%
12%
6%
16%
31%
20%
21%
12%
7%
16%
30%
18%
9%
11%
7%
14%
29%
21%
17%
10%
7%
15%
29%
22%
18%
11%
9%
17%
30%
22%
19%
12%
2%
17%
31%
21%
21%
13%
2%
18%
EBITDA
D&A
Per Share Data

Diluted Earnings
Dividend
Margins Summary
Operating Margins
ROV
Subsea Products
Subsea Projects
Asset Integrity
Advanced Technolog
Companywide
248
October 14, 2014
Oceaneering
2013
1Q13
Revenues
ROVs
Subsea Products
Subsea Projects
Asset Integrity
Advanced Technolog
Other
Total Revenue
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$230
214
88
115
72
0
$719
$242
258
118
125
77
0
$820
$255
264
143
119
73
0
$853
$255
292
160
124
64
0
$895
$256
260
138
124
62
0
$840
$268
327
136
130
65
0
$927
$283
369
143
131
69
0
$995
$279
292
160
126
71
0
$927
$293
299
152
139
66
0
$949
$315
352
150
146
69
0
$1,032
$327
397
157
146
73
0
$1,101
$322
314
176
141
75
0
$1,028
$158
50
$197
50
$205
51
$188
51
$186
53
$217
56
$232
60
$224
64
$233
65
$251
66
$272
67
$251
68
Operating Income
ROVs
Subsea Products
Subsea Projects
Asset Integrity
Advanced Technolog
Other
Unallocated Expenses
Operating Income
$66
43
12
12
9
0
(33)
$108
$69
62
24
17
10
0
(36)
$146
$75
62
31
16
6
0
(36)
$154
$72
64
28
10
(0)
0
(37)
$137
$77
55
21
14
3
0
(36)
$133
$76
79
26
16
0
0
(36)
$161
$82
79
28
18
1
0
(36)
$172
$91
60
33
12
1
0
(36)
$161
$93
62
31
16
3
0
(37)
$168
$98
75
30
19
0
0
(37)
$185
$102
86
32
22
1
0
(37)
$206
$101
66
38
16
1
0
(37)
$183

Affiliate Income
Other
Pretax Income
Taxes
Net income
(1)
0
1
$109
(34)
$75
(0)
(0)
(2)
$144
(45)
$99
(1)
0
(1)
$152
(48)
$104
0
0
(0)
$136
(43)
$93
(0)
(0)
0
$133
(42)
$91
(0)
0
(0)
$161
(50)
$110
(0)
0
0
$172
(52)
$120
(0)
0
0
$161
(48)
$112
(0)
0
0
$168
(50)
$118
(0)
0
0
$185
(56)
$130
(0)
0
0
$206
(62)
$144
(0)
0
0
$183
(55)
$128
$0.69
$0.18
$0.91
$0.22
$0.96
$0.22
$0.86
$0.22
$0.84
$0.22
$1.02
$0.27
$1.10
$0.27
$1.03
$0.27
$1.07
$0.27
$1.18
$0.27
$1.30
$0.27
$1.15
$0.27
29%
20%
13%
11%
12%
15%
29%
24%
20%
13%
13%
18%
29%
23%
21%
14%
9%
18%
28%
22%
17%
8%
0%
15%
30%
21%
15%
11%
5%
16%
28%
24%
19%
12%
0%
17%
29%
22%
20%
14%
1%
17%
33%
21%
21%
9%
1%
17%
32%
21%
20%
12%
5%
18%
31%
21%
20%
13%
0%
18%
31%
22%
20%
15%
1%
19%
31%
21%
21%
11%
1%
18%
0
D&A
Per Share Data

Diluted Earnings
Dividend
Margins Summary
Operating Margins
ROV
Subsea Products
Subsea Projects
Asset Integrity
Advanced Technolog
Companywide
249
October 14, 2014
Oceaneering
2004
Assets
Cash & equivalents
Accounts Receivable
Inventories
Other
Current assets
PPE
Goodwill
Investments
Other
Total assets
$17
191
69
0
$277
401
63
0
79
$820

Accounts Payable
$47
Accrued Liabilties
112
Accrued Empl Comp
11
Current Maturities
0
Current liabilities
$171
LT debt
142
52
Total liabilities
$365
Shareholders Equity
$454
Total
$820
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$26
244
124
0
$394
409
85
0
102
$990
$26
315
182
(0)
$524
524
87
0
108
$1,242
$27
371
273
(0)
$671
638
112
65
46
$1,531
$11
447
290
(0)
$748
697
119
64
42
$1,670
$162
435
277
0
$874
766
131
59
50
$1,880
$245
424
314
0
$984
786
143
52
66
$2,031
$106
550
328
0
$984
893
333
50
140
$2,401
$121
667
416
(0)
$1,203
1,025
363
43
134
$2,768
$91
769
573
0
$1,433
1,189
344
37
125
$3,129
$165
843
584
0
$1,593
1,425
371
35
134
$3,557
$287
934
647
0
$1,869
1,631
371
35
134
$4,040
$64
142
16
0
$223
174
57
$453
$536
$990
$71
180
29
0
$280
194
72
$545
$697
$1,242
$77
236
26
0
$339
200
77
$616
$915
$1,531
$93
244
21
0
$357
229
116
$702
$968
$1,670
$86
256
46
0
$389
120
147
$656
$1,224
$1,880
$86
314
40
0
$440
0
200
$640
$1,390
$2,031
$111
335
55
0
$501
120
221
$843
$1,558
$2,401
$130
408
78
0
$617
94
241
$953
$1,815
$2,768
$130
517
81
0
$727
0
358
$1,085
$2,043
$3,129
$176
495
96
0
$767
80
363
$1,210
$2,346
$3,557
$195
548
106
0
$850
80
363
$1,294
$2,747
$4,040
2007
2008
2009
2010
2011
2012
2013
2014E
2015E

2004
2005
2006
Net income
Depreciation
Other
Working Capital Chg
$40
66
10
(16)
$100
$63
80
(8)
(41)
$94
$124
80
8
(62)
$151
$180
94
16
(81)
$209
$199
115
5
(72)
$248
$188
123
33
74
$418
$201
154
42
45
$442
$236
151
(2)
(96)
$289
$289
176
44
(70)
$439
$372
202
73
(117)
$529
$434
233
28
(65)
$631
$520
264
0
(72)
$712
Capex
Asset sales
Other
Cash Provided From I
($153)
1
0
($153)
($142)
3
0
($139)
($194)
7
0
($187)
($234)
7
0
($227)
($209)
6
(43)
($246)
($175)
13
0
($162)
($207)
15
0
($192)
($235)
44
(292)
($483)
($301)
4
(9)
($306)
($383)
12
(7)
($378)
($457)
2
(37)
($493)
($471)
0
0
($471)
Change in Debt
Change in Equity
Dividends paid
Other
Cash flow financing
$19
32
0
0
$51
$32
23
0
0
$55
$20
16
0
0
$36
$6
13
0
0
$19
$29
(53)
0
7
($17)
($109)
4
0
0
($105)
($120)
(47)
0
0
($167)
$120
(16)
(49)
0
$55
($27)
(17)
(75)
0
($118)
($94)
4
(91)
0
($180)
$80
(32)
(112)
0
($64)
0
0
(120)
0
($120)
Chg in cash
Beginning cash
Ending cash
($2)
18
$17
$10
17
$26
($0)
26
$26
$1
26
$27
($16)
27
$11
$151
11
$162
$83
162
$245
($139)
245
$106
$14
106
$121
($29)
121
$91
$74
91
$165
$122
165
$287
250
October 14, 2014
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 companys 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 companys offerings. OISs fleet of fit-forpurpose 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. Were modeling the company to
grow revenue and expand margins in both operating segments, though expect margins to remain below
their historical peaks.
251
October 14, 2014

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 companys 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
19x
OIS
17x
15x
13x
11x
9x
7x
5x
OIS current trades at 14.1x, in line with the group's
average but a 110% premium to its historical 6.68x.
3x
1x
'04
'05
'06
252
'07
'08
'09
'10
'11
'12
'13
'14
October 14, 2014

2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$260
143
528
313
844
$2,088
$356
177
528
427
1,460
$2,948
$234
71
509
481
812
$2,108
$343
133
429
538
969
$2,950
$488
166
586
867
1,375
$4,346
$523
191
804
1,113
1,782
$5,522
$578
170
883
1,046
1,110
$4,569
$643
196
964
253
0
$2,055
$733
201
984
0
0
$1,918
EBITDA
Completion Services
Drilling Services
Offshore Products
Accommodations
Tubular Services
Corporate and Elimina
Total EBITDA
D&A
Other Costs
Operating income
Affiliates income
Other
Pretax Income
Income Tax Expense
Minority Interest
Net Income
96
67
93
109
41
(21)
$386
(71)
(17)
$298
(14)
3
14
$300
(97)
0
$203
111
68
100
156
172
(27)
$581
(103)
(9)
$469
(18)
4
5
$460
(161)
0
$299
37
10
92
179
45
(30)
$333
(118)
(1)
$213
(15)
1
(0)
$200
(56)
0
$144
88
25
72
202
38
(40)
$386
(124)
(0)
$262
(15)
0
(0)
$247
(73)
1
$175
163
41
107
361
67
(41)
$698
(188)
(2)
$508
(56)
(0)
2
$454
(132)
1
$322
177
58
149
488
86
(46)
$913
(230)
(9)
$673
(67)
0
9
$615
(174)
1
$441
194
48
175
439
33
(52)
$836
(278)
(4)
$555
(74)
(0)
0
$481
(135)
1
$346
220
57
207
96
0
(58)
$521
(164)
(2)
$355
(25)
0
2
$332
(115)
0
$217
252
60
210
0
0
(58)
$464
(133)
0
$331
(6)
0
(0)
$325
(106)
0
$219
Per Share Data

Diluted Earnings
Dividend
$4.00
$0.00
$5.83
$0.00
$2.86
$0.00
$3.31
$0.00
$5.86
$0.00
$7.96
$0.00
$6.23
$0.00
$4.17
$0.00
$4.31
$0.00
Margins Summary
Gross margins
Completion Services
Drilling Services
Offshore Products
EBITDA margins
Operating margin
0%
237%
133%
100%
14%
31%
38%
19%
20%
16%
16%
14%
18%
16%
10%
26%
19%
17%
13%
9%
33%
25%
18%
16%
12%
34%
30%
19%
17%
12%
34%
28%
20%
18%
12%
34%
29%
21%
25%
17%
34%
30%
21%
24%
17%
Revenues
Completion Services
Drilling Services
Offshore Products
Accommodations
Tubular Services
Total revenues
253
October 14, 2014

2013
2Q13
$137
40
201
297
394
$1,069
$144
44
204
249
406
$1,047
$152
44
242
246
310
$684
$145
42
235
254
0
$675
$146
47
212
253
0
$658
$156
53
251
0
0
$460
EBITDA
Completion Services
Drilling Services
Offshore Products
Accommodations
Tubular Services
Corporate and Elimina
Total EBITDA
D&A
Other Costs
Operating income
Affiliates income
Other
Pretax Income
Income Tax Expense
Minority Interest
Net Income
40
10
36
136
16
(14)
$224
(67)
(0)
$157
(20)
(1)
1
$138
(38)
0
$100
48
13
42
98
17
(14)
$204
(69)
(1)
$135
(19)
(0)
1
$116
(33)
0
$84
53
11
46
102
13
(13)
$198
(70)
(4)
$125
(18)
0
4
$110
(29)
0
$81
53
13
52
103
0
(11)
$210
(72)
0
$138
(17)
0
(5)
$117
(35)
0
$82
50
13
43
96
0
(15)
$187
(70)
(1)
$115
(16)
0
1
$100
(28)
0
$72
Per Share Data

Diluted Earnings
Dividend
$1.80
$0.00
$1.50
$0.00
$1.46
$0.00
$1.47
$0.00
29%
25%
18%
21%
15%
34%
30%
20%
19%
13%
35%
26%
19%
29%
18%
37%
31%
22%
31%
20%
Revenues
Completion Services
Drilling Services
Offshore Products
Accommodations
Tubular Services
Total revenues
Margins Summary
Gross margins
Completion Services
Drilling Services
Offshore Products
EBITDA margins
Operating margin
254
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
1Q13
2015
2Q15E
3Q15E
4Q14E
1Q15E
4Q15E
$169
48
254
0
0
$471
$172
48
246
0
0
$466
$174
48
218
0
0
$439
$180
50
253
0
0
$484
$185
51
261
0
0
$497
$194
52
253
0
0
$498
51
16
56
0
0
(14)
$109
(31)
(1)
$77
(6)
0
1
$72
(26)
0
$47
59
14
54
0
0
(15)
$113
(31)
0
$82
(2)
0
(0)
$81
(31)
0
$50
59
14
53
0
0
(15)
$112
(32)
0
$80
(2)
0
(0)
$79
(30)
0
$49
60
14
46
0
0
(15)
$105
(32)
0
$73
(2)
0
(0)
$71
(23)
0
$48
60
15
53
0
0
(15)
$114
(33)
0
$81
(2)
0
(0)
$79
(26)
0
$53
65
15
56
0
0
(15)
$122
(34)
0
$89
(2)
0
(0)
$87
(28)
0
$59
67
15
55
0
0
(15)
$123
(34)
0
$88
(2)
0
(0)
$87
(28)
0
$59
$1.34
$0.00
$0.88
$0.00
$0.99
$0.00
$0.96
$0.00
$0.95
$0.00
$1.05
$0.00
$1.15
$0.00
$1.15
$0.00
34%
28%
20%
28%
17%
33%
29%
22%
24%
17%
35%
30%
21%
24%
17%
35%
29%
22%
24%
17%
34%
30%
21%
24%
17%
33%
30%
21%
23%
17%
35%
30%
22%
25%
18%
35%
30%
22%
25%
18%
October 14, 2014

Assets
Cash & equivalents
Accounts receivable
Inventory
Other
Current assets
PPE
Goodwill
Deferred loan costs
Other
Total assets
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$31
450
349
36
866
587
392
0
85
$1,930
$30
576
612
19
1,237
695
305
0
60
$2,299
$90
386
423
27
926
750
219
0
38
$1,932
$96
479
501
23
1,100
1,253
475
139
49
$3,016
$72
732
654
32
1,490
1,557
467
128
62
$3,704
$253
833
701
39
1,826
1,852
521
146
95
$4,440
$599
620
267
40
1,526
1,903
514
134
55
$4,131
$158
553
263
58
1,033
580
254
54
24
$1,945
$426
592
281
63
1,361
617
254
54
24
$2,310
$372
53
5
107
$537
449
16
13
$1,063
$1,236
$2,299
$209
14
0
92
$315
164
(15)
16
$550
$1,382
$1,932
$305
5
181
64
$554
732
21
20
$1,387
$1,629
$3,016
$349
10
34
81
$475
1,143
27
26
$1,740
$1,963
$3,704
$388
30
30
71
$519
1,280
17
47
$1,974
$2,466
$4,440
$281
33
1
60
$374
973
(8)
37
$1,506
$2,625
$4,131
$179
8
1
50
$238
188
39
16
$469
$1,476
$1,945
$192
8
1
50
$251
188
61
16
$481
$1,829
$2,310
2010
2011
2012
2014E
2015E

Accounts payable
$239
Income taxes
0
Current maturities
5
Other
61
Current liabilities
$305
LT debt
487
Deferred taxes
0
12
Total liabilities
$845
Shareholder's Equity $1,085
Total
$1,930

2007
2008
2009
2013
Net income
D&A
Other Non-Cash Exp.
Working Capital Chg
$223
103
104
(172)
$257
$60
118
100
176
$453
$169
124
38
(100)
$231
$323
188
45
(340)
$216
$450
230
32
(75)
$637
$423
278
(101)
87
$687
$163
192
176
(189)
$342
$219
133
93
(8)
$438
Capex
Asset sales
Other
Cash from investing
($30)
(247)
80
($246)
$0
(124)
96
($103)
($710)
(182)
2
($890)
($2)
(487)
(3)
($489)
($80)
(488)
(7)
($577)
($44)
(458)
(122)
$108
$4
(243)
107
($241)
$0
(170)
0
($170)
Chg in Debt
Change in Equity
Other
Cash flow financing
($3)
(1)
3
($2)
($300)
3
(1)
($297)
$648
23
(22)
$649
$266
2
(9)
$258
$126
(2)
(4)
$121
($341)
(92)
2
($431)
($93)
(141)
(307)
($541)
$0
0
0
$0
FX and other
(10)
16
(9)
(19)
(2)
($0)
61
$61
$60
0
$60
$7
90
$96
($25)
96
$72
$182
72
$253
$346
253
$600
($442)
600
$158
$268
158
$426
Chg in cash
Beginning cash
Ending cash
255
$0
56
$56
October 14, 2014
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 ultradeepwater 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 Pacifics
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 were 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 Pacifics 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).
256
October 14, 2014
Pacific Drilling
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.
11x
PACD
Offshore Drillers
9x
7x
5x
PACD current trades at 5.9x, an 1.% premium to the group's
3x
'06
'07
257
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Pacific Drilling
2009
Revenues
Direct dayrate revenues
Amortization of deferred revenues
Other
Total revenues
$0
Expenses
Direct operating expenses
Reimbursable costs
Shore-based & other support costs
Amortization of deferred costs
Total expenses
G&A
Other
EBITDA
Other
Operating income
Equity in earnings from jv
Interest income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Gross margin
EBITDA margins
Operating margins
258
2010
$0
2011
$65
2012
$638
2013
$746
2014E
2015E
$955
106
0
$1,061
$1,262
77
0
$1,339
($467)
(21)
(40)
(28)
($556)
(67)
0
$716
($290)
0
$426
$0
0
(132)
(2)
$292
(47)
0
$245
$0
(9)
0
($9)
($0)
(0)
($9)
$4
2
0
5
($2)
(0)
0
($2)
$0
(20)
0
($20)
($0)
0
($20)
$56
2
(1)
56
$37
0
0
$37
($32)
(53)
19
($1)
($12)
0
($12)
$19
0
(10)
23
$0
(3)
0
($3)
($331)
(45)
24
$285
($128)
0
$157
$0
0
(102)
3
$59
(23)
0
$36
($337)
(49)
0
$360
($149)
0
$210
$0
0
(94)
(2)
$115
(22)
0
$93
($352)
(22)
(38)
(52)
($465)
(57)
0
$540
($203)
0
$337
$0
0
(115)
(3)
$219
(40)
0
$179
($0.02)
$0.00
$0.25
$0.00
($0.01)
$0.00
$0.16
$0.00
$0.43
$0.00
$0.81
$0.00
$1.10
$0.69
48%
45%
25%
55%
48%
28%
56%
51%
32%
58%
53%
32%
October 14, 2014
Pacific Drilling
2013
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
Revenues
Direct revenues
Deferred revenues
Other
Total revenues
$0
0
175
$175
$0
0
177
$177
$0
0
193
$193
$0
0
201
$201
$198
28
0
$226
$233
28
0
$261
$243
26
0
$270
$281
24
0
$305
$279
21
0
$300
$280
19
0
$299
$340
19
0
$359
$364
18
0
$381
Expenses
Direct opex
Reimbursable costs
Shore-based & other
Deferred costs
Total expenses
G&A
Other
EBITDA
D&A
Other
Operating income
Equity in JV earnings
Interest income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
$0
0
0
0
($84)
(11)
0
$80
($37)
0
$43
$0
0
(23)
0
$20
(5)
0
$15
$0
0
0
0
($79)
(12)
0
$86
($37)
0
$49
$0
0
(22)
(0)
$27
(5)
0
$22
$0
0
0
0
($83)
(13)
0
$97
($37)
0
$61
$0
0
(24)
(1)
$36
(6)
0
$30
$0
0
0
0
($91)
(13)
0
$97
($40)
0
$57
$0
0
(26)
(1)
$31
(5)
0
$26
($83)
(7)
76
(13)
($111)
(13)
0
$102
($46)
0
$56
$0
0
(26)
(1)
$29
(7)
0
$22
($81)
(4)
72
(14)
($108)
(14)
0
$139
($46)
0
$93
$0
0
(29)
(1)
$63
(13)
0
$50
($84)
(6)
77
(13)
($113)
(15)
0
$142
($51)
0
$91
$0
0
(30)
(1)
$61
(9)
0
$51
($104)
(6)
97
(12)
($133)
(16)
0
$157
($60)
0
$97
$0
0
(31)
(1)
$66
(11)
0
$56
($102)
(5)
99
(9)
($126)
(16)
0
$159
($69)
0
$90
$0
0
(32)
(1)
$58
(11)
0
$47
($106)
(5)
105
(7)
($128)
(17)
0
$154
($69)
0
$85
$0
0
(33)
(1)
$52
(10)
0
$42
($126)
(5)
125
(7)
($148)
(17)
0
$194
($75)
0
$119
$0
0
(34)
(1)
$85
(13)
0
$72
($133)
(5)
132
(6)
($154)
(18)
0
$210
($78)
0
$132
$0
0
(35)
(1)
$97
(13)
0
$84
Per Share Data

Diluted Earnings
Dividend
$0.07
$0.00
$0.10
$0.00
$0.14
$0.00
$0.12
$0.00
$0.10
$0.00
$0.23
$0.00
$0.23
$0.00
$0.25
$0.00
$0.21
$0.17
$0.19
$0.17
$0.33
$0.17
$0.37
$0.17
52%
45%
25%
55%
49%
28%
57%
50%
31%
55%
48%
29%
51%
45%
25%
59%
53%
36%
58%
53%
34%
57%
51%
32%
58%
53%
30%
57%
52%
29%
59%
54%
33%
60%
55%
35%
Margins Summary
Gross margin
EBITDA margins
Operating margins
259
October 14, 2014
Pacific Drilling
2010
2011
2012
2013
2014E
2015E
Assets
Cash & equivalents
Accounts receivable
Other
Current assets
PPE
Other
Total assets
2009
$40
18
36
$94
1,893
284
$2,272
$107
63
292
$462
3,436
287
$4,184
$606
152
166
$924
3,760
209
$4,894
$204
206
143
$553
4,512
99
$5,164
$135
185
324
$644
5,632
86
$6,362
$187
231
405
$822
5,994
238
$7,054

Accounts payable
Accrued expenses
Other
Current liabilities
Total debt
Deferred revenue
Total liabilities
Common stock
Total
$7
9
64
$80
400
12
5
$497
0
1,775
$2,272
$27
39
280
$346
1,456
73
35
$1,910
0
2,274
$4,184
$30
39
332
$402
2,035
97
45
$2,579
0
2,315
$4,894
$54
66
131
$251
2,423
88
1
$2,764
0
2,400
$5,164
$58
84
145
$287
3,388
113
4
$3,792
0
2,570
$6,362
$67
98
169
$334
3,788
113
4
$4,239
0
2,815
$7,054
2011
2012
2013
2014E
2015E

2009
Net income
Depreciation
Deferred revenue
Other
Working Capital Chg
Capex
Increase in restricted cash
Other
Cash from investing
Chg in LT debt
Dividend paid
Other
Cash flow financing
Chg in cash
Beginning cash
Ending cash
260
($2)
0
0
0
(6)
1
($7)
($146)
(1)
(37)
($184)
2010
$37
0
(0)
0
(58)
(9)
($30)
($3)
12
(3)
(9)
(10)
(52)
($64)
$34
128
(4)
(96)
90
33
$185
($884) ($1,540)
(61)
(315)
0
0
($945) ($1,855)
($450)
205
0
($245)
$25
149
(4)
(70)
57
45
$202
$179
203
3
(56)
36
(63)
$303
$245
290
0
0
0
(80)
$456
($898) ($1,328)
172
0
0
0
($726) ($1,328)
($652)
0
0
($652)
$0
0
199
$199
$450
0
108
$1,008
$1,225
0
761
$1,986
$579
0
(20)
$559
$137
0
(105)
$33
$956
0
(0)
$956
$400
(152)
0
$248
$7
0
$7
$33
7
$40
$67
40
$107
$499
107
$606
($491)
606
$115
($69)
204
$135
$52
135
$187
October 14, 2014
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 PGNs 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 industrys 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. Were 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. Were 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, were 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
were currently modeling 31 days of downtime each before returning to work at flat rates.
261
October 14, 2014
Paragon Offshore
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 were 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).
PGN current trades at 3.5x, a
5.8x average.
10x
9x
8x
7x
6x
5x
PGN
4x
Offshore Drillers
3x
'06
'07
262
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Paragon Offshore
2012
2013
2014E
2015E
Revenues
Reimbursables
Labor contract drilling services
Other
Total revenues
2010
$1,260
50
37
0
$1,346
$1,615
46
35
0
$1,696
$1,696
34
33
0
$1,762
$1,676
30
33
0
$1,738
Expenses
Reimbursables
Other
Operating costs
G&A
EBITDA
D&A
Other
Operating income
Interest Expense
Other
Pretax income
Taxes
Minority interest
Net income
($794)
(39)
(22)
0
($855)
(54)
$437
($322)
0
$115
($4)
2
$113
(44)
0
$69
($836)
(35)
(24)
0
($895)
(58)
$742
($367)
(24)
$351
($106)
(2)
$243
(71)
0
$172
($850)
(23)
(25)
0
($898)
(56)
$809
($406)
0
$402
($104)
1
$299
(96)
0
$204
($925)
(19)
(25)
(0)
($969)
(64)
$705
($411)
0
$294
($98)
1
$196
(65)
0
$131
$0.00
$0.00
$2.03
$0.00
$2.40
$0.13
$1.55
$0.50
37%
37%
32%
9%
48%
47%
42%
21%
50%
49%
28%
23%
45%
44%
41%
17%
Per Share Data

Diluted Earnings
Dividend
Margins Summary
Gross margins
Contract drilling
Companywide
EBITDA margins
Operating margins
263
2011
October 14, 2014
Paragon Offshore
2013
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
Revenues
Reimbursables
Other
Total revenues
$436
12
8
0
$456
$421
7
8
0
$437
$410
7
8
0
$426
$428
7
8
0
$444
$392
7
8
0
$407
$421
7
8
0
$437
$435
7
8
0
$451
$427
7
8
0
$443
Expenses
Reimbursables
Other
Operating costs
G&A
EBITDA
D&A
Other
Operating income
Interest Expense
Other
Pretax income
Taxes
Minority interest
Net income
($209)
(9)
(6)
0
($224)
(12)
$220
($100)
0
$120
($26)
0
$94
(18)
0
$76
($206)
(5)
(6)
(0)
($216)
(12)
$209
($101)
0
$107
($28)
0
$80
(21)
0
$59
($217)
(5)
(6)
(0)
($227)
(17)
$182
($103)
0
$79
($25)
0
$55
(28)
0
$28
($219)
(5)
(6)
(0)
($230)
(16)
$198
($103)
0
$96
($26)
0
$70
(30)
0
$41
($222)
(5)
(6)
(0)
($233)
(16)
$158
($103)
0
$55
($25)
0
$31
(10)
0
$21
($229)
(5)
(6)
(0)
($240)
(16)
$180
($103)
0
$78
($25)
0
$53
(18)
0
$36
($235)
(5)
(6)
(0)
($246)
(16)
$189
($103)
0
$86
($25)
0
$62
(20)
0
$41
($238)
(5)
(6)
(0)
($249)
(16)
$178
($103)
0
$75
($25)
0
$51
(17)
0
$34
$0.90
$0.00
$0.70
$0.00
$0.32
$0.00
$0.48
$0.13
$0.25
$0.13
$0.42
$0.13
$0.48
$0.13
$0.40
$0.13
52%
51%
0%
26%
51%
50%
0%
25%
47%
47%
43%
19%
49%
48%
45%
22%
43%
43%
39%
14%
46%
45%
41%
18%
46%
45%
42%
19%
44%
44%
40%
17%
Per Share Data

Diluted Earnings
Dividend
Margins Summary
Gross margins
Contract drilling
Companywide
EBITDA margins
Operating margins
264
October 14, 2014
Paragon Offshore
2010
Assets
Cash & equivalents
Accounts receivable
Other
Current assets
PPE
Other
Total assets
Accounts payable
related costs
Other
Current liabilities
LT debt
Deferred taxes
Total liabilities
Common stock
Total
2011
2012
$76
205
70
$351
3,374
142
$3,867
$149
59
20
$228
975
111
111
$1,425
0
2,442
$3,867
2013
2014E
2015E
$71
322
73
$466
3,552
101
$4,118
$86
329
111
$526
2,888
95
$3,510
$324
328
111
$763
2,657
247
$3,667
$128
58
25
$212
340
97
104
$753
0
3,365
$4,118
$123
52
123
$298
1,667
79
107
$2,151
0
1,359
$3,510
$134
57
133
$323
1,667
79
107
$2,175
0
1,492
$3,667
2014E
2015E

2010
Net income
Depreciation
Other
Working Capital Chg
2011
2012
2013
$461
297
8
21
242
$1,030
$105
349
(27)
11
29
$466
$126
368
(14)
19
(93)
$406
$172
367
$68
206
0
0
10
$284
$133
411
0
0
26
$570
Capex
($409)
Change in accrued capex
$10
Refund from contract extinguishme
0
Other
(1,325)
Cash from investing
($1,724)
($518)
$7
19
0
($493)
($532)
($8)
0
0
($541)
($359)
($210)
$0
0
0
($210)
($180)
$0
0
0
($180)
$40
$0
$654
0
$694
$935
($3)
($906)
0
$26
($635)
($5)
$771
0
$130
($60)
$0
$0
0
($60)
$0
$0
$0
(152)
($152)
($1)
77
$77
($1)
77
$76
($5)
76
$71
$13
73
$86
$238
86
$324
Chg in LT debt
Issuance (repurchase) of preferred
Issuance (repurchase) of equity
Other
Cash flow financing
Chg in cash
Beginning cash
Ending cash
265
$2
71
$73
October 14, 2014
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
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. Its 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
Parkers 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.
266
October 14, 2014
Parker Drilling
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 PKDs 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 PKDs Colombian rigs to
return to work in that country.
9x
PKD current trades at 3.1x, a -33%

PKD
Onshore Drillers
8x
7x
6x
5x
4x
3x
2x
1x
'06
'07
267
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Parker Drilling
2005
Revenues
U.S. Barge Drilling
U.S. Drilling
International Drilling
Rental Tools
Technical Services
Total revenues
Expenses
U.S. Barge Drilling
U.S. Drilling
Rental Tools
Technical Services
Segment Operating Expe
G&A
EBITDA
D&A
Operating Income
Other income
Pretax Income
Taxes
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Gross Margins
U.S. Barge Drilling
U.S. Drilling
Rental Tools
Technical Services
EBITDA Margin
Operating Margin
268
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$128
0
309
95
0
$532
$191
0
273
122
0
$586
$231
0
285
138
0
$655
$174
0
325
172
160
$830
$50
0
293
115
295
$753
$65
0
220
173
202
$659
$94
0
226
237
130
$687
$124
1
292
247
14
$678
$137
67
334
310
26
$874
$158
81
365
351
43
$998
$202
85
415
416
30
$1,148
(67)
0
(237)
(38)
0
($342)
(27)
$163
(67)
$96
(44)
6
$58
(12)
$45
(83)
0
(220)
(46)
0
($350)
(32)
$205
(69)
$136
(40)
17
$113
(35)
$78
(98)
0
(215)
(54)
0
($368)
(25)
$262
(86)
$176
(30)
9
$155
(52)
$103
(84)
0
(231)
(67)
(138)
($521)
(26)
$282
(117)
$165
(26)
2
$141
(48)
$94
(48)
0
(191)
(53)
(263)
($555)
(34)
$164
(114)
$50
(29)
3
$24
(10)
$14
(53)
0
(169)
(60)
(180)
($463)
(24)
$172
(115)
$57
(27)
1
$31
(21)
$10
(65)
(1)
(171)
(74)
(107)
($418)
(29)
$240
(112)
$128
(23)
3
$108
(47)
$60
(69)
(10)
(232)
(89)
(14)
($414)
(30)
$310
(113)
$197
(34)
1
$164
(35)
$129
(71)
(55)
(264)
(163)
(19)
($573)
(45)
$254
(134)
$120
(50)
8
$78
(31)
$46
(78)
(60)
(290)
(210)
(41)
($680)
(39)
$280
(143)
$137
(44)
3
$95
(41)
$54
(100)
(63)
(328)
(228)
(29)
($748)
(45)
$355
(147)
$207
(43)
1
$165
(74)
$91
$0.46
$0.00
$0.72
$0.00
$0.93
$0.00
$0.83
$0.00
$0.15
$0.00
$0.13
$0.00
$0.54
$0.00
$0.46
$0.00
$0.38
$0.00
$0.44
$0.00
$0.74
$0.00
48%
0%
23%
60%
0%
31%
18%
56%
0%
20%
62%
0%
35%
23%
57%
0%
25%
61%
0%
40%
27%
51%
0%
29%
61%
13%
34%
20%
3%
0%
35%
54%
11%
22%
7%
17%
0%
23%
65%
11%
26%
9%
31%
0%
24%
69%
18%
35%
19%
44%
-588%
21%
95%
-1%
46%
29%
48%
18%
21%
47%
26%
29%
14%
50%
26%
21%
40%
5%
28%
14%
50%
26%
21%
45%
4%
31%
18%
October 14, 2014
Parker Drilling
2013
1Q13
Revenues
U.S. Barge Drilling
U.S. Drilling
Rental Tools
Technical Services
Total revenues
Expenses
U.S. Barge Drilling
U.S. Drilling
Rental Tools
Technical Services
Segment Operating E
G&A
EBITDA
D&A
Operating Income
Other income
Pretax Income
Taxes
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Gross Margins
U.S. Barge Drilling
U.S. Drilling
Rental Tools
Technical Services
EBITDA Margin
Operating Margin
269
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$30
12
65
57
4
$167
$38
18
83
82
5
$226
$34
19
89
90
7
$238
$35
19
98
81
11
$243
$30
19
85
81
13
$229
$40
20
92
87
15
$254
$42
21
88
90
7
$248
$46
21
100
93
7
$267
$48
21
101
96
7
$273
$49
21
104
102
7
$284
$52
22
104
108
8
$293
$53
22
107
109
8
$298
(17)
(11)
(60)
(25)
(4)
($117)
(9)
$41
(30)
$11
(10)
0
$1
1
$3
(18)
(14)
(63)
(44)
(4)
($144)
(11)
$71
(32)
$40
(13)
4
$31
(14)
$17
(18)
(15)
(65)
(49)
(7)
($154)
(9)
$75
(36)
$39
(13)
1
$26
(12)
$14
(17)
(15)
(76)
(46)
(5)
($158)
(15)
$70
(36)
$31
(14)
2
$19
(7)
$12
(19)
(14)
(69)
(52)
(13)
($166)
(9)
$54
(34)
$20
(12)
1
$9
(3)
$5
(19)
(15)
(73)
(54)
(14)
($175)
(9)
$71
(36)
$36
(11)
1
$27
(11)
$15
(20)
(15)
(70)
(53)
(7)
($164)
(11)
$72
(36)
$36
(11)
0
$25
(11)
$14
(21)
(16)
(78)
(52)
(7)
($175)
(11)
$81
(37)
$45
(11)
0
$34
(15)
$19
(29)
(16)
(81)
(54)
(7)
($186)
(11)
$76
(37)
$39
(11)
0
$29
(13)
$16
(23)
(16)
(82)
(56)
(7)
($184)
(11)
$89
(37)
$52
(11)
0
$42
(19)
$23
(24)
(16)
(81)
(59)
(7)
($188)
(11)
$94
(37)
$57
(11)
0
$46
(21)
$25
(24)
(16)
(83)
(60)
(7)
($191)
(11)
$96
(37)
$59
(11)
0
$49
(22)
$27
$0.02
$0.00
$0.14
$0.00
$0.12
$0.00
$0.10
$0.00
$0.04
$0.00
$0.12
$0.00
$0.11
$0.00
$0.15
$0.00
$0.13
$0.00
$0.19
$0.00
$0.21
$0.00
$0.22
$0.00
42%
3%
7%
56%
9%
24%
7%
52%
20%
24%
47%
3%
32%
18%
47%
21%
26%
46%
3%
31%
16%
50%
22%
22%
44%
58%
29%
13%
39%
29%
19%
36%
5%
24%
9%
53%
25%
20%
38%
7%
28%
14%
52%
25%
21%
42%
3%
29%
15%
53%
26%
21%
44%
3%
30%
17%
39%
26%
20%
44%
4%
28%
14%
54%
26%
21%
45%
4%
31%
18%
53%
26%
21%
46%
4%
32%
19%
54%
26%
22%
45%
4%
32%
20%
October 14, 2014
Parker Drilling
2005
2006
$60.2
105
18
98
$281
355
108
57
$802

Accounts Payable
$141
Accrued Liabilities
10
Current Maturities
0
Total Current Liabilities
$151
LT Debt
380
0
Other LT Liabilities
11
Total Liabilities
$542
$260
Total
$802
Assets
Cash & equivalents
Accounts receivable
Inventories
Other
Current assets
PP&E
Goodwill
Other
Total assets
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$92.2
112
15
98
$318
435
100
48
$901
$60.1
167
24
72
$323
586
100
60
$1,069
$172.3
186
30
85
$473
676
0
57
$1,206
$108.8
189
32
114
$444
717
0
83
$1,243
$51.4
169
26
122
$368
816
0
90
$1,275
$97.9
184
30
56
$368
720
0
129
$1,216
$87.9
169
29
68
$353
786
0
117
$1,256
$148.7
258
42
71
$519
871
0
144
$1,535
$86.6
280
48
73
$488
917
0
158
$1,563
$187.5
295
43
72
$598
922
0
158
$1,678
$102
0
0
$102
329
0
11
$442
$459
$901
$104
0
0
$104
374
0
56
$534
$535
$1,069
$78
75
0
$153
441
8
21
$624
$582
$1,206
$95
82
0
$177
424
16
30
$647
$596
$1,243
$163
0
0
$163
473
20
30
$686
$588
$1,275
$135
5
0
$140
483
16
33
$672
$545
$1,216
$62
80
0
$142
479
21
23
$665
$591
$1,256
$182
0
25
$207
629
39
27
$902
$633
$1,535
$197
0
10
$207
610
48
20
$886
$677
$1,563
$221
0
10
$231
610
48
20
$910
$768
$1,678
2008
2009
2010
2011
2012
2013
2014E
2015E

2005
2006
2007
Net Income
Depreciation
Other
Working Capital Chg
$67
99
(45)
(16)
17
$123
$81
69
16
9
(8)
$167
$104
86
20
11
(147)
$74
$26
117
10
109
(42)
$220
$9
114
(15)
17
(15)
$111
($15)
115
(1)
23
2
$124
($51)
112
(48)
179
33
$226
$37
113
16
23
1
$190
$27
134
13
22
(34)
$161
$36
143
(8)
38
(22)
$188
$91
147
0
0
15
$253
Capex
Asset Sales
Other Investing
Cash Flow From Investin
($69)
61
(4)
($13)
($195)
51
(50)
($195)
($242)
23
66
($153)
($197)
5
(4)
($197)
($160)
9
0
($151)
($219)
6
0
($213)
($190)
6
1
($184)
($192)
4
0
($188)
($156)
8
(118)
($265)
($190)
3
0
($187)
($153)
0
0
($153)
Change in Debt
Change in Equity
Other
Cash flow financing
($101)
7
0
($94)
($50)
107
2
$60
$40
4
2
$47
$88
0
0
$88
($22)
0
(2)
($24)
$31
0
1
$32
$4
0
1
$5
($11)
0
(1)
($12)
$175
0
(10)
$165
($30)
0
(33)
($63)
$0
0
0
$0
$16
44
$60
$32
60
$92
($32)
92
$60
$112
60
$172
($63)
172
$109
($57)
109
$51
$47
51
$98
($10)
98
$88
$61
88
$149
($62)
149
$87
$101
87
$188
Chg in cash
Beginning cash
Ending cash
270
October 14, 2014
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 PTENs 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. PTENs 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 companys operations are split between Texas and Appalachia two very strong
pumping markets.
Outlook for 2015
PTENs 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 PTENs 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.
271
October 14, 2014
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.
13x
PTEN current trades at 3.6x, a -23%

PTEN
12x
Onshore Drillers
11x
10x
9x
8x
7x
6x
5x
4x
3x
2x
'06
'07
272
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Revenues
Contract Drilling
Completion
Eliminations
Total revenues
Expenses
Contract Drilling
Eliminations
Other
Total Cost Of Sales
G&A
Other expense
EBITDA
Depreciation
Operating Income
Other income
Earnings Before Tax
Income tax
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Gross Margins
Contract Drilling Rigs
Pressure Pumping
Other (Oil & Gas)
Companywide
Operating Margin
273
2004
2005
2006
2007
2008
$810
67
34
$1,001
$1,486
93
40
$1,740
$2,169
146
39
$2,547
$1,742
203
42
$2,114
$1,804
217
42
$2,209
$599
161
21
$847
(776)
(1,002)
(963)
(1,038)
(55)
(78)
(105)
(133)
(10)
(13)
(11)
(13)
($939) ($1,244) ($1,188) ($1,311)
(39)
(55)
(65)
(68)
(24)
(14)
(0)
(0)
$738
$1,234
$861
$830
(156)
(196)
(249)
(268)
$581
$1,038
$612
$562
(4)
(7)
(5)
(2)
28
15
5
4
$605
$1,045
$612
$563
(219)
(373)
(212)
(200)
$386
$673
$401
$364
(358)
(111)
(7)
($537)
(62)
(8)
$240
(281)
($41)
(5)
1
($44)
15
($29)
(557)
(38)
(8)
($679)
(32)
(22)
$268
(119)
$148
(2)
21
$168
(58)
$110
2009
2010
2011
2012
2013
2014E
2015E
$1,082
351
30
$1,463
$1,670
846
51
$2,566
$1,822
842
60
$2,723
$1,617
979
57
$2,653
$1,857
1,247
49
$3,153
$2,109
1,898
52
$4,059
(656)
(973)
(1,075)
(969)
(1,084)
(1,206)
(235)
(561)
(581)
(744)
(996)
(1,504)
(7)
(10)
(11)
(13)
(12)
(12)
($898) ($1,544) ($1,668) ($1,726) ($2,091) ($2,722)
(51)
(64)
(64)
(72)
(78)
(80)
3
4
4
1
5
1
$517
$961
$995
$856
$988
$1,258
(333)
(422)
(514)
(560)
(620)
(653)
$184
$540
$481
$297
$368
$604
(10)
(16)
(23)
(29)
(29)
(29)
4
1
3
4
2
2
$178
$525
$460
$271
$341
$577
(67)
(194)
(171)
(99)
(111)
(185)
$111
$331
$289
$172
$230
$393
$0.65
$0.06
$2.22
$0.16
$4.00
$0.28
$2.55
$0.44
$2.35
$0.61
($0.19)
$0.20
$0.72
$0.20
$2.14
$0.20
$1.90
$0.20
$1.18
$0.20
$1.58
$0.40
$2.70
$0.40
31%
44%
76%
32%
15%
48%
41%
76%
46%
33%
54%
47%
66%
51%
41%
45%
48%
74%
44%
29%
42%
39%
70%
41%
25%
40%
31%
65%
37%
-5%
39%
33%
77%
39%
13%
42%
34%
81%
40%
21%
41%
31%
81%
39%
18%
40%
24%
77%
35%
11%
42%
20%
76%
34%
12%
43%
21%
77%
33%
15%
October 14, 2014
2013
1Q13
Revenues
Contract Drilling
Completion
Eliminations
Total revenues
Expenses
Contract Drilling
Eliminations
Other
Total Cost Of Sales
G&A
Other expense
EBITDA
Depreciation
Operating Income
Other income
Earnings Before Tax
Income tax
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Gross Margins
Contract Drilling Rigs
Pressure Pumping
Other (Oil & Gas)
Companywide
Operating Margin
274
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$419
231
17
$667
$390
255
15
$659
$395
259
14
$668
$413
234
12
$659
$426
240
12
$678
$439
307
12
$757
$485
338
12
$835
$508
362
13
$883
$509
454
12
$975
$511
474
13
$998
$547
491
13
$1,052
$541
479
14
$1,033
(247)
(168)
(3)
($418)
(17)
(0)
$231
(136)
$95
(7)
0
$88
(32)
$56
(243)
(188)
(3)
($434)
(18)
1
$207
(137)
$70
(7)
1
$63
(23)
$40
(240)
(204)
(4)
($447)
(18)
1
$203
(141)
$62
(8)
1
$55
(20)
$35
(239)
(184)
(3)
($426)
(19)
2
$216
(145)
$70
(7)
1
$64
(23)
$41
(251)
(200)
(3)
($454)
(20)
2
$206
(147)
$59
(7)
0
$52
(17)
$35
(255)
(242)
(3)
($500)
(20)
3
$241
(153)
$87
(7)
0
$80
(26)
$54
(281)
(267)
(3)
($551)
(20)
0
$265
(158)
$107
(7)
0
$100
(32)
$67
(296)
(287)
(3)
($586)
(20)
0
$277
(161)
$116
(7)
0
$109
(35)
$74
(297)
(358)
(3)
($659)
(20)
0
$297
(162)
$135
(7)
0
$128
(41)
$87
(292)
(375)
(3)
($670)
(20)
0
$308
(163)
$145
(7)
0
$139
(44)
$94
(309)
(389)
(3)
($701)
(20)
0
$330
(164)
$167
(7)
0
$160
(51)
$109
(307)
(381)
(3)
($692)
(20)
0
$322
(164)
$157
(7)
0
$151
(48)
$102
$0.38
$0.05
$0.27
$0.05
$0.24
$0.05
$0.28
$0.05
$0.24
$0.10
$0.37
$0.10
$0.46
$0.10
$0.50
$0.10
$0.60
$0.10
$0.65
$0.10
$0.75
$0.10
$0.70
$0.10
41%
27%
83%
37%
14%
38%
26%
78%
34%
11%
39%
21%
74%
33%
9%
42%
22%
73%
35%
11%
41%
17%
73%
33%
9%
42%
21%
76%
34%
12%
42%
21%
77%
34%
13%
42%
21%
77%
34%
13%
42%
21%
76%
32%
14%
43%
21%
77%
33%
15%
44%
21%
77%
33%
16%
43%
20%
77%
33%
15%
October 14, 2014
Assets
Cash & equivalents
Federal Tax Receivabl
Accounts Receivable
Other
Current assets
PP&E
Goodwill
Investments
Other
Total assets
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$112
0
214
61
387
$765
99
0
6
$1,257
$136
0
422
79
638
$1,054
99
0
5
$1,796
$13
5
484
150
653
$1,436
99
0
5
$2,193
$17
0
373
132
523
$1,841
96
0
5
$2,465
$81
10
415
135
641
$1,937
86
0
48
$2,713
$50
119
164
124
457
$2,110
86
0
8
$2,662
$28
75
337
118
557
$2,621
180
0
65
$3,423
$24
0
518
223
765
$3,167
176
0
114
$4,222
$111
0
466
124
700
$3,615
171
0
70
$4,557
$250
0
452
108
809
$3,636
167
0
75
$4,687
$4
3
592
148
747
$4,166
177
0
99
$5,190
$419
3
693
173
1,288
$4,113
177
0
99
$5,678
$119
137
0
$255
0
169
4
$429
$1,367
$1,796
$157
161
0
$318
120
188
4
$630
$1,562
$2,193
$157
138
0
$295
50
219
4
$569
$1,896
$2,465
$170
133
0
$303
0
278
6
$586
$2,127
$2,713
$84
110
0
$193
0
382
5
$580
$2,082
$2,662
$162
147
0
$310
399
511
16
$1,235
$2,188
$3,423
$242
177
0
$419
493
787
7
$1,705
$2,517
$4,222
$189
165
0
$354
699
857
7
$1,916
$2,641
$4,557
$173
171
10
$354
683
888
6
$1,931
$2,756
$4,687
$374
202
10
$587
678
898
8
$2,171
$3,019
$5,190
$442
239
10
$690
678
948
8
$2,324
$3,354
$5,678
2007
2008
2009
2010
2011
2012
2013
2014E
2015E

Accounts Payable
$68
Accrued Liabilities
83
Current Maturities
0
Current liabilities
$152
LT debt
0
140
Other
3
Total liabilities
$295
$962
Total
$1,257

2004
2005
2006
Net Income
Depreciation
Deferred Taxes
Other
Working Capital Chg
$110
123
15
(4)
(40)
$203
$386
156
17
14
(113)
$460
$673
196
(4)
29
(57)
$837
$401
249
38
45
79
$812
$364
268
66
26
(49)
$675
($29)
290
101
13
78
$454
$111
333
147
(4)
(62)
$526
$331
437
159
8
(67)
$869
$289
527
160
0
29
$1,005
Sale of PP&E
Other
Cash from investing
($175)
(30)
2
($203)
($454)
13
2
($439)
($598)
11
0
($587)
($608)
5
0
($602)
($449)
12
0
($437)
($453)
3
(0)
($449)
($738)
(209)
43
($904)
($1,012)
48
0
($964)
($974)
66
0
($908)
Change in Debt
Change in Equity
Dividends
Other
Cash flow financing
$0
0
(10)
22
$12
$0
43
(27)
(12)
$4
$120
(449)
(46)
2
($373)
($70)
(70)
(69)
2
($206)
($50)
(71)
(93)
42
($172)
$0
(2)
(31)
(6)
($38)
$388
(1)
(31)
0
$356
$104
12
(31)
6
$92
$189
(169)
(30)
0
($11)
($6)
(67)
(29)
5
($97)
($5)
69
(58)
9
$14
$0
0
(58)
0
($58)
$12
100
$112
$25
112
$138
($123)
136
$13
$4
13
$17
$66
17
$83
($31)
81
$50
($22)
50
$28
($4)
28
$24
$87
24
$111
$139
111
$250
($245)
250
$4
$414
4
$419
Chg in cash
Beginning cash
Ending cash
275
$172
597
51
39
30
$889
$230
620
15
8
(49)
$825
$393
653
50
0
(23)
$1,073
($662) ($1,100)
10
15
0
0
($652) ($1,085)
($600)
0
0
($600)
October 14, 2014
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. Precisions 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
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 Precisions field execution and customer interface with Schlumbergers 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-tothree 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.
276
October 14, 2014
Precision Drilling
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
companys 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
companys U.S. and 93% of the companys Canada operations.
9x
PD current trades at 4.1x, a -12%

PD
Onshore Drillers
8x
7x
6x
5x
4x
3x
2x
1x
'06
'07
277
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Precision Drilling
2005
Revenues
Contract Drilling
C&P
Eliminations
Total revenues
Expenses
Contract Drilling
C&P
Eliminations
Operating Expenses
G&A
EBITDA
D&A
Operating Income
Interest Expense
Other income
Pretax Income
Income Tax Expense
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Gross Margins
Contract Drilling
Completion
Total Gross Margin
Operating Margin
EBITDA Margin
278
2006
2007
2008
2009
2010
$1,213
228
(11)
$1,430
2011
$1,632
330
(11)
$1,951
2012
$1,725
326
(11)
$2,041
2013
$1,720
323
(13)
$2,030
2014E
2015E
$2,077
372
(11)
$2,438
$2,392
465
(13)
$2,844
$916
370
(17)
$1,269
$1,010
441
(13)
$1,438
$694
327
(13)
$1,009
$809
309
(16)
$1,102
$1,031
176
(10)
$1,197
(449)
(232)
39
($642)
(76)
$529
(72)
$457
(29)
3
$432
(103)
$329
(471)
(232)
14
($688)
(81)
$667
(73)
$594
(8)
1
$587
(15)
$572
(345)
(184)
13
($516)
(56)
$437
(78)
$359
(7)
(2)
$349
(6)
$343
(425)
(189)
16
($598)
(67)
$437
(84)
$353
(14)
2
$341
(38)
$303
(578)
(124)
10
($692)
(98)
$407
(138)
$269
(147)
123
$244
(26)
$219
$2.61
$0.00
$4.55
$0.00
$2.73
$0.00
$2.28
$0.00
$0.86
$0.00
$0.21
$0.00
$0.93
$0.00
$0.81
$0.05
$0.66
$0.21
$0.84
$0.24
$1.20
$0.24
51%
37%
48%
36%
42%
53%
47%
52%
41%
46%
50%
44%
49%
36%
43%
47%
39%
46%
32%
40%
44%
30%
42%
22%
34%
39%
30%
38%
18%
30%
43%
36%
42%
23%
36%
40%
33%
39%
18%
33%
41%
25%
38%
15%
31%
42%
28%
40%
16%
33%
41%
33%
40%
18%
34%
(739)
(931)
(1,037)
(1,019)
(1,205)
(1,408)
(159)
(211)
(217)
(243)
(268)
(314)
11
11
11
13
11
13
($887) ($1,131) ($1,243) ($1,249) ($1,462) ($1,708)
(108)
(125)
(127)
(143)
(160)
(179)
$435
$695
$671
$639
$816
$957
(183)
(251)
(308)
(333)
(428)
(451)
$253
$444
$363
$306
$388
$505
(211)
(112)
(88)
(93)
(103)
(88)
13
24
(3)
9
4
0
$54
$356
$273
$222
$288
$418
8
(87)
(40)
(30)
(42)
(63)
$62
$268
$232
$191
$247
$355
October 14, 2014
Precision Drilling
2013
1Q13
Revenues
Contract Drilling
C&P
Eliminations
Total revenues
Expenses
Contract Drilling
C&P
Eliminations
Operating Expenses
G&A
EBITDA
D&A
Operating Income
Interest Expense
Other income
Pretax Income
Income Tax Expense
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Gross Margins
Contract Drilling
Completion
Total Gross Margin
Operating Margin
EBITDA Margin
279
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$496
104
(4)
$596
$327
55
(4)
$379
$412
79
(2)
$488
$484
85
(3)
$567
$572
103
(3)
$672
$411
67
(2)
$475
$520
88
(3)
$605
$574
114
(3)
$685
$674
136
(4)
$807
$489
96
(3)
$582
$599
110
(3)
$706
$630
123
(3)
$750
(277)
(69)
4
($342)
(39)
$215
(85)
$130
(23)
3
$111
(18)
$93
(213)
(49)
4
($259)
(32)
$88
(73)
$16
(24)
5
($3)
4
$0
(256)
(59)
2
($313)
(38)
$138
(86)
$52
(23)
(3)
$26
4
$29
(273)
(65)
3
($335)
(34)
$198
(90)
$108
(23)
4
$88
(20)
$68
(319)
(79)
3
($395)
(40)
$237
(106)
$132
(24)
4
$111
(9)
$102
(250)
(57)
2
($304)
(41)
$130
(106)
$24
(26)
0
($1)
(6)
($7)
(303)
(58)
3
($358)
(37)
$210
(107)
$103
(27)
0
$76
(11)
$65
(333)
(74)
3
($404)
(42)
$239
(109)
$129
(27)
0
$103
(15)
$87
(382)
(92)
4
($470)
(50)
$287
(110)
$178
(22)
0
$156
(23)
$132
(307)
(70)
3
($375)
(39)
$168
(112)
$56
(22)
0
$34
(5)
$29
(352)
(72)
3
($420)
(43)
$242
(114)
$128
(22)
0
$106
(16)
$90
(367)
(80)
3
($444)
(46)
$260
(116)
$144
(22)
0
$122
(18)
$104
$0.33
$0.05
$0.00
$0.05
$0.10
$0.05
$0.24
$0.06
$0.35
$0.06
($0.02)
$0.06
$0.22
$0.06
$0.30
$0.06
$0.45
$0.06
$0.10
$0.06
$0.30
$0.06
$0.35
$0.06
44%
33%
43%
22%
36%
35%
11%
32%
4%
23%
38%
25%
36%
11%
28%
44%
24%
41%
19%
35%
44%
23%
41%
20%
35%
39%
15%
36%
5%
27%
42%
34%
41%
17%
35%
42%
35%
41%
19%
35%
43%
33%
42%
22%
36%
37%
27%
36%
10%
29%
41%
35%
40%
18%
34%
42%
35%
41%
19%
35%
October 14, 2014
Precision Drilling
Assets
Cash & equivalents
Accounts receivable
Inventories
Other
Current assets
PP&E
Goodwill
Other
Total assets
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$0
501
7
0
$508
944
267
0
0
$1,719
$0
355
9
9
$372
1,108
281
0
0
$1,761
$0
257
9
6
$272
1,211
281
0
0
$1,763
$62
602
9
13
$685
3,243
842
58
6
$4,834
$131
284
9
26
$449
2,914
761
65
3
$4,192
$257
415
5
0
$677
2,532
285
65
6
$3,565
$467
576
7
0
$1,051
2,942
364
65
6
$4,428
$153
510
14
0
$676
3,243
311
65
6
$4,300
$81
550
12
0
$643
3,562
312
58
4
$4,579
$427
664
15
8
$1,114
3,754
312
58
4
$5,243
$105
727
16
9
$858
4,033
312
58
4
$5,265
$37
130
39
$206
141
175
23
$544
$1,217
$1,761
$14
81
36
$131
120
182
14
$447
$1,317
$1,763
$49
270
21
$340
1,368
771
31
$2,510
$2,324
$4,834
$0
128
0
$129
749
703
27
$1,607
$2,585
$4,192
$0
218
1
$219
804
578
30
$1,632
$1,933
$3,565
$0
437
4
$440
1,240
588
27
$2,295
$2,133
$4,428
$0
334
64
$398
1,219
486
26
$2,129
$2,171
$4,300
$0
333
4
$337
1,323
487
32
$2,180
$2,399
$4,579
$0
402
5
$407
1,716
498
37
$2,657
$2,586
$5,243
$0
440
5
$446
1,416
498
37
$2,396
$2,869
$5,265
2008
2009
2010
2011
2012
2013
2014E
2015E

Short-Term Debt
$20
Accounts Payable
134
Other
200
Current liabilities
$355
LT debt
97
193
Other
0
Total liabilities
$644
$1,075
Total
$1,719

2005
Net Income
Depreciation
Other
Working Capital Chg
2006
$221
72
(82)
(12)
$198
$573
73
3
(39)
$610
Sale of PP&E
Acquisitions
Other
Cash from investing
($155)
15
(30)
1,313
$1,142
Change in Debt
Change in Equity
Dividends
Other
Cash flow financing
2007
$343
78
(1)
64
$484
$303
84
42
(85)
$344
$162
138
32
173
$505
$62
183
130
(69)
$305
$193
251
147
(60)
$533
$52
308
239
(89)
$510
$191
333
(62)
91
$553
$247
428
23
(41)
$656
$355
451
0
(27)
$780
($263)
29
(16)
15
($235)
($187)
($230)
6
10
0
(768)
(10)
(33)
($191) ($1,020)
($193)
16
0
(33)
($210)
($176)
12
0
46
($118)
($726)
16
(93)
88
($715)
($868)
31
(0)
(93)
($930)
($536)
13
0
(4)
($527)
($653)
17
0
0
($636)
($730)
0
0
0
($730)
($621)
44
0
(886)
($1,463)
($381)
6
0
0
($375)
($293)
0
0
0
($293)
$898
0
0
(160)
$738
($593)
413
0
(22)
($201)
($33)
0
0
(25)
($59)
$407
2
(1)
(41)
$367
$0
2
(14)
(3)
($15)
$30
51
(58)
(1)
$22
$406
6
(70)
(10)
$331
($300)
0
(71)
0
($371)
($122)
70
($52)
$0
(52)
($52)
($0)
(52)
($52)
$62
(52)
$9
$69
9
$78
$126
78
$205
$211
205
$415
($440)
415
($25)
$53
(25)
$28
$346
28
$374
($321)
374
$53
FX and other
Chg in cash
Beginning cash
Ending cash
280
October 14, 2014
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, RESs 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 RPCs 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 RESs 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.
281
October 14, 2014
RPC Inc.
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.
12x
RES current trades at 4.5x, a -4%

RES
11x
10x
9x
8x
7x
6x
5x
4x
3x
'06
'07
282
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
RPC Inc.
2004
Revenues
Technical Services
Support Services
Other
Total revenues
EBITDA
Operating income
Technical Services
Support Services
Corporate
Other
Operating income
Interest expense
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
EBITDA Margins
Operating margins
Technical Services
Support Services
Companywide
283
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$279
57
4
$340
$363
64
0
$428
$495
102
0
$597
$575
115
0
$689
$746
131
0
$877
$513
75
0
$588
$980
117
0
$1,096
$1,664
146
0
$1,810
$1,794
151
0
$1,945
$1,730
132
0
$1,861
$2,197
150
0
$2,346
$2,746
163
0
$2,909
$86
$137
$225
$220
$263
$98
$374
$662
$657
$489
$634
$840
$47
8
(9)
(335)
$51
(0)
(0)
2
$53
(18)
0
$35
$84
12
(10)
(416)
$98
0
0
3
$101
(34)
0
$66
$153
31
(12)
(600)
$169
(0)
(0)
10
$179
(68)
0
$111
$116
30
(11)
(692)
$133
(4)
(4)
10
$139
(53)
0
$86
$111
37
(4)
(881)
$139
(5)
(5)
4
$138
(54)
0
$83
($20)
(2)
(6)
(590)
($30)
(2)
(2)
(2)
($33)
11
0
($23)
$217
31
(13)
(1,093)
$239
(3)
(3)
3
$239
(91)
0
$148
$451
52
(17)
(1,814)
$482
(3)
(3)
2
$481
(182)
0
$298
$420
46
(18)
(1,951)
$442
(2)
(2)
2
$443
(168)
0
$274
$276
26
(18)
(1,871)
$275
(2)
(2)
3
$276
(109)
0
$167
$397
33
(17)
(2,353)
$406
(0)
(0)
3
$409
(160)
0
$249
$579
41
(14)
(2,914)
$600
(0)
(0)
3
$604
(236)
0
$368
$0.27
$0.12
$0.49
$0.18
$0.75
$0.20
$0.58
$0.20
$0.57
$0.24
($0.16)
$0.22
$0.68
$0.21
$1.35
$0.32
$1.27
$0.56
$0.77
$0.40
$1.15
$0.42
$1.70
$0.42
25%
32%
38%
32%
30%
17%
34%
37%
34%
26%
27%
29%
17%
15%
15%
23%
19%
23%
31%
30%
28%
20%
26%
19%
15%
28%
16%
-4%
-2%
-5%
22%
27%
22%
27%
35%
27%
23%
30%
23%
16%
20%
15%
18%
22%
17%
21%
25%
21%
October 14, 2014
RPC Inc.
1Q13
Revenues
Technical Services
Support Services
Other
Total revenues
EBITDA
Operating income
Technical Services
Support Services
Corporate
Other
Operating income
Interest expense
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
EBITDA Margins
Operating margins
Technical Services
Support Services
Companywide
284
2013
2Q13
3Q13
4Q13
1Q14
2014
2Q14
3Q14E
4Q14E
1Q15E
2015
2Q15E 3Q15E
4Q15E
$394
32
0
$426
$424
34
0
$458
$458
33
0
$491
$454
33
0
$487
$467
35
0
$502
$544
38
0
$583
$596
38
0
$634
$590
38
0
$628
$584
38
0
$622
$680
42
0
$722
$745
41
0
$786
$737
42
0
$779
$110
$121
$139
$119
$121
$160
$183
$170
$162
$211
$242
$225
$59
6
(5)
(428)
$57
(0)
(0)
1
$57
(22)
0
$35
$66
7
(4)
(459)
$68
(1)
(1)
(0)
$67
(26)
0
$40
$86
6
(5)
(492)
$86
(0)
(0)
1
$87
(33)
0
$54
$65
7
(4)
(491)
$65
(0)
(0)
1
$65
(28)
0
$38
$65
7
(5)
(504)
$65
(0)
(0)
0
$65
(26)
0
$39
$100
9
(4)
(584)
$103
(0)
(0)
1
$104
(41)
0
$63
$124
8
(4)
(635)
$126
(0)
(0)
1
$127
(50)
0
$77
$109
9
(4)
(629)
$112
(0)
(0)
1
$113
(44)
0
$69
$99
9
(4)
(623)
$103
(0)
(0)
1
$104
(40)
0
$63
$145
11
(3)
(724)
$151
(0)
(0)
1
$152
(59)
0
$93
$177
10
(3)
(787)
$182
(0)
(0)
1
$183
(71)
0
$112
$158
11
(3)
(780)
$164
(0)
(0)
1
$165
(64)
0
$101
$0.16
$0.00
$0.19
$0.00
$0.25
$0.00
$0.17
$0.00
$0.18
$0.00
$0.29
$0.00
$0.36
$0.00
$0.32
$0.00
$0.29
$0.00
$0.43
$0.00
$0.52
$0.00
$0.46
$0.00
26%
26%
28%
24%
24%
27%
29%
27%
26%
29%
31%
29%
15%
20%
13%
16%
21%
15%
19%
18%
17%
14%
21%
13%
14%
21%
13%
18%
23%
18%
21%
20%
20%
18%
23%
18%
17%
24%
17%
21%
26%
21%
24%
23%
23%
21%
26%
21%
October 14, 2014
RPC Inc.
2004
Assets
Cash & equivalents
Other
Current assets
PP&E
Goodwill
Other
Total assets
$30
96
$126
114
20
3
$263

Accounts Payable
$23
Other
25
Current liabilities
$48
LT debt
2
31
Total liabilities
$82
Minority Interest
0
Stockholder Equity
181
Total
$263
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$13
130
$143
141
24
4
$312
$3
183
$186
263
24
5
$478
$6
229
$235
433
24
9
$701
$3
290
$293
470
24
6
$793
$4
215
$219
396
24
9
$649
$9
390
$399
453
24
12
$888
$7
619
$627
675
24
12
$1,338
$14
554
$568
756
24
19
$1,367
$9
596
$605
726
32
21
$1,384
$62
746
$808
815
32
22
$1,677
$269
746
$1,015
976
32
22
$2,045
$30
20
$50
0
29
$79
0
233
$312
$51
24
$75
36
32
$143
0
335
$478
$61
29
$91
156
45
$292
0
409
$701
$61
31
$92
174
78
$344
0
449
$793
$50
18
$68
90
81
$239
0
410
$649
$79
39
$118
121
110
$349
0
539
$888
$123
56
$179
203
193
$576
0
763
$1,338
$110
55
$165
107
196
$468
0
899
$1,367
$119
49
$168
53
194
$415
0
969
$1,384
$594
(389)
$205
131
172
$509
0
1,168
$1,677
$604
(398)
$205
131
172
$509
0
1,536
$2,045
2011
2012
2013
2014E
2015E

2004
2005
2006
2007
2008
2009
2010
Net income
Depreciation
Other
$35
34
(19)
$50
$66
39
(39)
$66
$111
47
(39)
$118
$87
79
(24)
$142
$83
118
(24)
$177
($23)
131
61
$169
$147
133
(111)
$169
$296
180
(90)
$386
$274
215
71
$560
$167
213
(14)
$366
$249
227
(123)
$353
$368
240
0
$607
Capex
Other
Cash from investing
($50)
13
($37)
($73)
10
($62)
($160)
9
($151)
($249)
9
($240)
($170)
11
($159)
($68)
7
($61)
($187)
16
($172)
($416)
25
($392)
($329)
13
($316)
($202)
(6)
($208)
($375)
15
($360)
($400)
0
($400)
Dividend Paid
Other
Cash flow financing
($3)
(2)
($6)
($7)
(14)
($21)
($13)
36
$23
($19)
121
$101
($23)
2
($22)
($22)
(85)
($106)
($21)
28
$8
($47)
51
$4
($114)
(123)
($237)
($88)
(76)
($163)
($46)
69
$23
$0
0
$0
Chg in cash
Beginning cash
Ending cash
$7
22
$30
($17)
30
$13
($10)
13
$3
$4
3
$6
($3)
6
$3
$1
3
$4
$5
27
$31
($2)
9
$7
$7
7
$14
($5)
14
$9
$16
40
$55
$207
55
$263
285
October 14, 2014
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
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 Rowans 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 companys 27 cantilever jackup fleet. With
the companys 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 Rowans 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
Rowans 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.
286
October 14, 2014
Rowan Companies
On July 21, friendly activist Blue Harbour disclosed it is now Rowans second largest shareholder
with 6.45% stake. Though the hedge funds 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 companys 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 companys total debt/EBITDA should
fall naturally below the companys 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.
10x
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.
9x
8x
7x
6x
5x
4x
3x
RDC
2x
Offshore Drillers
1x
'06
'07
287
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Rowan Companies
2004
Revenues
Floaters
Jackups
Other
Total revenues
Expenses
Floaters
Jackups
Other
Operating costs
G&A
EBITDA
D&A
Other
Operating income
Interest income
Interest expense
Other income
Pretax income
Taxes
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Gross margins
EBITDA margins
Operating margins
288
$522
290
$812
2005
$785
293
$1,078
2006
$1,067
443
$1,511
2007
$1,383
717
$2,100
2008
$1,452
761
$2,213
2009
$1,215
555
$1,770
($364)
(271)
($635)
(27)
$150
(91)
0
$59
4
(19)
1
$45
(18)
$27
($402)
(254)
($656)
(47)
$375
(81)
0
$294
17
(22)
2
$291
(102)
$189
$0.24
$0.00
$1.71
$0.49
$2.76
$0.54
$4.10
$0.40
$4.06
$0.40
$2.98
$0.00
22%
19%
7%
39%
35%
27%
41%
37%
31%
43%
39%
33%
43%
38%
32%
43%
38%
28%
2010
$1,209
610
$1,819
2011
$983
0
$983
2012
$1,393
0
$1,393
2013
$1,579
0
$1,579
2014E
2015E
$1,791
0
$1,791
$610
1,818
$2,428
0
$2,428
($529)
0
($529)
(90)
$364
(192)
0
$172
0
(18)
(4)
$150
(2)
$148
($752)
0
($752)
(100)
$541
(248)
0
$293
0
(44)
0
$249
(1)
$248
($861)
0
($861)
(131)
$587
(271)
1
$317
0
(71)
0
$247
(4)
$243
($962)
0
($962)
(132)
$698
(316)
(2)
$380
0
(104)
0
$276
(16)
$260
($279)
(861)
($1,139)
0
($1,139)
(158)
$1,131
(394)
0
$737
0
(169)
0
$568
(51)
$517
$2.58
$0.00
$1.17
$0.00
$2.00
$0.00
$1.95
$0.00
$2.08
$0.30
$4.10
$0.46
41%
34%
24%
46%
37%
18%
46%
39%
21%
45%
37%
20%
46%
39%
21%
53%
47%
30%
($512)
($591)
($630)
($525)
($553)
(372)
(597)
(624)
(476)
(513)
($884) ($1,188) ($1,255) ($1,001) ($1,066)
(71)
(95)
(115)
(103)
(133)
$555
$817
$843
$667
$620
(90)
(119)
(141)
(171)
(187)
0
0
0
0
0
$465
$698
$702
$495
$434
28
5
5
0
0
(21)
0
0
0
0
0
0
(9)
(0)
(19)
$473
$703
$697
$495
$415
(164)
(243)
(238)
(157)
(112)
$309
$460
$460
$338
$304
October 14, 2014
Rowan Companies
2013
1Q13
Revenues
Floaters
Jackups
Other
Total revenues
Expenses
Floaters
Jackups
Other
Operating costs
G&A
EBITDA
D&A
Other
Operating income
Interest income
Interest expense
Other income
Pretax income
Taxes
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Gross margins
EBITDA margins
Operating margins
289
$394
0
$394
2Q13
$409
0
$409
3Q13
$383
0
$383
4Q13
$393
0
$393
1Q14
$378
0
$378
2014
3Q14E
4Q14E
1Q15E
$423
0
$423
$47
418
$465
0
$465
$71
455
$526
0
$526
$117
449
$566
0
$566
$153
446
$598
0
$598
$184
465
$649
0
$649
$157
458
$615
0
$615
($48)
(204)
($252)
0
($252)
(37)
$237
(86)
0
$151
0
(31)
0
$120
(8)
$112
($65)
(207)
($272)
0
($272)
(38)
$255
(91)
0
$164
0
(36)
0
$129
(12)
$117
($67)
(214)
($281)
0
($281)
(39)
$279
(96)
0
$183
0
(41)
0
$142
(13)
$130
($73)
(219)
($292)
0
($292)
(40)
$317
(101)
0
$216
0
(45)
0
$172
(15)
$157
($74)
(221)
($295)
0
($295)
(41)
$279
(106)
0
$173
0
(49)
0
$125
(11)
$114
2Q14
2015
2Q15E
3Q15E
4Q15E
($210)
0
($210)
(29)
$155
(65)
(0)
$90
0
(19)
0
$71
(3)
$68
($216)
0
($216)
(33)
$160
(67)
0
$93
0
(18)
0
$75
(5)
$70
($212)
0
($212)
(33)
$138
(69)
0
$69
0
(17)
0
$52
1
$52
($224)
0
($224)
(35)
$135
(71)
1
$65
0
(17)
0
$48
4
$53
($220)
0
($220)
(30)
$127
(71)
(1)
$56
0
(21)
0
$35
(1)
$34
($245)
0
($245)
(29)
$149
(78)
(1)
$71
0
(28)
0
$43
(2)
$42
($43)
(202)
($245)
0
($245)
(36)
$184
(81)
0
$103
0
(26)
0
$78
(5)
$72
$0.55
$0.00
$0.57
$0.00
$0.42
$0.00
$0.42
$0.00
$0.28
$0.00
$0.33
$0.10
$0.58
$0.10
$0.89
$0.10
$0.93
$0.10
$1.03
$0.12
$1.24
$0.12
$0.90
$0.12
47%
39%
23%
47%
39%
23%
45%
36%
18%
43%
34%
17%
42%
34%
15%
42%
35%
17%
47%
40%
22%
52%
45%
29%
52%
45%
29%
53%
47%
31%
55%
49%
33%
52%
45%
28%
October 14, 2014
Rowan Companies
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
Assets
Cash & equivalents
Restricted cash
Accounts receivable
Inventories
Prepaid expenses & other
Current assets
PPE
Goodwill
Other
Total assets
$466
0
144
172
33
$815
1,662
0
16
$2,492
$676
0
253
196
83
$1,208
1,721
0
46
$2,975
$258
0
419
345
81
$1,103
2,133
0
199
$3,435
$285
0
478
456
84
$1,303
2,488
0
85
$3,875
$222
0
485
551
110
$1,369
3,148
0
32
$4,549
$640
0
344
452
115
$1,550
3,580
0
81
$5,211
$437
15
418
348
106
$1,325
4,793
0
99
$6,217
$439
0
284
0
99
$822
5,679
0
919
$6,598
$1,024
0
424
0
105
$1,553
6,072
0
75
$7,700
$1,093
0
345
0
91
$1,529
6,386
0
61
$7,976
$149
0
526
0
90
$764
8,163
0
67
$8,994
($65)
0
615
0
105
$654
8,798
0
67
$9,519

Accounts payable
Other
Current liabilities
Total debt
Deferred taxes
Total liabilities
Common stock
Total
$30
140
$170
639
163
111
$1,083
0
1,409
$2,492
$83
193
$276
615
315
150
$1,355
0
1,620
$2,975
$141
311
$452
550
347
212
$1,561
0
1,874
$3,435
$101
330
$431
485
0
611
$1,527
0
2,348
$3,875
$235
445
$680
420
427
362
$1,889
0
2,660
$4,549
$125
379
$503
852
0
745
$2,100
0
3,110
$5,211
$117
360
$477
1,186
551
251
$2,465
0
3,752
$6,217
$111
192
$303
1,134
476
358
$2,272
0
4,326
$6,598
$83
211
$294
2,010
0
864
$3,168
0
4,532
$7,700
$124
231
$355
2,009
430
289
$3,082
0
4,894
$7,976
$121
182
$304
2,808
432
293
$3,836
0
5,159
$8,994
$142
213
$355
2,808
432
293
$3,887
0
5,632
$9,519
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E

2004
2005
Net income
Depreciation and amortization
Other
Working Capital Chg
Net (gain) loss on asset disposal
Chg in Working Capital
($1)
96
1
6
12
18
0
(14)
$117
$230
81
122
4
(67)
(102)
0
65
$333
$318
90
94
14
24
(31)
0
(218)
$292
$484
119
51
0
24
(41)
0
(214)
$423
$428
141
51
0
32
(31)
14
59
$694
$368
171
16
0
0
(6)
0
(5)
$544
$280
187
45
0
0
1
0
(4)
$508
$731
205
(31)
0
0
(881)
0
383
$407
$181
248
(5)
0
0
(3)
7
(65)
$363
Capex
Asset disposal (acquisitions)
Other
Cash from investing
($137)
132
0
($5)
($200)
111
10
($79)
($479)
37
(154)
($596)
($463)
46
106
($311)
($773)
42
50
($681)
($566)
9
0
($558)
($508)
3
(15)
($520)
($1,594)
1,566
15
($13)
($641)
11
0
($631)
Change in LT debt
Preferred issuance (redemption)
Common issuance (redemption)
Dividend Paid
Other
Cash flow financing
$15
0
265
0
16
$296
($24)
0
34
(54)
0
($44)
($65)
0
9
(60)
2
($114)
($65)
0
13
(44)
1
($95)
($65)
0
35
(45)
0
($75)
$427
0
4
0
0
$431
($199)
0
8
0
0
($190)
($119)
0
19
0
0
($100)
$254
0
0
0
1
$255
$0
0
3
0
6
$8
$793
0
12
(38)
(1)
$766
$0
0
15
(58)
0
($43)
Chg in cash
Beginning cash
Ending cash
$408
58
$466
$210
466
$676
($418)
676
$258
$17
258
$275
($62)
285
$222
$417
222
$640
($202)
640
$437
$294
437
$732
($12)
439
$427
$69
1,024
$1,093
($944)
1,093
$149
($214)
149
($65)
290
$253
271
(34)
0
32
(20)
0
121
$623
$277
316
1
0
12
(0)
8
(225)
$389
$517
394
0
0
0
0
0
(53)
$858
($607) ($2,107) ($1,029)

45
8
0
0
0
0
($563) ($2,099) ($1,029)
October 14, 2014
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
Schlumbergers 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.
291
October 14, 2014
Schlumberger
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 companys 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.
SLB current trades at 14.3x, a
30x
25x
20x
15x
10x
SLB
Big Four Average
5x
'04
'05
'06
292
'07
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Schlumberger
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
Revenues
North America
$3,107
$3,761
$5,273
$5,343
$5,920
$3,705
$5,988 $12,273 $13,448 $13,898 $15,639 $16,904
Latin America
1,746
2,209
2,563
3,295
4,232
4,225
4,656
6,454
7,529
7,751
7,583
8,071
Europe/CIS/WA
2,788
3,530
5,054
6,590
8,190
7,140
7,565
9,762
11,524
12,365
12,937
14,144
Middle East & Asia
2,477
3,033
3,724
4,880
5,720
5,230
6,066
8,065
9,180
10,909
12,092
13,820
Eliminations & Other
122
1,795
2,615
3,169
3,101
2,377
2,368
399
467
441
311
352
Other
1,715
124
172
245
283
238
835
2,593
693
0
0
0
Total 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
D&A
Operating Income
North America
Latin America
Europe, Africa, CIS
Middle East, APAC
Corporate
Operating Income
Pretax income
Taxes
Minority interest
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Operating Margins
North America
Latin America
Europe/CIS/WA
Middle East & Asia
Companywide
EBITDA margins
293
$3,043
1,308
$4,249
1,351
$6,676
1,566
$8,634
1,922
$9,365
2,269
$6,809
2,476
$7,468 $10,098 $11,187 $12,345 $13,610 $14,921

2,775
3,280
3,501
3,666
3,998
4,084
$1,735
934
330
705
870
285
(226)
$2,898
1,604
495
1,291
1,195
871
(346)
$5,110
1,536
754
1,880
1,713
1,135
(305)
$6,713
1,370
858
2,244
2,006
861
(242)
$7,097
217
754
1,706
1,694
282
(320)
$4,333
1,007
756
1,380
1,726
201
(407)
$4,693
3,051
1,072
1,489
1,867
(174)
(590)
$6,818
2,737
1,382
2,253
2,155
(179)
(697)
$7,686
2,735
1,589
2,590
2,761
(271)
(725)
$8,679
2,885
3,175
1,637
1,765
2,736
2,991
3,286
3,869
(83)
(94)
(849)
(870)
$9,612 $10,837
(143)
$1,592
(343)
(20)
$1,228
(98)
$2,799
(683)
(91)
$2,026
(119)
$4,991
(1,189)
(52)
$3,750
(113)
$6,600
(1,441)
0
$5,159
(128)
$6,968
(1,454)
(25)
$5,489
(161)
$4,171
(801)
(8)
$3,362
(156)
$4,537
(932)
(2)
$3,603
(254)
$6,564
(1,575)
(16)
$4,973
(303)
$7,383
(1,757)
(30)
$5,596
(347)
$8,332
(1,903)
(42)
$6,387
(149)
46
$9,464 $10,883
(2,139)
(2,503)
(80)
(92)
$7,245
$8,288
$1.22
$0.36
$1.67
$0.39
$3.04
$0.46
$4.18
$0.62
$4.50
$0.79
$2.79
$0.83
$2.85
$0.82
$3.67
$0.96
$4.18
$1.10
$4.80
$1.25
$5.57
$1.60
$6.50
$1.60
0%
0%
0%
0%
15%
25%
25%
15%
20%
29%
20%
29%
30%
19%
26%
32%
26%
34%
29%
23%
29%
35%
29%
37%
23%
20%
27%
35%
26%
34%
6%
18%
24%
32%
19%
30%
17%
16%
18%
28%
17%
27%
25%
17%
15%
23%
17%
26%
20%
18%
20%
23%
18%
26%
20%
21%
21%
25%
19%
27%
18%
22%
21%
27%
20%
28%
19%
22%
21%
28%
20%
28%
October 14, 2014
Schlumberger
2013
1Q13
2Q13
3Q13
4Q13
Revenues
North America
$3,290
$3,357
$3,602
$3,649
Latin America
1,904
1,913
1,934
2,000
Europe/CIS/WA
2,851
3,125
3,178
3,211
Middle East & Asia
2,505
2,667
2,801
2,936
Eliminations & Other
118
120
93
110
Other
0
0
0
0
Total revenues
$10,668 $11,182 $11,608 $11,906
EBITDA
D&A
1Q14
2Q14
2014
3Q14E
4Q14E
$3,684
$3,888
$3,962
$4,105
1,758
1,852
1,953
2,020
2,881
3,268
3,416
3,372
2,845
2,966
3,081
3,200
71
80
80
80
0
0
0
0
$11,239 $12,054 $12,493 $12,777
1Q15E
2015
2Q15E
3Q15E
4Q15E
$4,052
$4,180
$4,259
$4,413
1,916
1,991
1,992
2,172
3,241
3,521
3,673
3,709
3,343
3,411
3,466
3,600
88
88
88
88
0
0
0
0
$12,641 $13,191 $13,479 $13,981
$2,754
896
$3,007
910
$3,248
931
$3,336
929
$3,099
932
$3,400
995
$3,500
1,036
$3,611
1,034
$3,539
1,017
$3,685
1,020
$3,768
1,022
$3,928
1,025
Operating Income
North America
Latin America
Europe, Africa, CIS
Middle East, APAC
Corporate
Operating Income
627
371
508
609
(89)
(168)
$1,858
662
394
643
655
(76)
(181)
$2,097
730
399
714
730
(77)
(179)
$2,317
716
425
725
767
(29)
(197)
$2,407
683
371
585
749
(20)
(201)
$2,167
700
393
723
826
(21)
(216)
$2,405
722
423
723
832
(21)
(216)
$2,463
779
450
705
879
(21)
(216)
$2,577
758
414
659
929
(23)
(215)
$2,523
774
432
743
953
(23)
(215)
$2,665
798
433
789
970
(24)
(220)
$2,746
844
487
800
1,017
(24)
(220)
$2,903

Pretax income
Taxes
Minority interest
Net income
(87)
$1,771
(412)
(8)
$1,351
(88)
$2,009
(468)
(5)
$1,536
(86)
$2,231
(506)
(10)
$1,715
(86)
$2,321
(517)
(19)
$1,785
(90)
$2,077
(469)
(16)
$1,592
(78)
$2,327
(506)
(21)
$1,800
9
$2,473
(569)
(21)
$1,883
10
$2,587
(595)
(22)
$1,970
10
$2,533
(583)
(22)
$1,928
11
$2,676
(616)
(23)
$2,038
12
$2,758
(634)
(23)
$2,100
13
$2,916
(671)
(24)
$2,222
$1.01
$0.31
$1.15
$0.31
$1.29
$0.31
$1.35
$0.31
$1.21
$0.40
$1.38
$0.40
$1.45
$0.40
$1.53
$0.40
$1.50
$0.40
$1.60
$0.40
$1.65
$0.40
$1.75
$0.40
19%
19%
18%
24%
17%
26%
20%
21%
21%
25%
19%
27%
20%
21%
22%
26%
20%
28%
20%
21%
23%
26%
20%
28%
19%
21%
20%
26%
19%
28%
18%
21%
22%
28%
20%
28%
18%
22%
21%
27%
20%
28%
19%
22%
21%
27%
20%
28%
19%
22%
20%
28%
20%
28%
19%
22%
21%
28%
20%
28%
19%
22%
21%
28%
20%
28%
19%
22%
22%
28%
21%
28%
Per Share Data

Diluted Earnings
Dividend
Margins Summary
Operating Margins
North America
Latin America
Europe/CIS/WA
Middle East & Asia
Companywide
EBITDA margins
294
October 14, 2014
Schlumberger
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
Assets
Cash & equivalents
$224
$191
$166
$197
$189
$243
$1,764
$1,705
$1,905
$3,472
$2,779
$6,151
Short-Term Investmen
2,774
3,305
2,833
2,972
3,503
4,373
3,226
3,122
4,369
4,898
4,432
4,432
Receivables
2,664
3,384
4,242
5,361
6,258
6,088
8,278
9,500
11,351
11,497
12,986
14,210
Inventories
820
1,010
1,247
1,638
1,919
1,866
3,804
4,700
4,785
4,603
5,056
5,533
Deferred Taxes
239
233
163
183
184
154
51
456
343
288
249
273
Other
340
431
535
704
842
926
975
1,056
1,403
1,467
1,547
1,692
Current assets
$7,060
$8,554
$9,186 $11,055 $12,894 $13,650 $18,098 $20,539 $24,156 $26,225 $27,049 $32,291
PPE
3,762
4,201
5,576
8,008
9,690
9,660
12,071
12,993
14,780
15,096
15,686
15,853
Goodwill
2,789
3,242
5,896
6,045
6,009
6,091
19,114
19,036
19,387
19,415
19,958
19,958
Deferred Taxes
239
233
163
183
184
154
51
456
343
288
249
273
Other
2,151
1,847
2,011
2,563
3,214
3,910
2,433
2,177
2,881
6,076
6,722
6,698
Total 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
Short-Term Debt
$716
$797
$1,322
$1,672
$1,597
$681
$2,595
$1,377
$2,121
$2,783
$1,505
$1,505
Accounts Payable and
3,015
3,565
3,848
4,551
5,268
5,003
6,488
7,579
8,453
8,837
9,213
10,082
Liability for Taxes
859
1,029
1,137
1,072
1,007
878
1,493
1,245
1,426
1,490
1,621
1,773
Dividend Payable
111
125
149
211
252
253
289
337
368
415
525
525
Total Current Liabilit $4,701
$5,515
$6,455
$7,505
$8,125
$6,815 $10,865 $10,538 $12,368 $13,525 $12,864 $13,885
Long-Term Debt
3,944
3,591
4,664
3,794
3,694
4,355
5,517
8,556
9,509
10,393
11,740
11,740
Postretirement Benefit
671
707
1,036
840
2,369
1,660
1,262
1,732
2,169
670
699
699
Other Liabilities
151
673
257
838
941
962
2,679
2,983
2,643
2,877
2,694
2,694
Total Liabilities
9,468
10,486
12,412
12,977
15,128
13,792
20,323
23,809
26,689
27,465
27,997
29,018
6,533
7,592
10,420
14,876
16,862
19,673
31,444
31,392
34,858
39,635
41,811
46,486
Total
$16,001 $18,077 $22,832 $27,853 $31,991 $33,465 $51,767 $55,201 $61,547 $67,100 $69,808 $75,504

2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
Net income
Depreciation
Other
Working Capital Chg
$1,228
1,308
(29)
(661)
$1,846
Capex
Acquisition
Other
Cash from investing
($1,168) ($1,593) ($2,637) ($2,931) ($3,723) ($2,625) ($2,914) ($4,016) ($4,695) ($3,943) ($3,800) ($4,250)
2,990
(454)
(2,300)
(1,119)
(690)
(1,627)
(702)
(186)
(2,073)
(1,258)
(848)
0
(140)
2
(160)
(550)
(729)
228
678
292
(406)
(776)
54
(288)
$1,682 ($2,044) ($5,097) ($4,600) ($5,143) ($4,024) ($2,938) ($3,910) ($7,174) ($5,977) ($4,594) ($4,538)
Dividends Paid
Change in Equity
Change in Debt
Other
Cash flow financing
Change in Cash
Translation Effect on Ca
Beginning cash
Ending cash
295
$2,026
1,351
9
(382)
$3,004
$3,750
1,561
(208)
(321)
$4,782
$5,159
1,954
(23)
(831)
$6,259
$5,489
2,269
(21)
(838)
$6,898
$3,362
2,476
(309)
(218)
$5,311
$3,603
2,759
(845)
(23)
$5,494
$4,973
3,281
(40)
(2,045)
$6,169
($568)
($771)
($964) ($1,006) ($1,040) ($1,300)
(658)
(658)
(1,330)
(290)
(1,302)
(2,560)
1,516
(201)
470
108
933
1,773
0
0
0
0
0
(613)
$291 ($1,630) ($1,824) ($1,188) ($1,409) ($2,700)
$5,596
3,500
(102)
(2,180)
$6,814
$6,387
3,666
282
(547)
$9,788
$7,245
$8,288
4,068
4,084
172
0
(1,851)
(849)
$9,633 $11,523
($441)
(42)
(3,107)
0
($3,590)
($482)
(296)
(216)
0
($994)
($1,432) ($1,608) ($1,750) ($1,613)

(562)
(2,059)
(3,508)
(2,000)
1,636
1,450
(427)
0
19
18
(32)
0
($339) ($2,199) ($5,717) ($3,613)
(12)
1
(31)
(1)
(25)
(0)
28
3
(6)
(0)
99
0
1,147
0
(441)
(3)
187
13
1,582
(15)
(678)
(15)
3,372
0
$234
$224
$224
$191
$191
$166
$166
$197
$197
$191
$191
$290
$243
$1,390
$1,390
$946
$946
$1,146
$1,146
$2,713
$2,713
$2,020
$2,020
$5,392
October 14, 2014
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 CKHs fleet exposure in the regions. CKHs steady investor
Company Strategy
CKHs 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 competitors 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.
296
October 14, 2014
SEACOR Holdings
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 Brazils energy industry. Currently, Petrobras, Brazils 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 Incio 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 Mexicos energy ministry is well underway and the hopes are that
opening the industry to foreign investments will lead to increased deepwater activity. Mexicos
deepwater potential is enormous with over 50% of the countrys 52.6 Bboe of prospective resources
located in the deepwater space. Currently, Mexicos 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.
297
October 14, 2014
SEACOR Holdings
10x
CKH
Offshore Technology
9x
8x
7x
6x
5x
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.
4x
3x
'06
'07
298
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
SEACOR Holdings
2004
Revenues
Offshore Marine
Shipping Services
Inland River Services
Aviation Services
Alcohol Manufacturing
Other
Total revenues
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$287
NA
67
NA
28
110
$492
$480
72
123
128
32
136
$972
$683
145
147
156
49
143
$1,323
$692
116
121
215
60
155
$1,359
$709
114
144
249
281
159
$1,656
$566
93
155
236
537
128
$1,715
$521
76
162
235
815
846
$2,655
$377
93
188
258
1,026
201
$2,142
$520
126
227
202
660
83
$1,817
$567
194
216
0
194
77
$1,247
$579
217
238
0
279
35
$1,348
$649
229
244
0
305
37
$1,463
EBITDA
D&A
$76
(58)
$274
(125)
$450
(167)
$380
(154)
$410
(156)
$370
(162)
$532
(163)
$246
(157)
$241
(163)
$197
(134)
$268
(134)
$336
(141)
Offshore Marine
Shipping Services
Aviation Services
Other
Operating Income
Interest Expense
Other Income
Pretax income
Taxes
Minority interest
Net income
10
NA
17
NA
(5)
(4)
$18
(14)
20
$24
(9)
4
$20
99
5
41
5
(13)
12
$149
(29)
74
$194
(76)
6
$124
216
19
60
(0)
7
(18)
$283
(16)
79
$346
(125)
14
$234
206
(18)
41
11
2
(16)
$225
(4)
130
$351
(130)
21
$242
205
3
37
11
19
(21)
$254
(32)
104
$326
(113)
11
$224
155
6
38
29
4
(24)
$208
(55)
52
$206
(79)
13
$139
109
3
33
19
10
194
$369
(35)
43
$377
(142)
12
$247
12
9
33
21
18
(4)
$89
(27)
29
$91
(36)
9
$63
53
9
25
28
(1)
(35)
$78
(31)
44
$92
(32)
(10)
$50
60
24
19
0
1
(41)
$63
(27)
35
$71
(28)
13
$55
58
53
22
0
55
(53)
$134
(26)
36
$144
(46)
(19)
$79
104
64
25
0
62
(58)
$196
(20)
23
$199
(70)
(23)
$106
Per Share Data

Diluted Earnings
Dividend
$1.06
$0.00
$4.99
$0.00
$8.44
$0.00
$9.08
$0.00
$9.38
$0.00
$6.28
$0.00
$11.61
$0.00
$2.96
$0.00
$2.39
$0.00
$2.24
$0.00
$3.34
$0.00
$4.45
$0.00
Margins Summary
EBITDA Margin
Operating Margin
Pretax Margin
16%
4%
5%
28%
15%
20%
34%
21%
26%
28%
17%
26%
25%
15%
20%
22%
12%
12%
20%
14%
14%
11%
4%
4%
13%
4%
5%
16%
5%
6%
20%
10%
11%
23%
13%
14%
299
October 14, 2014
SEACOR Holdings
2013
1Q13
Revenues
Offshore Marine
Shipping Services
Aviation Services
Other
Total revenues
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$124
46
50
0
33
14
$267
$139
48
47
0
61
20
$316
$156
48
53
0
53
27
$337
$148
51
65
0
47
16
$328
$129
52
58
0
59
12
$310
$138
54
56
0
73
8
$328
$159
55
57
0
74
8
$352
$152
57
67
0
74
8
$358
$141
54
59
0
75
9
$338
$154
56
57
0
76
9
$352
$179
58
58
0
77
9
$381
$175
60
69
0
77
10
$391
$31
(34)
$41
(34)
$66
(34)
$60
(34)
$53
(33)
$62
(33)
$72
(34)
$82
(34)
$76
(35)
$75
(35)
$87
(35)
$98
(36)
3
7
3
0
(3)
(12)
($3)
(10)
3
($10)
2
(0)
($9)
10
5
1
0
0
(9)
$7
(5)
17
$20
(8)
11
$22
30
7
4
0
(2)
(7)
$32
(6)
20
$47
(16)
3
$33
16
5
12
0
6
(12)
$26
(7)
(5)
$14
(5)
(1)
$8
3
12
7
0
10
(12)
$20
(7)
6
$18
(6)
0
$12
15
13
(0)
0
15
(14)
$28
(4)
17
$41
(13)
(7)
$21
19
14
4
0
15
(14)
$38
(7)
8
$39
(12)
(6)
$21
21
14
12
0
15
(14)
$48
(7)
5
$46
(15)
(6)
$26
19
14
7
0
15
(14)
$42
(5)
6
$42
(15)
(6)
$22
23
15
0
0
15
(14)
$40
(5)
6
$40
(14)
(6)
$20
30
16
5
0
16
(15)
$52
(5)
6
$53
(19)
(6)
$29
32
18
12
0
16
(15)
$63
(5)
6
$64
(22)
(6)
$36
Per Share Data

Diluted Earnings
Dividend
($0.44)
$0.00
$0.91
$0.00
$1.36
$0.00
$0.41
$0.00
$0.56
$0.00
$0.86
$0.00
$0.86
$0.00
$1.06
$0.00
$0.89
$0.00
$0.85
$0.00
$1.20
$0.00
$1.50
$0.00
Margins Summary
EBITDA Margin
Operating Margin
Pretax Margin
-1%
-4%
-4%
2%
6%
6%
10%
14%
14%
8%
4%
4%
6%
6%
6%
9%
13%
13%
11%
11%
11%
13%
13%
13%
12%
12%
12%
11%
11%
11%
14%
14%
14%
16%
16%
16%
EBITDA
D&A
Offshore Marine Servic
Shipping Services
Aviation Services
Other
Operating Income
Interest Expense
Other Income
Pretax income
Taxes
Minority interest
Net income
300
October 14, 2014
SEACOR Holdings
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$214
144
163
222
$743
48
926
0
50
$1,766
$526
146
242
72
$986
37
1,759
0
103
$2,885
$507
42
264
126
$939
76
1,770
81
388
$3,253
$537
31
268
142
$978
109
1,943
91
448
$3,569
$275
21
317
136
$749
150
2,140
80
341
$3,460
$466
34
301
243
$1,044
187
2,079
78
336
$3,724
$370
13
451
311
$1,145
182
1,969
83
382
$3,760
$468
21
335
217
$1,041
252
2,186
87
363
$3,928
$444
28
280
66
$818
273
1,585
33
55
$2,764
$789
12
264
59
$1,124
441
1,476
30
45
$3,116
$742
14
265
68
$1,089
484
1,638
29
49
$3,290
$824
14
274
70
$1,182
484
1,677
29
49
$3,422

Short-Term Debt
$13
Accounts Payable & Accr
108
Other
21
Current liabilities
$143
LT debt
582
212
Other
36
Total liabilities
$972
$794
Total
$1,766
$8
73
168
$248
950
242
83
$1,524
$1,361
$2,885
$12
89
195
$296
941
359
101
$1,696
$1,557
$3,253
$10
119
259
$389
929
480
149
$1,947
$1,622
$3,569
$35
103
139
$277
903
515
122
$1,817
$1,642
$3,460
$37
135
142
$315
755
575
112
$1,758
$1,966
$3,724
$16
323
197
$536
697
568
162
$1,963
$1,797
$3,760
$43
203
156
$402
995
575
148
$2,120
$1,808
$3,928
$22
151
63
$236
655
426
123
$1,440
$1,324
$2,764
$45
85
124
$254
834
458
144
$1,691
$1,425
$3,116
$44
117
130
$291
830
456
175
$1,753
$1,537
$3,290
$44
145
158
$347
830
456
175
$1,809
$1,613
$3,422
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
Assets
Cash & equivalents
Resreicted Cash
Accounts receivable
Other
Current assets
Investments
PP&E
Goodwill
Other
Total assets

2004
Net Income
Depreciation & Amortiza
Other
Working Capital Chg
2005
2006
$20
58
7
(25)
(27)
$33
$124
125
0
3
(14)
$238
$234
167
101
(67)
(69)
$366
$242
154
117
(130)
3
$386
$224
156
39
(156)
28
$292
$145
162
63
(27)
(45)
$298
$246
163
0
(117)
107
$399
$0
157
0
50
0
$207
$5
163
3
36
(30)
$176
$0
134
0
51
0
$185
$47
134
0
41
23
$245
$106
141
0
0
45
$292
Sale of PP&E
Acquisitions
Other
Cash from investing
($200)
68
(118)
(66)
($317)
($250)
324
(67)
160
$167
($382)
285
(8)
(177)
($281)
($538)
450
(45)
23
($109)
($428)
172
0
10
($246)
($180)
104
(4)
(21)
($102)
($251)
362
(6)
(86)
$19
($332)
102
(91)
(11)
($332)
($327)
20
(148)
317
($139)
($196)
264
(11)
(188)
($131)
($374)
98
0
(83)
($359)
($220)
40
0
0
($180)
Change in Debt
Change in Equity
Other
Cash flow financing
$245
(14)
1
$232
($118)
(14)
0
($132)
($18)
(58)
12
($64)
($41)
(213)
7
($247)
($67)
(240)
8
($298)
$37
(46)
2
($6)
($76)
(457)
26
($507)
$282
(59)
(2)
$221
($90)
(214)
11
($293)
$160
47
15
$223
($7)
(72)
142
$63
$0
(30)
0
($30)
(3)
(9)
(8)
($49)
263
$214
$270
214
$484
$23
484
$507
$30
507
$537
($262)
537
$275
$190
275
$466
($96)
466
$370
$98
370
$468
($176)
468
$444
$277
444
$789
($50)
789
$742
$82
742
$824
FX and other
Chg in cash
Beginning cash
Ending cash
301
October 14, 2014
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 companys high dividend for the foreseeable future, likely supported by
additional drop downs to the MLP SDLP. The companys 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
Seadrills 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 companys 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.
302
October 14, 2014
Seadrill Limited
Management guided to 3Q EBITDA roughly in line or just above 2Qs $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, Seadrills 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.
13x
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.
12x
11x
10x
9x
8x
7x
6x
5x
SDRL
4x
Offshore Drillers
3x
'06
'07
303
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Seadrill Limited
2005
Revenues
Contract Revenues
Reimbursable Revenues
Other
Total revenues
Expenses
Contract Expense
Reimbursable Expense
Other
Operating costs
G&A
EBITDA
D&A
Other
Operating income
Interest income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Gross Margin
EBITDA margins
Operating margins
304
$28
2006
$1,155
2007
$1,676
2008
$2,186
2009
$3,304
2010
$4,030
2011
$4,193
2012
2013
2014E
2015E
$4,479
4,892
278
112
$5,282
4,572
218
256
$5,046
5,390
218
256
$5,864
($902) ($1,178) ($1,402) ($1,773) ($1,676) ($1,821)

(103)
(126)
(154)
(178)
(202)
(250)
$672
$882
$1,747
$2,079
$2,315
$2,408
(183)
(233)
(396)
(480)
(562)
(614)
0
0
0
0
0
0
$489
$649
$1,351
$1,599
$1,753
$1,794
24
31
78
43
20
24
(113)
(130)
(228)
(312)
(296)
(340)
37
(657)
272
120
(351)
(61)
$437
($107) $1,473
$1,450
$1,126
$1,417
(102)
(48)
(120)
(174)
(179)
(176)
(13)
(42)
(92)
(55)
(87)
(111)
$322
($197) $1,261
$1,222
$860
$1,130
($1,977) ($2,009) ($2,523)

(257)
(202)
(202)
0
0
0
($2,234) ($2,211) ($2,725)
(300)
(304)
(336)
$2,748
$2,531
$2,803
(711)
(680)
(706)
0
0
0
$2,037
$1,851
$2,097
24
43
0
(445)
(508)
(604)
192
619
816
$1,808
$2,005
$2,309
(115)
(210)
(466)
(133)
(170)
(192)
$1,560
$1,625
$1,651
($25)
(9)
($5)
(10)
0
($15)
2
(3)
3
($14)
(2)
0
($15)
($691)
(70)
$394
(168)
0
$226
14
(80)
107
$267
(22)
(31)
$214
($0.17)
$0.00
$0.56
$0.00
$0.82
$0.00
($0.49)
$0.00
$3.01
$0.50
$2.64
$2.41
$1.76
$3.14
$2.31
$4.11
$3.18
$3.72
$3.29
$4.00
$3.30
$4.00
12%
-18%
-54%
40%
34%
20%
46%
40%
29%
46%
40%
30%
58%
53%
41%
56%
52%
40%
60%
55%
42%
59%
54%
40%
58%
52%
39%
56%
50%
37%
54%
48%
36%
October 14, 2014
Seadrill Limited
2013
1Q13
Per Share Data

Diluted Earnings
Dividend
Margins Summary
Gross Margin
EBITDA margins
Operating margins
305
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
1,175
55
64
$1,293
1,191
55
64
$1,310
1,256
55
64
$1,375
1,329
55
64
$1,447
1,373
55
64
$1,492
1,432
55
64
$1,551
($437)
(69)
0
($506)
(75)
$641
(165)
0
$476
32
(124)
204
$588
114
(48)
$654
($527)
(51)
0
($577)
(77)
$639
(170)
0
$469
0
(130)
204
$543
(163)
(48)
$332
($554)
(51)
0
($604)
(79)
$627
(172)
0
$455
0
(136)
204
$523
(157)
(48)
$318
($579)
(51)
0
($630)
(81)
$664
(174)
0
$490
0
(142)
204
$552
(112)
(48)
$393
($611)
(51)
0
($661)
(83)
$703
(176)
0
$527
0
(148)
204
$583
(118)
(48)
$418
($643)
(51)
0
($694)
(85)
$713
(178)
0
$536
0
(154)
204
$586
(118)
(48)
$419
($690)
(51)
0
($741)
(87)
$723
(180)
0
$544
0
(160)
204
$588
(119)
(48)
$421
$0.65
$1.00
$1.34
$1.00
$0.67
$1.00
$0.64
$1.00
$0.79
$1.00
$0.84
$1.00
$0.84
$1.00
$0.84
$1.00
57%
51%
37%
59%
52%
39%
55%
49%
36%
54%
48%
35%
54%
48%
36%
54%
49%
36%
54%
48%
36%
52%
47%
35%
3Q13
4Q13
1Q14
2Q14
1,145
110
13
$1,268
1,188
55
37
$1,280
1,364
49
56
$1,469
1,092
36
93
$1,221
1,114
73
35
$1,222
($482)
(59)
0
($541)
(72)
$652
(161)
0
$491
4
(108)
36
$423
(38)
(31)
$354
($439)
(100)
0
($539)
(64)
$665
(158)
0
$507
6
(96)
126
$543
(15)
(23)
$505
($491)
(48)
0
($539)
(78)
$663
(192)
0
$471
6
(107)
5
$375
(60)
(29)
$286
($565)
(50)
0
($615)
(86)
$768
(200)
0
$568
8
(134)
25
$467
(2)
(50)
$415
($492)
(32)
0
($524)
(73)
$624
(174)
0
$450
11
(118)
7
$350
(4)
(26)
$320
$0.73
$0.88
$1.04
$0.91
$0.58
$0.95
$0.85
$0.98
57%
52%
39%
57%
52%
40%
58%
52%
37%
58%
52%
39%
Revenues
Contract Revenues
1,195
Reimbursable Revenu
64
Other
6
Total revenues
$1,265
Expenses
Contract Expense
Reimbursable Expense
Other
Operating costs
G&A
EBITDA
D&A
Other
Operating income
Interest income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
2014
3Q14E
2Q13
October 14, 2014
Seadrill Limited
2005
2006
Assets
Cash
Restricted cash
Marketable securities
Accounts receivable
Other
Current assets
PPE
Investment in associated companies
Goodwill
Other
Total assets
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$460
$755
$483
$318
$744
$235
$531
142
155
232
184
168
237
237
742
598
24
333
416
0
0
452
697
720
918
1,042
883
1,046
465
678
505
602
464
695
822
$2,261
$2,883
$1,964
$2,355
$2,834
$2,050
$2,636
8,945
12,043
13,754
14,776
20,612
17,396
18,962
321
205
721
509
140
3,294
3,294
1,596
1,677
3,790
1,993
2,714
3,524
3,524
708
690
(1,964)
0
0
0
0
$13,831 $17,497 $18,265 $19,633 $26,300 $26,264 $28,416

Current liabilities
Total debt
Other long-term liabilities
Total liabilities
Common stock
Total
$1,260
$1,534
$1,289
$1,495
$2,259
$1,956
$1,956
7,396
9,591
10,428
11,696
14,881
13,060
15,560
125
181
34
77
60
73
73
255
188
288
898
768
768
238
$9,019 $11,561 $11,939 $13,556 $18,098 $15,857 $18,357
634
539
331
693
690
615
615
5,398
5,995
5,384
7,512
9,792
9,444
4,179
$13,831 $17,497 $18,265 $19,633 $26,300 $26,264 $28,416

2005
2006
2007
2008
2009
2010
2011
2012
2013
Net income
Depreciation
Gain on disposals
Other
Working Capital Chg
$1,353
396
(71)
(243)
17
$1,452
Capex
Asset sales
Other
Cash from investing
($1,369) ($2,367) ($2,543) ($1,557) ($4,273)

393
55
245
65
2,006
53
15
(335)
132
(697)
($924) ($2,297) ($2,633) ($1,360) ($2,964)
Chg in LT Debt
Chg in treasury shares
Dividend paid
Other
Cash flow financing
FX and other
Chg in cash
Beginning cash
Ending cash
306
$1,172
480
(26)
(2)
(323)
$1,300
$1,506
563
(22)
(302)
71
$1,816
$1,257
615
(86)
(139)
(57)
$1,590
$2,786
711
(1,349)
(463)
11
$1,696
2014E
2015E
$4,398
680
(2,779)
(215)
(317)
$1,767
$1,651
706
0
0
(290)
$2,067
($2,446) ($2,272)
673
0
2,670
0
$897 ($2,272)
($126)
9
(199)
(137)
($454)
$1,998
299
(990)
(15)
$1,293
$1,764
(109)
(1,440)
323
$538
$1,214
16
(1,925)
300
($395)
$2,266
($1,305)
(34)
(14)
(1,287)
(1,915)
749
79
$1,694 ($3,155)
$2,500
0
(1,999)
0
$501
(1)
(17)
$84
376
$460
$295
460
$755
($272)
755
$483
($165)
483
$318
$426
318
$744
($509)
744
$235
$296
235
$531
October 14, 2014

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 companys 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. SSEs 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 companys 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 SSEs
biggest concern remains its relationship with CHK which currently accounts for 82% of the companys
revenues, a downturn in CHKs activity will severely hamper the companys activity.
Outlook for 2015
SSEs 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.
307
October 14, 2014

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 companys relationship with CHK will artificially protect some of its rigs. This
will issue should subside as the companys 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 SSEs YTD revenue came from CHK. The companys long-term target is to
decrease that amount to 50%. We believe the companys transition is well underway as it has
increased its contract drilling revenues from outside customers to 42% from 9% at the beginning of
2012.
11x
SSE current trades at 4.4x, a -5%

discount to the group's 4.7x average.
SSE
10x
9x
8x
7x
6x
5x
4x
3x
2x
'06
'07
308
'08
'09
'10
'11
'12
'13
'14
October 14, 2014

Revenues:
Drilling
Hyrdaulic Fracturing
Oilfield Rentals
Oilfield Trucking
Other Operations
Total revenues
Expenses
Drilling
Oilfield Rentals
Oilfield Trucking
Other Operations
Total Expenses
2011
2012
2013
2014
2015
$855
13
246
127
63
$1,303
$915
415
234
226
129
$1,920
$741
898
160
244
145
$2,188
$765
890
156
204
75
$2,090
$883
951
173
190
0
$2,196
(685)
(668)
(543)
(487)
(536)
(22)
(303)
(740)
(719)
(757)
(115)
(134)
(102)
(102)
(108)
(109)
(173)
(208)
(187)
(169)
(55)
(112)
(125)
(62)
0
($986) ($1,391) ($1,718) ($1,557) ($1,571)
G&A
Other Corp Exp.
Other Exp.
EBITDA
(37)
1
(2)
$279
(66)
(63)
2
$402
(80)
(72)
2
$320
(77)
(15)
1
$443
(77)
0
0
$548
D&A
Operating Income
(176)
$103
(231)
$170
(290)
$30
(298)
$144
(330)
$218
Interest Income
Interest Expense
Loss in Equity
Pretax income
Taxes
Net income
0
(49)
0
$54
(26)
$28
0
(54)
(0)
$116
(47)
$70
0
(57)
(1)
($28)
8
($20)
0
(67)
(5)
$71
(27)
$44
0
(72)
0
$146
(56)
$90
Adj. Net income
$28
$70
($20)
$30
$90
$1.48
($0.42)
$0.65
$1.89
27%
27%
43%
23%
13%
9%
21%
28%
27%
18%
37%
15%
14%
1%
15%
22%
36%
19%
35%
8%
18%
7%
21%
26%
39%
20%
37%
11%
n/a
10%
25%
28%
Per Share Data

Diluted Earnings
Margins Summary
Segment Gross Margin:
Drilling
Oilfield Rentals
Oilfield Trucking
Other Operations
Operating Margins
EBITDA margins
Gross Margin
309
20%
-68%
53%
14%
12%
8%
21%
24%
October 14, 2014

2013
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
Revenues
Drilling
Oilfield Rentals
Oilfield Trucking
Other Operations
Total revenues
$185
215
48
61
35
$544
$189
250
42
63
39
$583
$188
227
36
63
36
$550
$179
206
35
57
35
$511
$180
202
36
56
36
$510
$189
226
39
55
40
$549
$193
228
40
46
0
$507
$202
234
41
46
0
$524
$206
238
41
46
0
$532
$217
238
43
47
0
$544
$227
238
44
48
0
$556
$233
238
45
49
0
$564
Expenses
Drilling
Oilfield Rentals
Oilfield Trucking
Other Operations
Total Expenses
(139)
(168)
(28)
(51)
(30)
($415)
(147)
(200)
(27)
(51)
(33)
($457)
(141)
(201)
(24)
(54)
(31)
($452)
(117)
(172)
(23)
(52)
(30)
($394)s
(124)
(177)
(26)
(54)
(29)
($410)
(118)
(179)
(25)
(51)
(33)
($407)
(120)
(179)
(25)
(41)
0
($365)
(124)
(184)
(26)
(41)
0
($375)s
(126)
(188)
(26)
(41)
0
($382)
(132)
(188)
(27)
(42)
0
($389)
(137)
(190)
(27)
(43)
0
($398)
(141)
(190)
(28)
(43)
0
($402)
(20)
(0)
1
$108
(21)
(5)
(0)
$100
(19)
(23)
0
$57
(20)e
(43)s
1e
$55 A
(21)
(21)
0
$59
(19)
6
0
$130
(18)
0
0
$124
(18)e
0s
0e
$130 A
(19)
0
0
$131
(19)
0
0
$136
(20)
0
0
$139
(20)
0
0
$142
D&A
Operating Income
(70)
$38
(72)
$27
(73)
($16)
(74)
($19)
(72)
($14)
(72)
$58
(76)
$48
(78)
$52
(79)
$52
(81)
$55
(84)
$55
(86)
$56
Interest Income
Interest Expense
Loss in Equity
Pretax income
Taxes
Net income
0
(14)
(0)
$24
(10)
$14
0
(14)
(1)
$12
(5)
$7
0
(14)
0
($30)
11
($19)
0
(15)e
(0)
($34)
11
($22)
0
(15)
(1)
($29)
11
($19)
0
(18)
(5)
$36
(14)
$22
0
(17)
0
$31
(12)
$20
0
(18)
0
$34
(12)
$21
0
(18)
0
$34
(13)
$21
0
(18)
0
$37
(14)
$23
0
(18)
0
$37
(14)
$23
0
(18)
0
$38
(15)
$23
Adj. Net income
$14
$7
($19)
($22) A
($19)
$8
$20
$21
$21
$23
$23
$23
Per Share Data

Diluted 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
25%
22%
42%
17%
n/a
7%
20%
24%
22%
20%
36%
19%
n/a
5%
17%
22%
25%
11%
33%
15%
n/a
-3%
10%
18%
35%
17%
34%
9%
n/a
-4%
11%
23%
31%
12%
28%
5%
n/a
-3%
12%
20%
37%
21%
37%
7%
n/a
11%
24%
26%
38%
21%
37%
11%
n/a
10%
24%
28%
39%
21%
37%
11%
n/a
10%
25%
28%
39%
21%
37%
11%
n/a
10%
25%
28%
39%
21%
37%
11%
n/a
10%
25%
29%
39%
20%
37%
11%
n/a
10%
25%
29%
40%
20%
37%
11%
n/a
10%
25%
29%
G&A
Other Corp Exp.
Other Exp.
EBITDA
Margins Summary
Segment Gross Margin:
Drilling
Oilfield Rentals
Oilfield Trucking
Other Operations
Operating Margins
EBITDA margins
Gross Margin
310
October 14, 2014

2012
2013
2014
Assets
Cash & equivalents
Accounts receivable
Inventory
Deferred Income Tax
Current assets
PPE
Investments
Other
Total assets
2015
$1
364
52
3
24
$445
1,582
18
54
21
$2,120
$2
375
45
5
20
$448
1,497
13
50
19
$2,027
$128
360
29
8
15
$540
1,853
8
33
35
$2,469
($20)
388
31
8
16
$423
2,076
8
33
35
$2,575

Current Maturities
Accounts payable
Current liabilities
LT Debt
Deferred Taxes
Other Liabilities
Total liabilities
Common stock
Total
$0
60
228
$288.7
1,068
150
16
$1,523
$597
$2,120
$0
65
210
$275.0
1,055
146
4
$1,480
$547
$2,027
$4
58
168
$230.2
1,768
158
4
$2,160
$308
$2,469
$4
62
181
$246.5
1,768
158
4
$2,177
$398
$2,575
2014
2015

2011
Net income
Depreciation
Deferred taxes
Asset Disposal
Impairment
Amortization
Other
Working Capital Chg
CF from ops
Capex
Asset disposal
Other
CF from investing
Change in LT debt
Chg. in Preferred Equity
Chg. in Common Equity
Dividend Paid
Other
CF from financing
Chg in cash
Beginning cash
Ending cash
311
2012
2013
$28
176
26
(4)
3
(6)
11
6
$240
$70
231
46
2
36
(6)
1
(169)
$211
($20)
290
(9)
(3)
52
(13)
3
37
$337
$44
298
3
(8)
15
(1)
7
(39)
$318
$90
330
0
0
0
0
0
(15)
$404
($413)
(229)
(17)
($658)
($623)
47
(2)
($577)
($350)
51
2
($297)
($533)
61
(0)
($472)
($553)
0
0
($553)
($24)
0
0
453
(10)
$419
$389
0
0
(22)
0
$367
($13)
0
0
(30)
3
($40)
$705
0
0
(422)
(2)
$281
$0
0
0
0
0
$0
$0
0
$1
$1
1
$1
$0
1
$2
$127
2
$128
($149)
128
($20)
October 14, 2014

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
Mexicos 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 Pemexs 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.
312
October 14, 2014

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.
19x
15x
11x
7x
SPN current trades at

11.2x, a -6% discount to its
historical 11.9x.
3x
'04
'05
'06
313
'07
'08
'09
'10
'11
'12
'13
'14
October 14, 2014

2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$448
359
214
(1)
$1,021
$513
383
224
(1)
$1,120
$69
34
33
(61)
$75
$76
40
11
(61)
$66
$90
65
16
(64)
$106
Revenues
Fluids
Prod'n Enhancement
Offshore Services
Other
Total revenues
$153
66
135
(0)
$353
$225
106
201
(0)
$531
$246
151
392
(1)
$788
$282
189
526
(2)
$995
$293
224
492
(1)
$1,009
$226
169
485
(0)
$879
$276
185
412
(1)
$873
$305
236
300
0
$840
$335
315
225
0
$875
$383
316
206
(0)
$904
Gross Profit
Fluids
Prod'n Enhancement
Offshore Services
Corporate
Total Gross Profit
$31
20
31
0
$81
$53
40
41
(0)
$134
$86
59
114
(1)
$258
$50
74
116
(1)
$238
$56
86
75
(2)
$215
$56
47
114
(3)
$213
$38
51
87
2
$178
$57
78
(2)
13
$147
$79
100
37
(1)
$216
$100
69
46
(2)
$213
$15
33
66
(53)
$60
$32
52
38
(57)
$65
$51
62
25
(60)
$78
Operating Income
Fluids
Prod'n Enhancement
Offshore Services
Corporate
($49)
$60
$165
$137
$110
$29
35
99
(58)
$106
Expenses
Interest expense
Other income
Pretax income
Taxes
Minority Interest
Net income
(2)
0
($50)
(8)
0
($59)
(6)
3
$57
(19)
0
$38
(13)
5
$157
(54)
0
$103
(17)
3
$123
(26)
0
$97
(17)
12
$106
19
0
$124
(13)
13
$106
(11)
0
$95
(17)
24
$67
(16)
0
$44
(16)
16
$65
(21)
(1)
$43
(17)
15
$77
(26)
(3)
$49
(17)
16
$74
(23)
(3)
$49
(19)
18
$66
(24)
(4)
$39
(18)
18
$106
(35)
4
$75
Per Share Data

Diluted Earnings
Dividend
($2.48)
$0.00
$1.34
$0.00
$1.37
$0.00
$1.27
$0.00
$1.64
$0.00
$1.24
$0.00
$0.58
$0.00
$0.55
$0.00
$0.63
$0.00
$0.64
$0.00
$0.50
$0.00
$0.95
$0.00
20%
30%
23%
23%
-5%
24%
38%
21%
25%
20%
35%
39%
29%
33%
32%
18%
39%
22%
24%
28%
19%
38%
15%
21%
32%
25%
28%
23%
24%
31%
14%
27%
21%
20%
36%
19%
33%
-1%
17%
17%
24%
32%
16%
25%
19%
26%
22%
22%
24%
19%
17%
20%
11%
13%
21%
20%
13%
5%
18%
16%
9%
11%
22%
13%
4%
15%
20%
11%
9%
18%
11%
16%
9%
17%
11%
5%
8%
17%
17%
7%
12%
Margins Summary
Gross margins
Fluids
Prod'n Enhance't
Offshore Services
Companywide
EBITDA margins
Operating margins
Fluids
Prod'n Enhance't
Offshore Services
Companywide
314
-14%
11%
21%
14%
October 14, 2014

2013
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
Revenues
Fluids
Prod'n Enhancement
Offshore Services
Other
Total revenues
$94
85
28
(0)
$207
$100
75
44
0
$219
$100
77
76
0
$253
$89
78
57
0
$224
$105
73
34
0
$211
$117
73
51
(0)
$241
$125
104
69
(0)
$297
$102
110
60
(0)
$271
$121
78
35
(0)
$233
$134
78
55
(0)
$267
$141
110
73
(0)
$324
$117
117
62
(0)
$296
Gross Profit
Fluids
Prod'n Enhancement
Offshore Services
Corporate
Total Gross Profit
$24
20
(2)
(1)
$42
$26
16
13
(1)
$54
$29
16
24
(1)
$68
$21
17
11
(1)
$48
$24
12
(5)
(1)
$31
$26
15
7
(1)
$48
$0
0
0
0
$0
$0
0
0
0
$0
$0
0
0
0
$0
$0
0
0
0
$0
$0
0
0
0
$0
$0
0
0
0
$0
Operating Income
Fluids
Prod'n Enhancement
Offshore Services
Corporate
$17
12
(5)
(15)
$8
$18
7
10
(15)
$20
$21
8
21
(16)
$34
$14
7
8
(16)
$12
$18
2
(8)
(17)
($4)
$17
6
4
(15)
$12
$21
14
9
(15)
$30
$19
17
6
(15)
$28
$22
12
(4)
(16)
$14
$20
13
4
(16)
$21
$25
19
9
(16)
$37
$22
21
7
(16)
$34
Expenses
Interest expense
Other income
Pretax income
Taxes
Minority Interest
Net income
(4)
3
$7
(3)
(1)
$4
(4)
4
$20
(7)
(0)
$13
(4)
4
$34
(11)
(1)
$22
(5)
5
$12
(2)
(1)
$9
(5)
4
($5)
(0)
(1)
($5)
(5)
5
$12
(4)
(1)
$7
(5)
5
$30
(10)
(1)
$19
(5)
5
$28
(9)
(1)
$18
(5)
5
$14
(5)
1
$10
(5)
5
$21
(7)
1
$15
(5)
5
$37
(12)
1
$26
(5)
5
$34
(11)
1
$24
Per Share Data

Diluted Earnings
Dividend
$0.06
$0.00
$0.18
$0.00
$0.28
$0.00
$0.12
$0.00
($0.07)
$0.00
$0.10
$0.00
$0.24
$0.00
$0.23
$0.00
$0.13
$0.00
$0.19
$0.00
$0.33
$0.00
$0.30
$0.00
26%
24%
-5%
20%
14%
26%
21%
30%
25%
19%
29%
21%
31%
27%
22%
24%
22%
19%
22%
21%
23%
17%
-15%
15%
10%
23%
21%
13%
20%
17%
19%
21%
18%
19%
20%
21%
18%
14%
-18%
4%
18%
10%
22%
10%
21%
11%
27%
14%
15%
9%
13%
7%
18%
3%
-24%
-1%
15%
8%
8%
8%
17%
14%
13%
12%
19%
21%
11%
12%
19%
15%
-11%
8%
15%
16%
8%
10%
18%
17%
13%
13%
19%
23%
11%
13%
Margins Summary
Gross margins
Fluids
Prod'n Enhance't
Offshore Services
Companywide
EBITDA margins
Operating margins
Fluids
Prod'n Enhance't
Offshore Services
Companywide
315
October 14, 2014

2004
Assets
Cash & equivalents
Restricted cash
Accounts receivable
Inventories
Other
Current assets
PP&E
Other
Total assets
2005
$6
1
87
54
11
$158
369
0
$527

Accounts payable
$34
Other
27
Current liabilities
$61
Long-Term Debt
144
Deferred taxes
26
42
Total liabilities
$273
Minority interest
0
Common stock
254
Total
$527
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$2
1
148
77
22
$249
354
124
$727
$6
1
243
119
40
$408
508
170
$1,086
$22
4
215
119
64
$423
696
176
$1,296
$4
2
225
118
86
$435
807
170
$1,413
$33
0
181
122
54
$391
816
140
$1,348
$65
0
162
104
83
$415
740
145
$1,300
$204
9
142
100
74
$529
529
146
$1,203
$74
6
176
103
76
$435
553
274
$1,262
$39
9
181
101
45
$374
573
260
$1,207
($141)
9
149
81
40
$139
585
287
$1,011
($406)
9
177
148
43
($29)
585
287
$843
$56
79
$135
157
32
118
$443
0
284
$727
$79
83
$162
336
51
116
$666
0
420
$1,086
$108
134
$242
358
46
201
$848
0
448
$1,296
$84
128
$212
407
65
213
$897
0
516
$1,413
$57
185
$242
310
56
162
$771
0
576
$1,348
$56
161
$217
305
47
215
$783
0
516
$1,300
$46
186
$232
305
49
48
$634
0
569
$1,203
$67
189
$257
331
42
39
$669
0
593
$1,262
$69
104
$173
388
18
31
$609
0
597
$1,207
($125)
162
$38
327
8
29
$401
0
609
$1,011
($136)
57
($79)
327
8
20
$276
0
567
$843
2007
2008
2009
2010
2011
2012
2013

2004
Net income
Depreciation
O&G Impairment
Deferred Taxes
Doubtful Accounts
Other
Chg in Working Cap
2005
2006
2014E
2015E
$18
33
0
6
(0)
(3)
3
$56
$38
45
2
(3)
1
2
(32)
$53
$102
83
1
23
0
(29)
(126)
$54
$29
130
72
1
1
(20)
(4)
$209
($12)
159
0
(1)
3
79
(38)
$190
$69
149
20
21
3
(33)
43
$272
($44)
148
89
(45)
(0)
(11)
16
$153
$5
95
94
(6)
1
(160)
15
$44
$19
76
0
(2)
(0)
(47)
(27)
$18
$3
81
0
(10)
0
(38)
13
$50
$29
90
0
(13)
(0)
(31)
(167)
($91)
$75
94
0
0
0
(105)
(214)
($150)
Capex
Asset sales
Other
Cash from investing
($55)
0
(154)
($208)
($89)
6
(0)
($84)
($261)
3
10
($248)
($276)
55
(15)
($235)
($262)
0
0
($261)
($152)
16
(14)
($150)
($108)
3
(11)
($116)
$48
0
(2)
$47
($108)
(104)
5
($207)
($101)
2
(0)
($100)
($99)
(14)
(1)
($114)
($115)
0
0
($115)
Proceeds from debt
Payment on debt
Stock issuance
Other
Cash flow financing
$274
(136)
2
0
$140
$82
(62)
8
0
$28
$322
(148)
24
0
$198
$117
(101)
25
0
$41
$182
(131)
5
2
$57
$198
(295)
1
0
($96)
$90
(92)
1
(5)
($6)
$0
0
54
(3)
$51
$88
(29)
1
(4)
$56
$141
(121)
2
(7)
$16
$76
(48)
0
(3)
$26
$0
0
0
0
$0
FX and other
(0)
(4)
(2)
(1)
(1)
Chg in cash
Beginning cash
Ending cash
($11)
17
$6
($3)
6
$2
$4
2
$6
$16
6
$22
($18)
22
$4
$30
4
$33
$32
33
$65
$139
65
$204
($130)
204
$74
($35)
74
$39
($180)
39
($141)
($265)
(141)
($406)
316
October 14, 2014
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 longterm 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 worlds leading oil & gas companies as well as engineering companies
engaged in constructing oil & gas gathering, transportation and processing facilities. The companys
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 wouldnt be surprised to see margin degradation as TS sells a higher
mix of low-end API product.
317
October 14, 2014
Tenaris
In late August the International Trade Commission confirmed The U.S. Department of Commerces
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 Mexicos 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.
24x
TS current trades at 11.7x, a

15% discount to the group's
12.6x average but a 12.%
20x
16x
12x
8x
TS
Capital Equipment
4x
'04
'05
'06
318
'07
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Tenaris
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$448
359
214
(1)
$1,021
$513
383
224
(1)
$1,120
$69
34
33
(61)
$75
$76
40
11
(61)
$66
$90
65
16
(64)
$106
Revenues
Fluids
Prod'n Enhancement
Offshore Services
Other
Total revenues
$153
66
135
(0)
$353
$225
106
201
(0)
$531
$246
151
392
(1)
$788
$282
189
526
(2)
$995
$293
224
492
(1)
$1,009
$226
169
485
(0)
$879
$276
185
412
(1)
$873
$305
236
300
0
$840
$335
315
225
0
$875
$383
316
206
(0)
$904
Gross Profit
Fluids
Prod'n Enhancement
Offshore Services
Corporate
Total Gross Profit
$31
20
31
0
$81
$53
40
41
(0)
$134
$86
59
114
(1)
$258
$50
74
116
(1)
$238
$56
86
75
(2)
$215
$56
47
114
(3)
$213
$38
51
87
2
$178
$57
78
(2)
13
$147
$79
100
37
(1)
$216
$100
69
46
(2)
$213
$15
33
66
(53)
$60
$32
52
38
(57)
$65
$51
62
25
(60)
$78
Operating Income
Fluids
Prod'n Enhancement
Offshore Services
Corporate
($49)
$60
$165
$137
$110
$29
35
99
(58)
$106
Expenses
Interest expense
Other income
Pretax income
Taxes
Minority Interest
Net income
(2)
0
($50)
(8)
0
($59)
(6)
3
$57
(19)
0
$38
(13)
5
$157
(54)
0
$103
(17)
3
$123
(26)
0
$97
(17)
12
$106
19
0
$124
(13)
13
$106
(11)
0
$95
(17)
24
$67
(16)
0
$44
(16)
16
$65
(21)
(1)
$43
(17)
15
$77
(26)
(3)
$49
(17)
16
$74
(23)
(3)
$49
(19)
18
$66
(24)
(4)
$39
(18)
18
$106
(35)
4
$75
Per Share Data

Diluted Earnings
Dividend
($2.48)
$0.00
$1.34
$0.00
$1.37
$0.00
$1.27
$0.00
$1.64
$0.00
$1.24
$0.00
$0.58
$0.00
$0.55
$0.00
$0.63
$0.00
$0.64
$0.00
$0.50
$0.00
$0.95
$0.00
20%
30%
23%
23%
-5%
24%
38%
21%
25%
20%
35%
39%
29%
33%
32%
18%
39%
22%
24%
28%
19%
38%
15%
21%
32%
25%
28%
23%
24%
31%
14%
27%
21%
20%
36%
19%
33%
-1%
17%
17%
24%
32%
16%
25%
19%
26%
22%
22%
24%
19%
17%
20%
11%
13%
21%
20%
13%
5%
18%
16%
9%
11%
22%
13%
4%
15%
20%
11%
9%
18%
11%
16%
9%
17%
11%
5%
8%
17%
17%
7%
12%
Margins Summary
Gross margins
Fluids
Prod'n Enhance't
Offshore Services
Companywide
EBITDA margins
Operating margins
Fluids
Prod'n Enhance't
Offshore Services
Companywide
319
-14%
11%
21%
14%
October 14, 2014
Tenaris
2013
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
Revenues
Fluids
Prod'n Enhancement
Offshore Services
Other
Total revenues
$94
85
28
(0)
$207
$100
75
44
0
$219
$100
77
76
0
$253
$89
78
57
0
$224
$105
73
34
0
$211
$117
73
51
(0)
$241
$125
104
69
(0)
$297
$102
110
60
(0)
$271
$121
78
35
(0)
$233
$134
78
55
(0)
$267
$141
110
73
(0)
$324
$117
117
62
(0)
$296
Gross Profit
Fluids
Prod'n Enhancement
Offshore Services
Corporate
Total Gross Profit
$24
20
(2)
(1)
$42
$26
16
13
(1)
$54
$29
16
24
(1)
$68
$21
17
11
(1)
$48
$24
12
(5)
(1)
$31
$26
15
7
(1)
$48
$0
0
0
0
$0
$0
0
0
0
$0
$0
0
0
0
$0
$0
0
0
0
$0
$0
0
0
0
$0
$0
0
0
0
$0
Operating Income
Fluids
Prod'n Enhancement
Offshore Services
Corporate
$17
12
(5)
(15)
$8
$18
7
10
(15)
$20
$21
8
21
(16)
$34
$14
7
8
(16)
$12
$18
2
(8)
(17)
($4)
$17
6
4
(15)
$12
$21
14
9
(15)
$30
$19
17
6
(15)
$28
$22
12
(4)
(16)
$14
$20
13
4
(16)
$21
$25
19
9
(16)
$37
$22
21
7
(16)
$34
Expenses
Interest expense
Other income
Pretax income
Taxes
Minority Interest
Net income
(4)
3
$7
(3)
(1)
$4
(4)
4
$20
(7)
(0)
$13
(4)
4
$34
(11)
(1)
$22
(5)
5
$12
(2)
(1)
$9
(5)
4
($5)
(0)
(1)
($5)
(5)
5
$12
(4)
(1)
$7
(5)
5
$30
(10)
(1)
$19
(5)
5
$28
(9)
(1)
$18
(5)
5
$14
(5)
1
$10
(5)
5
$21
(7)
1
$15
(5)
5
$37
(12)
1
$26
(5)
5
$34
(11)
1
$24
Per Share Data

Diluted Earnings
Dividend
$0.06
$0.00
$0.18
$0.00
$0.28
$0.00
$0.12
$0.00
($0.07)
$0.00
$0.10
$0.00
$0.24
$0.00
$0.23
$0.00
$0.13
$0.00
$0.19
$0.00
$0.33
$0.00
$0.30
$0.00
26%
24%
-5%
20%
14%
26%
21%
30%
25%
19%
29%
21%
31%
27%
22%
24%
22%
19%
22%
21%
23%
17%
-15%
15%
10%
23%
21%
13%
20%
17%
19%
21%
18%
19%
20%
21%
18%
14%
-18%
4%
18%
10%
22%
10%
21%
11%
27%
14%
15%
9%
13%
7%
18%
3%
-24%
-1%
15%
8%
8%
8%
17%
14%
13%
12%
19%
21%
11%
12%
19%
15%
-11%
8%
15%
16%
8%
10%
18%
17%
13%
13%
19%
23%
11%
13%
Margins Summary
Gross margins
Fluids
Prod'n Enhance't
Offshore Services
Companywide
EBITDA margins
Operating margins
Fluids
Prod'n Enhance't
Offshore Services
Companywide
320
October 14, 2014
Tenaris
2004
Assets
Cash & equivalents
Restricted cash
Accounts receivable
Inventories
Other
Current assets
PP&E
Other
Total assets
2005
$6
1
87
54
11
$158
369
0
$527

Accounts payable
$34
Other
27
Current liabilities
$61
Long-Term Debt
144
Deferred taxes
26
42
Total liabilities
$273
Minority interest
0
Common stock
254
Total
$527
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$2
1
148
77
22
$249
354
124
$727
$6
1
243
119
40
$408
508
170
$1,086
$22
4
215
119
64
$423
696
176
$1,296
$4
2
225
118
86
$435
807
170
$1,413
$33
0
181
122
54
$391
816
140
$1,348
$65
0
162
104
83
$415
740
145
$1,300
$204
9
142
100
74
$529
529
146
$1,203
$74
6
176
103
76
$435
553
274
$1,262
$39
9
181
101
45
$374
573
260
$1,207
($141)
9
149
81
40
$139
585
287
$1,011
($406)
9
177
148
43
($29)
585
287
$843
$56
79
$135
157
32
118
$443
0
284
$727
$79
83
$162
336
51
116
$666
0
420
$1,086
$108
134
$242
358
46
201
$848
0
448
$1,296
$84
128
$212
407
65
213
$897
0
516
$1,413
$57
185
$242
310
56
162
$771
0
576
$1,348
$56
161
$217
305
47
215
$783
0
516
$1,300
$46
186
$232
305
49
48
$634
0
569
$1,203
$67
189
$257
331
42
39
$669
0
593
$1,262
$69
104
$173
388
18
31
$609
0
597
$1,207
($125)
162
$38
327
8
29
$401
0
609
$1,011
($136)
57
($79)
327
8
20
$276
0
567
$843
2007
2008
2009
2010
2011
2012
2013

2004
Net income
Depreciation
O&G Impairment
Deferred Taxes
Doubtful Accounts
Other
Chg in Working Cap
2005
2006
2014E
2015E
$18
33
0
6
(0)
(3)
3
$56
$38
45
2
(3)
1
2
(32)
$53
$102
83
1
23
0
(29)
(126)
$54
$29
130
72
1
1
(20)
(4)
$209
($12)
159
0
(1)
3
79
(38)
$190
$69
149
20
21
3
(33)
43
$272
($44)
148
89
(45)
(0)
(11)
16
$153
$5
95
94
(6)
1
(160)
15
$44
$19
76
0
(2)
(0)
(47)
(27)
$18
$3
81
0
(10)
0
(38)
13
$50
$29
90
0
(13)
(0)
(31)
(167)
($91)
$75
94
0
0
0
(105)
(214)
($150)
Capex
Asset sales
Other
Cash from investing
($55)
0
(154)
($208)
($89)
6
(0)
($84)
($261)
3
10
($248)
($276)
55
(15)
($235)
($262)
0
0
($261)
($152)
16
(14)
($150)
($108)
3
(11)
($116)
$48
0
(2)
$47
($108)
(104)
5
($207)
($101)
2
(0)
($100)
($99)
(14)
(1)
($114)
($115)
0
0
($115)
Proceeds from debt
Payment on debt
Stock issuance
Other
Cash flow financing
$274
(136)
2
0
$140
$82
(62)
8
0
$28
$322
(148)
24
0
$198
$117
(101)
25
0
$41
$182
(131)
5
2
$57
$198
(295)
1
0
($96)
$90
(92)
1
(5)
($6)
$0
0
54
(3)
$51
$88
(29)
1
(4)
$56
$141
(121)
2
(7)
$16
$76
(48)
0
(3)
$26
$0
0
0
0
$0
FX and other
(0)
(4)
(2)
(1)
(1)
Chg in cash
Beginning cash
Ending cash
($11)
17
$6
($3)
6
$2
$4
2
$6
$16
6
$22
($18)
22
$4
$30
4
$33
$32
33
$65
$139
65
$204
($130)
204
$74
($35)
74
$39
($180)
39
($141)
($265)
(141)
($406)
321
October 14, 2014
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 businesss cost
structure and corporate SG&A spend. Operating margins are expected to exit the year in the low double
digits, were 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.
322
October 14, 2014
Tetra Technologies
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 companys 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.
26x
TTI current trades at 11.1x,

a -17% discount to its
historical 13.5x.
22x
18x
14x
10x
6x
2x
'04
'05
'06
323
'07
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Tetra Technologies
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$448
359
214
(1)
$1,021
$513
383
224
(1)
$1,120
$69
34
33
(61)
$75
$76
40
11
(61)
$66
$90
65
16
(64)
$106
Revenues
Fluids
Prod'n Enhancement
Offshore Services
Other
Total revenues
$153
66
135
(0)
$353
$225
106
201
(0)
$531
$246
151
392
(1)
$788
$282
189
526
(2)
$995
$293
224
492
(1)
$1,009
$226
169
485
(0)
$879
$276
185
412
(1)
$873
$305
236
300
0
$840
$335
315
225
0
$875
$383
316
206
(0)
$904
Gross Profit
Fluids
Prod'n Enhancement
Offshore Services
Corporate
Total Gross Profit
$31
20
31
0
$81
$53
40
41
(0)
$134
$86
59
114
(1)
$258
$50
74
116
(1)
$238
$56
86
75
(2)
$215
$56
47
114
(3)
$213
$38
51
87
2
$178
$57
78
(2)
13
$147
$79
100
37
(1)
$216
$100
69
46
(2)
$213
$15
33
66
(53)
$60
$32
52
38
(57)
$65
$51
62
25
(60)
$78
Operating Income
Fluids
Prod'n Enhancement
Offshore Services
Corporate
($49)
$60
$165
$137
$110
$29
35
99
(58)
$106
Expenses
Interest expense
Other income
Pretax income
Taxes
Minority Interest
Net income
(2)
0
($50)
(8)
0
($59)
(6)
3
$57
(19)
0
$38
(13)
5
$157
(54)
0
$103
(17)
3
$123
(26)
0
$97
(17)
12
$106
19
0
$124
(13)
13
$106
(11)
0
$95
(17)
24
$67
(16)
0
$44
(16)
16
$65
(21)
(1)
$43
(17)
15
$77
(26)
(3)
$49
(17)
16
$74
(23)
(3)
$49
(19)
18
$66
(24)
(4)
$39
(18)
18
$106
(35)
4
$75
Per Share Data

Diluted Earnings
Dividend
($2.48)
$0.00
$1.34
$0.00
$1.37
$0.00
$1.27
$0.00
$1.64
$0.00
$1.24
$0.00
$0.58
$0.00
$0.55
$0.00
$0.63
$0.00
$0.64
$0.00
$0.50
$0.00
$0.95
$0.00
20%
30%
23%
23%
-5%
24%
38%
21%
25%
20%
35%
39%
29%
33%
32%
18%
39%
22%
24%
28%
19%
38%
15%
21%
32%
25%
28%
23%
24%
31%
14%
27%
21%
20%
36%
19%
33%
-1%
17%
17%
24%
32%
16%
25%
19%
26%
22%
22%
24%
19%
17%
20%
11%
13%
21%
20%
13%
5%
18%
16%
9%
11%
22%
13%
4%
15%
20%
11%
9%
18%
11%
16%
9%
17%
11%
5%
8%
17%
17%
7%
12%
Margins Summary
Gross margins
Fluids
Prod'n Enhance't
Offshore Services
Companywide
EBITDA margins
Operating margins
Fluids
Prod'n Enhance't
Offshore Services
Companywide
324
-14%
11%
21%
14%
October 14, 2014
Tetra Technologies
2013
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
Revenues
Fluids
Prod'n Enhancement
Offshore Services
Other
Total revenues
$94
85
28
(0)
$207
$100
75
44
0
$219
$100
77
76
0
$253
$89
78
57
0
$224
$105
73
34
0
$211
$117
73
51
(0)
$241
$125
104
69
(0)
$297
$102
110
60
(0)
$271
$121
78
35
(0)
$233
$134
78
55
(0)
$267
$141
110
73
(0)
$324
$117
117
62
(0)
$296
Gross Profit
Fluids
Prod'n Enhancement
Offshore Services
Corporate
Total Gross Profit
$24
20
(2)
(1)
$42
$26
16
13
(1)
$54
$29
16
24
(1)
$68
$21
17
11
(1)
$48
$24
12
(5)
(1)
$31
$26
15
7
(1)
$48
$0
0
0
0
$0
$0
0
0
0
$0
$0
0
0
0
$0
$0
0
0
0
$0
$0
0
0
0
$0
$0
0
0
0
$0
Operating Income
Fluids
Prod'n Enhancement
Offshore Services
Corporate
$17
12
(5)
(15)
$8
$18
7
10
(15)
$20
$21
8
21
(16)
$34
$14
7
8
(16)
$12
$18
2
(8)
(17)
($4)
$17
6
4
(15)
$12
$21
14
9
(15)
$30
$19
17
6
(15)
$28
$22
12
(4)
(16)
$14
$20
13
4
(16)
$21
$25
19
9
(16)
$37
$22
21
7
(16)
$34
Expenses
Interest expense
Other income
Pretax income
Taxes
Minority Interest
Net income
(4)
3
$7
(3)
(1)
$4
(4)
4
$20
(7)
(0)
$13
(4)
4
$34
(11)
(1)
$22
(5)
5
$12
(2)
(1)
$9
(5)
4
($5)
(0)
(1)
($5)
(5)
5
$12
(4)
(1)
$7
(5)
5
$30
(10)
(1)
$19
(5)
5
$28
(9)
(1)
$18
(5)
5
$14
(5)
1
$10
(5)
5
$21
(7)
1
$15
(5)
5
$37
(12)
1
$26
(5)
5
$34
(11)
1
$24
Per Share Data

Diluted Earnings
Dividend
$0.06
$0.00
$0.18
$0.00
$0.28
$0.00
$0.12
$0.00
($0.07)
$0.00
$0.10
$0.00
$0.24
$0.00
$0.23
$0.00
$0.13
$0.00
$0.19
$0.00
$0.33
$0.00
$0.30
$0.00
26%
24%
-5%
20%
14%
26%
21%
30%
25%
19%
29%
21%
31%
27%
22%
24%
22%
19%
22%
21%
23%
17%
-15%
15%
10%
23%
21%
13%
20%
17%
19%
21%
18%
19%
20%
21%
18%
14%
-18%
4%
18%
10%
22%
10%
21%
11%
27%
14%
15%
9%
13%
7%
18%
3%
-24%
-1%
15%
8%
8%
8%
17%
14%
13%
12%
19%
21%
11%
12%
19%
15%
-11%
8%
15%
16%
8%
10%
18%
17%
13%
13%
19%
23%
11%
13%
Margins Summary
Gross margins
Fluids
Prod'n Enhance't
Offshore Services
Companywide
EBITDA margins
Operating margins
Fluids
Prod'n Enhance't
Offshore Services
Companywide
325
October 14, 2014
Tetra Technologies
2004
Assets
Cash & equivalents
Restricted cash
Accounts receivable
Inventories
Other
Current assets
PP&E
Other
Total assets
2005
$6
1
87
54
11
$158
369
0
$527

Accounts payable
$34
Other
27
Current liabilities
$61
Long-Term Debt
144
Deferred taxes
26
42
Total liabilities
$273
Minority interest
0
Common stock
254
Total
$527
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$2
1
148
77
22
$249
354
124
$727
$6
1
243
119
40
$408
508
170
$1,086
$22
4
215
119
64
$423
696
176
$1,296
$4
2
225
118
86
$435
807
170
$1,413
$33
0
181
122
54
$391
816
140
$1,348
$65
0
162
104
83
$415
740
145
$1,300
$204
9
142
100
74
$529
529
146
$1,203
$74
6
176
103
76
$435
553
274
$1,262
$39
9
181
101
45
$374
573
260
$1,207
($141)
9
149
81
40
$139
585
287
$1,011
($406)
9
177
148
43
($29)
585
287
$843
$56
79
$135
157
32
118
$443
0
284
$727
$79
83
$162
336
51
116
$666
0
420
$1,086
$108
134
$242
358
46
201
$848
0
448
$1,296
$84
128
$212
407
65
213
$897
0
516
$1,413
$57
185
$242
310
56
162
$771
0
576
$1,348
$56
161
$217
305
47
215
$783
0
516
$1,300
$46
186
$232
305
49
48
$634
0
569
$1,203
$67
189
$257
331
42
39
$669
0
593
$1,262
$69
104
$173
388
18
31
$609
0
597
$1,207
($125)
162
$38
327
8
29
$401
0
609
$1,011
($136)
57
($79)
327
8
20
$276
0
567
$843
2007
2008
2009
2010
2011
2012
2013

2004
Net income
Depreciation
O&G Impairment
Deferred Taxes
Doubtful Accounts
Other
Chg in Working Cap
2005
2006
2014E
2015E
$18
33
0
6
(0)
(3)
3
$56
$38
45
2
(3)
1
2
(32)
$53
$102
83
1
23
0
(29)
(126)
$54
$29
130
72
1
1
(20)
(4)
$209
($12)
159
0
(1)
3
79
(38)
$190
$69
149
20
21
3
(33)
43
$272
($44)
148
89
(45)
(0)
(11)
16
$153
$5
95
94
(6)
1
(160)
15
$44
$19
76
0
(2)
(0)
(47)
(27)
$18
$3
81
0
(10)
0
(38)
13
$50
$29
90
0
(13)
(0)
(31)
(167)
($91)
$75
94
0
0
0
(105)
(214)
($150)
Capex
Asset sales
Other
Cash from investing
($55)
0
(154)
($208)
($89)
6
(0)
($84)
($261)
3
10
($248)
($276)
55
(15)
($235)
($262)
0
0
($261)
($152)
16
(14)
($150)
($108)
3
(11)
($116)
$48
0
(2)
$47
($108)
(104)
5
($207)
($101)
2
(0)
($100)
($99)
(14)
(1)
($114)
($115)
0
0
($115)
Proceeds from debt
Payment on debt
Stock issuance
Other
Cash flow financing
$274
(136)
2
0
$140
$82
(62)
8
0
$28
$322
(148)
24
0
$198
$117
(101)
25
0
$41
$182
(131)
5
2
$57
$198
(295)
1
0
($96)
$90
(92)
1
(5)
($6)
$0
0
54
(3)
$51
$88
(29)
1
(4)
$56
$141
(121)
2
(7)
$16
$76
(48)
0
(3)
$26
$0
0
0
0
$0
FX and other
(0)
(4)
(2)
(1)
(1)
Chg in cash
Beginning cash
Ending cash
($11)
17
$6
($3)
6
$2
$4
2
$6
$16
6
$22
($18)
22
$4
$30
4
$33
$32
33
$65
$139
65
$204
($130)
204
$74
($35)
74
$39
($180)
39
($141)
($265)
(141)
($406)
326
October 14, 2014
Thermon Group
Investment Thesis
We believe THRs has favorable tailwinds across each end market in which it operates in (energy,
chemical, power, commercial/other)resulting from growing customer capex budgets. The companys
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 companys 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 THRs 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 companys
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 companys history of financial results are replicable in the long term, especially given
the strong growth profile and minimal capital requirements.
327
October 14, 2014
Thermon Group
We believe the companys 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.
22x
THR
19x
16x
13x
10x
7x
4x
1x
'04
'05
'06
328
'07
'08
'09
'10
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.
'11
'12
'13
'14
October 14, 2014
Thermon Group
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$448
359
214
(1)
$1,021
$513
383
224
(1)
$1,120
$69
34
33
(61)
$75
$76
40
11
(61)
$66
$90
65
16
(64)
$106
Revenues
Fluids
Prod'n Enhancement
Offshore Services
Other
Total revenues
$153
66
135
(0)
$353
$225
106
201
(0)
$531
$246
151
392
(1)
$788
$282
189
526
(2)
$995
$293
224
492
(1)
$1,009
$226
169
485
(0)
$879
$276
185
412
(1)
$873
$305
236
300
0
$840
$335
315
225
0
$875
$383
316
206
(0)
$904
Gross Profit
Fluids
Prod'n Enhancement
Offshore Services
Corporate
Total Gross Profit
$31
20
31
0
$81
$53
40
41
(0)
$134
$86
59
114
(1)
$258
$50
74
116
(1)
$238
$56
86
75
(2)
$215
$56
47
114
(3)
$213
$38
51
87
2
$178
$57
78
(2)
13
$147
$79
100
37
(1)
$216
$100
69
46
(2)
$213
$15
33
66
(53)
$60
$32
52
38
(57)
$65
$51
62
25
(60)
$78
Operating Income
Fluids
Prod'n Enhancement
Offshore Services
Corporate
($49)
$60
$165
$137
$110
$29
35
99
(58)
$106
Expenses
Interest expense
Other income
Pretax income
Taxes
Minority Interest
Net income
(2)
0
($50)
(8)
0
($59)
(6)
3
$57
(19)
0
$38
(13)
5
$157
(54)
0
$103
(17)
3
$123
(26)
0
$97
(17)
12
$106
19
0
$124
(13)
13
$106
(11)
0
$95
(17)
24
$67
(16)
0
$44
(16)
16
$65
(21)
(1)
$43
(17)
15
$77
(26)
(3)
$49
(17)
16
$74
(23)
(3)
$49
(19)
18
$66
(24)
(4)
$39
(18)
18
$106
(35)
4
$75
Per Share Data

Diluted Earnings
Dividend
($2.48)
$0.00
$1.34
$0.00
$1.37
$0.00
$1.27
$0.00
$1.64
$0.00
$1.24
$0.00
$0.58
$0.00
$0.55
$0.00
$0.63
$0.00
$0.64
$0.00
$0.50
$0.00
$0.95
$0.00
20%
30%
23%
23%
-5%
24%
38%
21%
25%
20%
35%
39%
29%
33%
32%
18%
39%
22%
24%
28%
19%
38%
15%
21%
32%
25%
28%
23%
24%
31%
14%
27%
21%
20%
36%
19%
33%
-1%
17%
17%
24%
32%
16%
25%
19%
26%
22%
22%
24%
19%
17%
20%
11%
13%
21%
20%
13%
5%
18%
16%
9%
11%
22%
13%
4%
15%
20%
11%
9%
18%
11%
16%
9%
17%
11%
5%
8%
17%
17%
7%
12%
Margins Summary
Gross margins
Fluids
Prod'n Enhance't
Offshore Services
Companywide
EBITDA margins
Operating margins
Fluids
Prod'n Enhance't
Offshore Services
Companywide
329
-14%
11%
21%
14%
October 14, 2014
Thermon Group
2013
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
Revenues
Fluids
Prod'n Enhancement
Offshore Services
Other
Total revenues
$94
85
28
(0)
$207
$100
75
44
0
$219
$100
77
76
0
$253
$89
78
57
0
$224
$105
73
34
0
$211
$117
73
51
(0)
$241
$125
104
69
(0)
$297
$102
110
60
(0)
$271
$121
78
35
(0)
$233
$134
78
55
(0)
$267
$141
110
73
(0)
$324
$117
117
62
(0)
$296
Gross Profit
Fluids
Prod'n Enhancement
Offshore Services
Corporate
Total Gross Profit
$24
20
(2)
(1)
$42
$26
16
13
(1)
$54
$29
16
24
(1)
$68
$21
17
11
(1)
$48
$24
12
(5)
(1)
$31
$26
15
7
(1)
$48
$0
0
0
0
$0
$0
0
0
0
$0
$0
0
0
0
$0
$0
0
0
0
$0
$0
0
0
0
$0
$0
0
0
0
$0
Operating Income
Fluids
Prod'n Enhancement
Offshore Services
Corporate
$17
12
(5)
(15)
$8
$18
7
10
(15)
$20
$21
8
21
(16)
$34
$14
7
8
(16)
$12
$18
2
(8)
(17)
($4)
$17
6
4
(15)
$12
$21
14
9
(15)
$30
$19
17
6
(15)
$28
$22
12
(4)
(16)
$14
$20
13
4
(16)
$21
$25
19
9
(16)
$37
$22
21
7
(16)
$34
Expenses
Interest expense
Other income
Pretax income
Taxes
Minority Interest
Net income
(4)
3
$7
(3)
(1)
$4
(4)
4
$20
(7)
(0)
$13
(4)
4
$34
(11)
(1)
$22
(5)
5
$12
(2)
(1)
$9
(5)
4
($5)
(0)
(1)
($5)
(5)
5
$12
(4)
(1)
$7
(5)
5
$30
(10)
(1)
$19
(5)
5
$28
(9)
(1)
$18
(5)
5
$14
(5)
1
$10
(5)
5
$21
(7)
1
$15
(5)
5
$37
(12)
1
$26
(5)
5
$34
(11)
1
$24
Per Share Data

Diluted Earnings
Dividend
$0.06
$0.00
$0.18
$0.00
$0.28
$0.00
$0.12
$0.00
($0.07)
$0.00
$0.10
$0.00
$0.24
$0.00
$0.23
$0.00
$0.13
$0.00
$0.19
$0.00
$0.33
$0.00
$0.30
$0.00
26%
24%
-5%
20%
14%
26%
21%
30%
25%
19%
29%
21%
31%
27%
22%
24%
22%
19%
22%
21%
23%
17%
-15%
15%
10%
23%
21%
13%
20%
17%
19%
21%
18%
19%
20%
21%
18%
14%
-18%
4%
18%
10%
22%
10%
21%
11%
27%
14%
15%
9%
13%
7%
18%
3%
-24%
-1%
15%
8%
8%
8%
17%
14%
13%
12%
19%
21%
11%
12%
19%
15%
-11%
8%
15%
16%
8%
10%
18%
17%
13%
13%
19%
23%
11%
13%
Margins Summary
Gross margins
Fluids
Prod'n Enhance't
Offshore Services
Companywide
EBITDA margins
Operating margins
Fluids
Prod'n Enhance't
Offshore Services
Companywide
330
October 14, 2014
Thermon Group
2004
Assets
Cash & equivalents
Restricted cash
Accounts receivable
Inventories
Other
Current assets
PP&E
Other
Total assets
2005
$6
1
87
54
11
$158
369
0
$527

Accounts payable
$34
Other
27
Current liabilities
$61
Long-Term Debt
144
Deferred taxes
26
42
Total liabilities
$273
Minority interest
0
Common stock
254
Total
$527
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$2
1
148
77
22
$249
354
124
$727
$6
1
243
119
40
$408
508
170
$1,086
$22
4
215
119
64
$423
696
176
$1,296
$4
2
225
118
86
$435
807
170
$1,413
$33
0
181
122
54
$391
816
140
$1,348
$65
0
162
104
83
$415
740
145
$1,300
$204
9
142
100
74
$529
529
146
$1,203
$74
6
176
103
76
$435
553
274
$1,262
$39
9
181
101
45
$374
573
260
$1,207
($141)
9
149
81
40
$139
585
287
$1,011
($406)
9
177
148
43
($29)
585
287
$843
$56
79
$135
157
32
118
$443
0
284
$727
$79
83
$162
336
51
116
$666
0
420
$1,086
$108
134
$242
358
46
201
$848
0
448
$1,296
$84
128
$212
407
65
213
$897
0
516
$1,413
$57
185
$242
310
56
162
$771
0
576
$1,348
$56
161
$217
305
47
215
$783
0
516
$1,300
$46
186
$232
305
49
48
$634
0
569
$1,203
$67
189
$257
331
42
39
$669
0
593
$1,262
$69
104
$173
388
18
31
$609
0
597
$1,207
($125)
162
$38
327
8
29
$401
0
609
$1,011
($136)
57
($79)
327
8
20
$276
0
567
$843
2007
2008
2009
2010
2011
2012
2013

2004
Net income
Depreciation
O&G Impairment
Deferred Taxes
Doubtful Accounts
Other
Chg in Working Cap
2005
2006
2014E
2015E
$18
33
0
6
(0)
(3)
3
$56
$38
45
2
(3)
1
2
(32)
$53
$102
83
1
23
0
(29)
(126)
$54
$29
130
72
1
1
(20)
(4)
$209
($12)
159
0
(1)
3
79
(38)
$190
$69
149
20
21
3
(33)
43
$272
($44)
148
89
(45)
(0)
(11)
16
$153
$5
95
94
(6)
1
(160)
15
$44
$19
76
0
(2)
(0)
(47)
(27)
$18
$3
81
0
(10)
0
(38)
13
$50
$29
90
0
(13)
(0)
(31)
(167)
($91)
$75
94
0
0
0
(105)
(214)
($150)
Capex
Asset sales
Other
Cash from investing
($55)
0
(154)
($208)
($89)
6
(0)
($84)
($261)
3
10
($248)
($276)
55
(15)
($235)
($262)
0
0
($261)
($152)
16
(14)
($150)
($108)
3
(11)
($116)
$48
0
(2)
$47
($108)
(104)
5
($207)
($101)
2
(0)
($100)
($99)
(14)
(1)
($114)
($115)
0
0
($115)
Proceeds from debt
Payment on debt
Stock issuance
Other
Cash flow financing
$274
(136)
2
0
$140
$82
(62)
8
0
$28
$322
(148)
24
0
$198
$117
(101)
25
0
$41
$182
(131)
5
2
$57
$198
(295)
1
0
($96)
$90
(92)
1
(5)
($6)
$0
0
54
(3)
$51
$88
(29)
1
(4)
$56
$141
(121)
2
(7)
$16
$76
(48)
0
(3)
$26
$0
0
0
0
$0
FX and other
(0)
(4)
(2)
(1)
(1)
Chg in cash
Beginning cash
Ending cash
($11)
17
$6
($3)
6
$2
$4
2
$6
$16
6
$22
($18)
22
$4
$30
4
$33
$32
33
$65
$139
65
$204
($130)
204
$74
($35)
74
$39
($180)
39
($141)
($265)
(141)
($406)
331
October 14, 2014
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.
332
October 14, 2014
Tidewater
x

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
Brazils 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.
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.
10x
9x
8x
7x
6x
5x
4x
TDW
Offshore Technology
3x
'06
'07
333
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Tidewater
2004
2005
2007
2008
2009
2010
31
847
$878
28
1,098
$1,125
55
1,215
$1,270
35
1,356
$1,391
30
1,138
$1,169
($402)
(73)
(29)
$187
(100)
$88
3
(7)
16
$100
(30)
(0)
$70
($431)
(86)
(24)
$336
(108)
$228
10
(9)
26
$255
(62)
(0)
$193
($498)
(99)
(24)
$505
(116)
$388
20
(10)
24
$423
(83)
(0)
$339
($585)
(127)
(47)
$511
(121)
$391
17
(7)
25
$426
(77)
(0)
$349
($661)
(136)
(29)
$564
(126)
$438
7
(1)
47
$492
(85)
0
$407
$1.04
$0.60
$1.22
$0.60
$3.33
$0.60
$6.01
$0.60
$6.40
$0.60
26%
11%
12%
27%
13%
14%
38%
26%
29%
45%
35%
38%
40%
31%
34%
Revenues
Americas
Asia/Pacific
Middle East/N. Africa
Sub-Saharan Africa
Brokered Vessels
Other
Total revenues
ing Costs
Expenses
Vessel OpEx
G&A
Other costs
EBITDA
D&A
Operating Income
Interest income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
27
626
$653
37
656
$692
($395)
(68)
(22)
$169
(99)
$70
3
(4)
11
$81
(22)
(0)
$59
Per Share Data

Diluted Earnings
Dividend
Margins Summary
EBITDA Margin
Operating Margin
Pre-tax Margin
334
2006
2011
2012
2013
2014E
2015E
2016E
4
1,051
$1,056
$244
118
83
362
7
253
$1,067
$327
184
149
562
14
0
$1,237
$411
155
187
667
17
0
$1,435
$487
179
236
682
17
0
$1,601
$521
227
276
729
22
0
$1,775
($605)
(139)
(27)
$397
(130)
$267
7
(2)
41
$314
(41)
0
$273
($639)
(135)
(5)
$278
(141)
$137
5
(11)
32
$163
(43)
0
$119
($638)
(157)
(7)
$265
(138)
$127
4
(22)
34
$142
(41)
0
$101
($709)
(170)
(12)
$345
(147)
$197
3
(30)
11
$182
(42)
0
$141
($800)
(179)
(34)
$422
(171)
$251
2
(44)
20
$229
(46)
0
$183
($881)
(201)
(44)
$474
(178)
$297
2
(52)
28
$275
(66)
(0)
$209
($958)
(202)
(46)
$568
(185)
$384
0
(52)
13
$344
(86)
(0)
$258
$7.90
$1.00
$5.27
$0.63
$2.32
$1.00
$1.98
$1.00
$2.83
$1.00
$3.68
$1.00
$4.16
$1.00
$5.03
$0.99
41%
32%
35%
34%
23%
27%
26%
13%
15%
25%
12%
13%
28%
16%
15%
29%
17%
16%
30%
19%
17%
32%
22%
19%
October 14, 2014
Tidewater
2014
1Q14
2Q14
3Q14
4Q14
1Q15
2015
2Q15E
3Q15E
4Q15E
1Q16E
2016
2Q16E
3Q16E
4Q16E
Revenues
Americas
Asia/Pacific
Middle East/N. Africa
Sub-Saharan Africa
Brokered Vessels
Other
Total revenues
$90
43
41
157
2
160
$334
$102
37
45
179
4
183
$368
$110
36
51
163
5
168
$365
$109
38
49
167
5
172
$368
$120
40
56
166
4
170
$386
$123
44
58
167
4
171
$396
$123
46
61
173
4
178
$408
$121
49
62
176
5
180
$412
$125
52
64
178
5
183
$423
$129
57
69
182
6
187
$441
$134
60
72
188
6
194
$459
$134
59
71
181
6
187
$451
Expenses
Vessel OpEx
G&A
Other costs
EBITDA
D&A
Operating Income
Interest income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
($200)
(46)
(2)
$86
(40)
$46
1
(9)
4
$42
(10)
0
$32
($195)
(42)
(8)
$123
(46)
$77
1
(10)
7
$74
(17)
0
$57
($198)
(46)
(10)
$112
(42)
$70
0
(12)
4
$62
(11)
0
$50
($207)
(46)
(14)
$102
(43)
$59
1
(13)
5
$51
(8)
0
$43
($217)
(51)
(11)
$106
(43)
$63
1
(13)
7
$57
(14)
0
$44
($217)
(50)
(11)
$118
(44)
$74
1
(13)
7
$68
(16)
0
$52
($223)
(50)
(11)
$123
(45)
$79
1
(13)
7
$73
(18)
0
$56
($224)
(50)
(11)
$127
(46)
$82
1
(13)
7
$76
(18)
0
$58
($231)
(50)
(11)
$131
(46)
$84
0
(13)
3
$75
(19)
0
$56
($238)
(50)
(11)
$142
(46)
$95
0
(13)
3
$85
(21)
0
$64
($248)
(50)
(12)
$149
(46)
$102
0
(13)
3
$93
(23)
0
$69
($242)
(50)
(12)
$148
(46)
$101
0
(13)
3
$92
(23)
0
$69
Per Share Data

Diluted Earnings
Dividend
$0.64
$0.25
$1.15
$0.25
$1.01
$0.25
$0.88
$0.25
$0.88
$0.25
$1.03
$0.25
$1.10
$0.25
$1.15
$0.25
$1.10
$0.25
$1.25
$0.25
$1.35
$0.25
$1.33
$0.25
Margins Summary
EBITDA Margin
Operating Margin
Pre-tax Margin
26%
14%
13%
33%
21%
20%
31%
19%
17%
28%
16%
14%
28%
16%
15%
30%
19%
17%
30%
19%
18%
31%
20%
19%
31%
20%
18%
32%
22%
19%
32%
22%
20%
33%
22%
20%
335
October 14, 2014
Tidewater
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
$18
166
38
3
$225
34
1,342
329
152
$2,082
$15
170
39
4
$228
32
1,452
329
172
$2,213
$246
237
41
4
$529
34
1,374
329
99
$2,365
$394
237
41
4
$677
34
1,374
329
99
$2,512
$270
309
46
5
$631
27
1,679
329
86
$2,752
$251
329
49
6
$634
37
2,013
329
60
$3,074
$270
293
38
12
$613
34
2,324
329
95
$3,395
$246
272
51
10
$579
39
2,702
329
99
$3,748
$321
309
54
10
$694
46
2,906
298
118
$4,062
$41
393
62
12
$508
46
3,190
298
126
$4,168
$60
682
57
21
$820
64
3,622
284
96
$4,886
($70)
729
67
35
$762
68
3,871
284
93
$5,077
$33
799
74
39
$945
68
3,851
284
93
$5,241

Current Maturities on Cap
$0
Accounts Payable and Ac
60
Accrued Property and Lia
9
Other
3
Current liabilities
$72
Total debt
325
212
Other
107
Total liabilities
$716
1,366
Total
$2,082
$0
82
9
1
$92
380
184
114
$771
1,443
$2,213
$0
97
7
11
$116
300
175
114
$706
1,659
$2,365
$0
97
7
11
$116
300
175
114
$706
1,807
$2,512
$10
148
6
35
$199
300
190
133
$822
1,930
$2,752
$0
163
6
35
$203
300
201
125
$829
2,245
$3,074
$25
150
5
40
$220
375
206
137
$938
2,457
$3,395
$0
166
4
14
$184
700
217
134
$1,234
2,514
$3,748
$0
209
4
26
$239
950
215
132
$1,535
2,526
$4,062
$0
223
4
40
$267
1,000
190
150
$1,606
2,562
$4,168
$10
318
4
71
$402
1,505
109
184
$2,200
2,685
$4,886
$10
346
3
76
$437
1,489
110
187
$2,223
2,854
$5,077
$10
380
4
84
$478
1,493
110
187
$2,268
2,973
$5,241
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
Assets
Cash & equivalents
Accounts receivable
Marine Op. Supplies
Other
Current assets
Investments in Co.
Property and Equipment
Goodwill
Other
Total assets

2004
2005
2006
Net income
Depreciation
Other
Working Capital Chg
$42
99
(18)
25
(18)
$129
$101
100
(34)
(6)
(1)
$160
$236
108
56
(78)
(23)
$297
$357
116
7
(35)
(10)
$435
$349
121
7
(14)
27
$489
$407
126
8
(18)
(0)
$523
$256
130
(14)
5
(12)
$365
$106
141
(7)
3
22
$264
$79
138
(21)
25
5
$227
$151
147
(12)
7
(85)
$209
$140
171
(35)
48
(217)
$105
$209
178
2
(2)
(44)
$344
$258
185
0
0
(43)
$400
Sale of PP&E
Acquisitions
Other
Cash from investing
($298)
11
0
1
($285)
($207)
18
0
(0)
($189)
($172)
226
0
0
$53
($235)
74
0
10
($151)
($354)
82
0
0
($272)
($469)
30
0
0
($438)
($513)
125
0
0
($388)
($615)
37
0
8
($570)
($466)
25
0
0
($441)
($441)
22
0
(0)
($418)
($595)
322
(128)
(3)
($404)
($430)
17
0
0
($413)
($250)
0
0
0
($250)
Change in Debt
Change in Equity
Dividend
Other
Cash flow financing
$186
5
(34)
0
$156
$55
6
(34)
0
$27
($94)
9
(35)
0
($120)
($1)
(101)
(34)
0
($136)
($46)
(263)
(33)
0
($341)
($10)
(50)
(51)
0
($112)
$100
(26)
(32)
0
$42
$390
(10)
(51)
0
$328
$250
1
(51)
0
$199
$50
(81)
(50)
0
($81)
$357
12
(50)
0
$319
($16)
4
(50)
0
($62)
$0
4
(51)
0
($47)
($0)
18
$18
($2)
18
$15
$231
15
$246
$148
246
$394
($124)
394
$270
($27)
270
$244
$19
251
$270
$23
270
$293
($15)
246
$231
($291)
321
$30
$20
41
$60
($130)
60
($70)
$103
(70)
$33
Chg in cash
Beginning cash
Ending cash
336
October 14, 2014
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
Transoceans 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 Transoceans 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, Transoceans 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.
337
October 14, 2014
Transocean Inc.
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.
13x
RIG current trades at 5.8x, a 1% premium

RIG
12x
Offshore Drillers
11x
10x
9x
8x
7x
6x
5x
4x
3x
'06
'07
338
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Transocean Inc.
2004
2005
2006
Revenues
High-Spec Floaters
Midwater Floaters
High-Spec Jackups
Other Revenues
Contract Drilling
Other
Total revenues
418
370
$2,416
198
$2,614
$1,658
492
521
86
$2,757
135
$2,892
$2,132
847
682
84
$3,745
137
$3,882
Expenses
COGS
G&A
EBITDA
D&A
Other
Operating Income
Interest income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
($1,719)
(67)
$828
(525)
0
$303
9
(172)
13
$153
(57)
3
$100
($1,724)
(75)
$1,093
(406)
0
$687
20
(111)
17
$612
(81)
0
$531
$0.26
$0.00
34%
32%
12%
Per Share Data

Diluted Earnings
Dividend
Margins Summary
Gross Margin
EBITDA margins
Operating margins
339
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$3,039
$4,457
$5,341
1,728
2,812
2,507
1,122
3,437
2,725
188
1,278
702
$6,077 $11,984 $11,275
300
690
281
$6,377 $12,674 $11,556
$5,306
2,092
1,542
538
$9,478
98
$9,576
$5,725
1,461
1,121
790
$9,097
45
$9,142
$6,775
1,572
787
496
$9,630
42
$9,672
$6,816
1,658
582
414
$9,470
14
$9,484
$6,539
1,729
583
197
$9,048
8
$9,056
$6,398
1,796
587
200
$8,981
0
$8,981
($2,155)
(90)
$1,637
(401)
0
$1,236
21
(115)
9
$1,151
(199)
0
$952
($2,722)
(119)
$3,536
(499)
0
$3,037
30
(172)
19
$2,914
(328)
(2)
$2,584
($5,311)
(199)
$7,164
(1,384)
0
$5,780
32
(469)
28
$5,371
(757)
2
$4,616
($5,008)
(209)
$6,339
(1,464)
0
$4,875
5
(484)
(33)
$4,363
(698)
11
$3,676
($4,982)
(242)
$4,352
(1,568)
0
$2,784
23
(567)
34
$2,274
(317)
(27)
$1,930
($5,907)
(293)
$2,942
(1,449)
0
$1,493
44
(621)
(72)
$844
(362)
(50)
$432
($5,793)
(268)
$3,611
(1,254)
0
$2,357
56
(723)
(33)
$1,657
(325)
(17)
$1,315
($5,653)
(291)
$3,540
(1,109)
0
$2,431
52
(584)
(28)
$1,871
(376)
0
$1,495
($5,291)
(216)
$3,548
(1,152)
0
$2,396
40
(462)
19
$1,993
(274)
(40)
$1,679
($5,790)
(200)
$2,991
(1,242)
0
$1,749
29
(448)
32
$1,361
(211)
(40)
$1,111
$1.52
$0.00
$2.93
$0.00
$9.07
$0.00
$14.34
$0.00
$11.43
$0.00
$5.98
$0.00
$1.31
$2.36
$3.66
$0.79
$4.10
$1.68
$4.59
$2.81
$3.00
$3.00
40%
38%
24%
44%
42%
32%
57%
55%
48%
58%
57%
46%
57%
55%
42%
48%
45%
29%
35%
32%
16%
40%
37%
24%
40%
37%
26%
42%
39%
26%
36%
33%
19%
October 14, 2014
Transocean Inc.
2013
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$1,585
439
141
50
$2,215
0
$2,215
$1,539
439
146
50
$2,174
0
$2,174
$1,559
429
134
50
$2,172
0
$2,172
$1,549
452
150
50
$2,200
0
$2,200
$1,601
459
151
50
$2,262
0
$2,262
$1,688
456
151
50
$2,346
0
$2,346
($1,213)
(55)
$1,060
(288)
0
$772
15
(112)
8
$683
(73)
(10)
$600
($1,411)
(53)
$751
(293)
0
$458
8
(112)
8
$362
(56)
(10)
$296
($1,403)
(51)
$720
(298)
0
$422
7
(112)
8
$325
(50)
(10)
$265
($1,400)
(50)
$722
(303)
0
$419
7
(112)
8
$322
(50)
(10)
$262
($1,426)
(49)
$726
(308)
0
$418
7
(112)
8
$321
(50)
(10)
$261
($1,483)
(50)
$729
(313)
0
$416
7
(112)
8
$320
(50)
(10)
$260
($1,482)
(51)
$813
(318)
0
$495
7
(112)
8
$399
(62)
(10)
$327
$1.42
$0.56
$1.65
$0.75
$0.80
$0.75
$0.72
$0.75
$0.71
$0.75
$0.71
$0.75
$0.70
$0.75
$0.88
$0.75
46%
43%
32%
48%
46%
33%
36%
34%
21%
35%
33%
19%
36%
33%
19%
35%
33%
19%
34%
32%
18%
37%
35%
21%
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
Revenues
High-Spec Floaters
Midwater Floaters
High-Spec Jackups
Other Revenues
Contract Drilling
Other
Total revenues
$1,583
429
124
52
$2,188
9
$2,197
$1,775
381
158
76
$2,390
7
$2,397
$1,822
419
157
156
$2,554
4
$2,558
$1,636
429
143
130
$2,338
(6)
$2,332
$1,742
411
135
47
$2,335
4
$2,339
$1,673
441
160
50
$2,324
4
$2,328
Expenses
COGS
G&A
EBITDA
D&A
Other
Operating Income
Interest income
Interest expense
Other income
Pretax income
Taxes
Minority interest
Net income
($1,301)
(67)
$829
(275)
0
$554
17
(157)
(7)
$407
(78)
8
$337
($1,378)
(65)
$954
(286)
0
$668
11
(146)
(15)
$518
(122)
(4)
$392
($1,442)
(84)
$1,032
(273)
0
$759
11
(142)
(4)
$624
(121)
(2)
$501
($1,532)
(75)
$725
(275)
0
$450
13
(139)
(2)
$322
(55)
(2)
$265
($1,265)
(57)
$1,017
(273)
0
$744
10
(126)
(5)
$623
(95)
(10)
$518
$0.93
$0.00
$1.08
$0.57
$1.38
$0.56
$0.72
$0.55
41%
38%
25%
43%
40%
28%
44%
40%
30%
34%
31%
19%
Per Share Data

Diluted Earnings
Dividend
Margins Summary
Gross Margin
EBITDA margins
Operating margins
340
October 14, 2014
Transocean Inc.
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
Assets
Cash & equivalents
$451
$445
$467
$1,241
$963
$1,130
$3,394
$4,017
$5,134
$3,243
$1,596
$710
Accounts receivable
427
583
946
2,370
2,864
2,385
2,000
2,049
1,940
2,162
2,068
2,231
Materials
145
156
160
333
432
462
517
627
610
743
1,466
1,582
19
23
16
119
63
104
115
142
142
151
151
163
Other
68
72
67
233
1,027
395
169
774
821
473
419
452
Current assets
$1,109
$1,279
$1,656
$4,296
$5,349
$4,476
$6,195
$7,609
$8,647
$6,772
$5,700
$5,139
PP&E
7,005
6,748
7,326
20,930
20,827
23,018
21,458
22,529
20,880
21,707
22,936
23,670
Goodwill
2,252
2,209
2,195
8,219
8,128
8,134
8,132
3,205
2,987
2,987
2,987
2,987
Other
392
221
299
919
867
808
1,026
1,745
1,741
1,080
953
981
Total 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
Accounts payable
$181
$254
$477
$805
$914
$780
$847
$880
$1,047
$1,106
$883
$933
Accrued income taxes
17
28
98
99
317
240
116
89
116
53
96
101
Other
213
242
369
826
806
730
886
2,350
2,933
2,235
2,765
2,921
Current liabilities
$411
$524
$944
$1,730
$2,037
$1,750
$1,849
$3,319
$4,096
$3,394
$3,744
$3,956
Total debt
2,482
1,597
3,295
17,257
14,186
11,717
11,221
13,536
12,459
10,539
10,445
10,421
19
23
16
119
63
104
115
142
142
151
151
163
331
385
2,692
2,361
2,306
2,251
2,400
1,828
1,777
1,446
1,434
Other
454
Total liabilities
$3,366
$2,476
$4,640 $21,798 $18,647 $15,877 $15,436 $19,397 $18,525 $15,861 $15,786 $15,974
Minority interest
0
0
0
0
0
0
0
0
0
0
11
11
Common stock
7,393
7,982
6,836
12,566
16,524
20,559
21,375
15,691
15,730
16,685
16,779
16,793
Total
$10,758 $10,457 $11,476 $34,364 $35,171 $36,436 $36,811 $35,088 $34,255 $32,546 $32,576 $32,777

2004
2005
Net income
Depreciation
Other
Working Capital Chg
$152
525
19
0
(65)
(27)
$604
$716
406
23
0
(146)
(135)
$864
Capex
Asset disposal (acqui
Other
Cash from investing
($127)
50
625
$549
($182)
74
276
$169
Change in LT debt
Preferred issuance
Common issuance
Dividend Paid
Other
Cash flow financing
Chg in cash
Beginning cash
Ending cash
341
($1,207)
($880)
0
0
30
(170)
0
0
1
11
($1,176) ($1,039)
($23)
473
$451
($6)
451
$445
2006
$1,385
401
16
0
(478)
(87)
$1,237
2007
$3,131
499
119
0
(418)
(258)
$3,073
2008
$4,202
1,436
63
336
(757)
(321)
$4,959
2009
$3,170
1,464
104
334
92
434
$5,598
($876) ($1,380) ($2,208) ($3,052)

461
379
(42)
18
0
(4,676)
54
340
($415) ($5,677) ($2,196) ($2,694)
$1,700
0
(2,532)
0
32
($800)
$22
445
$467
$13,466
($3,086) ($2,739)
0
0
0
(10,087)
51
27
0
0
0
(1)
(6)
(25)
$3,378 ($3,041) ($2,737)
$774
467
$1,241
($278)
1,241
$963
$167
963
$1,130
2010
$988
1,589
115
1,012
(167)
409
$3,946
2011
($5,632)
1,449
142
5,229
(148)
745
$1,785
($1,411) ($1,020)
60
202
630
(1,078)
($721) ($1,896)
($704)
0
(240)
0
(17)
($961)
$2,264
1,130
$3,394
2012
($221)
1,123
142
1,126
26
512
$2,708
2013
$1,407
1,109
151
95
(28)
(816)
$1,918
2014E
2015E
$1,624
1,152
151
65
(31)
(994)
$1,967
$1,111
1,242
163
0
(167)
(113)
$2,235
($1,409) ($2,238) ($2,626) ($1,972)

958
378
235
0
62
202
(12)
0
($389) ($1,658) ($2,403) ($1,972)
$442
($941) ($1,692)
($255)
($24)
0
0
0
0
0
1,211
0
0
0
0
(763)
(278)
(606)
(1,019)
(1,097)
(156)
17
147
64
(28)
$734 ($1,202) ($2,151) ($1,210) ($1,149)
$623
3,394
$4,017
$1,117
4,017
$5,134
($1,891)
5,134
$3,243
($1,647)
3,243
$1,596
($886)
1,596
$710
October 14, 2014
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
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, TCWs 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 Canadas upcoming winter drilling season looks strong, with TCW forecasting 10% Y-Y
increase in activity and higher pricing from LNG-related work. Tricans 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.
342
October 14, 2014
Trican Well Service

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 companys 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 Tricans fracturing fleets are fueled by a combination of natural gas sourced on site and
diesel, which can generate significant cost savings for customers.
13x
TCW
12x
Production & Completion

Services
11x
TCW current trades at 5.6x, a 17%

10x
9x
8x
7x
6x
5x
4x
3x
'06
'07
343
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Trican Well Service

2007
Revenues
Canada
United States
Russia
Total revenues
2008
2009
2011
2012
2013
2014E
2015E
$858
361
858
$1,478
$1,283
739
1,283
$2,310
$1,139
798
1,139
$2,213
$1,021
769
1,021
$2,115
$1,199
1,093
1,199
$2,656
$1,429
1,432
1,429
$3,252
$474
106
474
$836
$555
166
555
$1,016
(339)
(59)
(200)
(4)
($603)
(38)
$195
(63)
$132
(9)
22
$146
(31)
(3)
$112
(405)
(126)
(241)
(8)
($780)
(54)
$182
(93)
$88
(14)
8
$83
(23)
(0)
$60
Per Share Data

Diluted Earnings
Dividend
$0.91
$0.10
$0.48
$0.10
($0.07)
$0.10
$1.08
$0.10
$2.30
$0.10
$0.36
$0.20
($0.22)
$0.30
($0.03)
$0.30
$0.95
$0.30
Margins Summary
Canada
United States
International
Companywide
EBITDA margin
28%
44%
22%
28%
23%
27%
24%
19%
23%
18%
19%
3%
20%
15%
9%
36%
21%
13%
27%
22%
38%
28%
13%
31%
27%
29%
-1%
13%
15%
11%
22%
6%
12%
14%
9%
20%
10%
17%
14%
9%
23%
16%
21%
19%
14%
Expenses
Canada
United States
International
Corporate Exp
Operating Expenses
G&A
EBITDA
D&A
Operating Income
Interest Expense
Other
Pretax income
Income Tax Expense
Minority Interest
Net income
344
$416
157
416
$811
2010
(336)
(552)
(791)
(804)
(793)
(961)
(1,099)
(153)
(285)
(536)
(806)
(719)
(988)
(1,204)
(192)
(225)
(250)
(239)
(291)
(302)
(310)
(9)
(15)
(22)
(24)
(25)
(28)
(35)
($690) ($1,077) ($1,598) ($1,873) ($1,826) ($2,280) ($2,648)
(52)
(69)
(97)
(100)
(109)
(148)
(161)
$70
$332
$615
$243
$182
$229
$443
(97)
(111)
(127)
(153)
(213)
(205)
(205)
($27)
$221
$488
$90
($31)
$24
$238
(10)
(9)
(20)
(30)
(35)
(40)
(43)
7
(1)
10
(1)
6
1
0
($30)
$211
$478
$58
($60)
($15)
$195
21
(59)
(140)
(5)
26
9
(52)
0
0
0
0
1
2
2
($9)
$152
$339
$54
($32)
($4)
$145
October 14, 2014
Trican Well Service

2013
1Q13
Revenues
Canada
United States
Russia
Total revenues
2Q13
3Q13
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$339
211
339
$618
$116
202
116
$397
$280
183
280
$548
$287
173
287
$552
$353
211
353
$643
$172
268
172
$535
$335
308
335
$731
$339
306
339
$748
$418
346
418
$853
$203
367
203
$670
$393
359
393
$845
$415
360
415
$884
(241)
(186)
(68)
(7)
($502)
(30)
$86
(47)
$39
(8)
4
$34
(10)
0
$25
(121)
(187)
(71)
(5)
($384)
(27)
($15)
(51)
($66)
(9)
3
($71)
21
0
($51)
(201)
(171)
(72)
(6)
($449)
(26)
$75
(55)
$21
(9)
(6)
$6
2
0
$8
(229)
(175)
(81)
(7)
($491)
(26)
$36
(61)
($25)
(9)
6
($28)
14
0
($14)
(283)
(205)
(73)
(6)
($568)
(33)
$42
(53)
($10)
(10)
5
($16)
7
1
($8)
(172)
(247)
(74)
(6)
($498)
(35)
$1
(49)
($48)
(10)
(4)
($61)
17
0
($43)
(253)
(269)
(72)
(8)
($601)
(40)
$89
(50)
$39
(10)
0
$29
(7)
0
$22
(253)
(267)
(83)
(8)
($612)
(40)
$96
(53)
$43
(10)
0
$33
(8)
0
$25
(309)
(295)
(72)
(9)
($685)
(43)
$125
(53)
$72
(12)
0
$60
(15)
0
$46
(201)
(305)
(79)
(7)
($593)
(38)
$40
(52)
($12)
(10)
0
($23)
7
0
($15)
(287)
(301)
(74)
(9)
($672)
(40)
$134
(51)
$83
(10)
0
$72
(20)
0
$53
(302)
(302)
(85)
(9)
($699)
(40)
$145
(49)
$96
(10)
0
$85
(24)
0
$62
Per Share Data

Diluted Earnings
Dividend
$0.17
$0.15
($0.34)
$0.00
$0.05
$0.15
($0.10)
$0.00
($0.06)
$0.15
($0.29)
$0.00
$0.15
$0.15
$0.17
$0.00
$0.30
$0.15
($0.10)
$0.00
$0.35
$0.15
$0.40
$0.00
Margins Summary
Canada
United States GM
International
Companywide
EBITDA margin
29%
12%
2%
19%
14%
-5%
7%
10%
3%
-4%
28%
7%
19%
19%
14%
20%
-1%
12%
11%
6%
20%
3%
7%
12%
7%
0%
8%
22%
7%
0%
24%
13%
19%
18%
12%
25%
13%
19%
18%
13%
26%
15%
19%
20%
15%
1%
17%
21%
12%
6%
27%
16%
20%
21%
16%
27%
16%
22%
21%
16%
Expenses
Canada
United States
International
Corporate Exp
Operating Expenses
G&A
EBITDA
D&A
Operating Income
Interest Expense
Other
Pretax income
Income Tax Expense
Minority Interest
Net income
345
October 14, 2014
Trican Well Service

2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$23
138
93
21
$276
555
167
1
41
9
$1,049
$56
232
108
33
$428
632
36
86
39
12
$1,233
$26
181
91
9
$307
535
37
105
28
18
$1,030
$81
365
107
15
$568
700
37
74
21
13
$1,413
$126
608
174
34
$941
1,178
44
33
15
6
$2,217
$114
437
212
34
$796
1,459
44
76
10
12
$2,397
$64
459
233
40
$796
1,374
59
123
44
17
$2,414
$49
598
299
54
$1,000
1,270
59
142
40
14
$2,525
$109
707
353
63
$1,232
1,148
59
142
40
14
$2,636

Short-Term Debt
$16
Trade and Other Payables
71
Other
8
Current liabilities
$94
LT debt
189
Deferred Tax Liabilities
68
Other
15
Total liabilities
$365
$684
Total
$1,049
$61
117
8
$187
242
82
2
$513
$720
$1,233
$29
98
15
$141
176
65
0
$383
$647
$1,030
$0
209
0
$209
107
98
0
$414
$999
$1,413
$25
288
6
$319
400
132
0
$852
$1,366
$2,217
$9
229
11
$249
695
77
0
$1,021
$1,376
$2,397
$80
302
1
$382
594
87
0
$1,063
$1,351
$2,414
$45
409
0
$454
707
84
0
$1,245
$1,280
$2,525
$50
483
0
$533
707
80
0
$1,321
$1,315
$2,636
2009
2010
2011
2012
2013
2014E
2015E
Assets
Cash & equivalents
Accounts receivable
Inventories
Other
Current assets
PP&E
Goodwill
Intangible Assets
Other
Total assets

2007
Net Income
Stock-based compensation
Other
Working Capital Chg
2008
$112
63
13
(55)
(1)
$131
($71)
93
12
132
(67)
$99
($9)
97
10
(63)
65
$99
$152
111
12
58
(139)
$192
$339
127
12
74
(241)
$311
$53
153
10
(88)
59
$186
($47)
222
8
(54)
42
$172
($5)
205
4
(51)
(127)
$26
$145
205
0
(69)
(97)
$184
Sale of PP&E
Acquisitions
Other
Cash from investing
($160)
0
(256)
(11)
($427)
($124)
0
(22)
(17)
($164)
($46)
3
(3)
8
($38)
($279)
1
(6)
27
($257)
($574)
2
(9)
1
($580)
($445)
3
0
1
($440)
($108)
7
(37)
1
($137)
($106)
1
0
2
($103)
($84)
0
0
0
($84)
Change in Equity
Change in Debt
Dividend paid
Other
Cash flow financing
$21
218
(12)
(0)
$226
$35
76
(12)
(1)
$97
$0
(78)
(13)
(0)
($90)
$230
(97)
(13)
0
$120
$33
294
(15)
0
$313
($9)
279
(29)
0
$241
$1
(42)
(44)
0
($85)
$9
98
(45)
0
$62
$0
5
(46)
0
($41)
(2)
(1)
(1)
($71)
95
$23
$33
23
$56
($30)
56
$26
$55
26
$81
$45
81
$126
($12)
126
$114
($50)
114
$64
($15)
64
$49
$60
49
$109
FX and other
Chg in cash
Beginning cash
Ending cash
346
October 14, 2014
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 Shipyards 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
Singapores 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 industrys 2-3x average.
Outlook for 2015
The Aquamarine Driller is scheduled to roll off its $155kpd contract with Petronas Carigali next month
and were 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 were 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.
347
October 14, 2014
Vantage Drilling
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 $510kpd 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 JVs $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.
10x
VTG current trades at 6.6x, a 14% premium

to the group's 5.8x average but only a 4%
9x
8x
7x
6x
5x
4x
3x
VTG
2x
Offshore Drillers
1x
'06
'07
348
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Vantage Drilling
2007
Revenues
Floaters
Jackups
Other
Total revenues
Expenses
Floaters
Jackups
Other
Operating costs
G&A
EBITDA
D&A
Other
Operating income
Loss on Debt Extinguishment
Interest income
Interest expense
Other income
Pretax income
Taxes
Net income
Per Share Data
Diluted Earnings
Dividend
Margins Summary
Gross margins
EBITDA margins
Operating margins
349
$0
2008
$1
2009
$111
2010
$278
2011
$485
2012
$471
2013
2014E
2015E
$732
$557
237
24
$819
$642
226
0
$867
($231)
(139)
0
($370)
(51)
$446
(129)
0
$317
0
0
(213)
0
$104
(43)
$61
$0
(1)
($1)
(0)
0
($1)
0
0
0
8
$7
(2)
$4
($5)
(9)
($14)
(0)
(38)
($52)
0
4
(0)
0
($48)
1
($47)
($66)
(16)
$30
(11)
0
$18
0
0
(8)
1
$11
(2)
$9
($176)
(22)
$80
(33)
0
$47
(28)
1
(50)
2
($29)
(19)
($48)
($284)
(26)
$175
(64)
0
$110
(25)
0
(155)
1
($69)
(11)
($80)
($230)
(26)
$215
(69)
0
$147
(3)
0
(149)
1
($4)
(19)
($23)
($331)
(33)
$369
(107)
0
$262
0
0
(214)
2
$50
(31)
$18
($197)
(113)
(46)
($356)
(36)
$426
(127)
0
$299
0
0
(217)
0
$83
(29)
$53
$0.13
$0.00
($0.76)
$0.00
$0.09
$0.00
($0.18)
$0.00
($0.28)
$0.00
($0.08)
$0.00
$0.06
$0.00
$0.16
$0.00
$0.20
$0.00
41%
27%
16%
37%
29%
17%
41%
36%
23%
51%
46%
31%
55%
50%
36%
56%
52%
37%
57%
51%
37%
October 14, 2014
Vantage Drilling
2013
1Q13
2Q13
3Q13
Revenues
Floaters
Jackups
Other
Total revenues
$147
$171
$176
Expenses
Floaters
Jackups
Other
Operating costs
G&A
EBITDA
D&A
Other
Operating income
Loss on Debt Extinguishment
Interest income
Interest expense
Other income
Pretax income
Taxes
Net income
$0
0
(75)
($75)
(7)
$64
(25)
0
$39
0
0
(60)
1
($19)
(6)
($25)
$0
0
(77)
($77)
(7)
$86
(25)
0
$61
0
0
(51)
1
$11
(7)
$4
($0.08)
$0.00
49%
44%
27%
Per Share Data

Diluted Earnings
Dividend
Margins Summary
Gross margins
EBITDA margins
Operating margins
350
4Q13
1Q14
2Q14
2014
3Q14E
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$239
$159
62
12
$232
$145
62
13
$220
$136
58
0
$194
$117
56
0
$173
$157
57
0
$214
$160
55
0
$215
$162
55
0
$217
$162
59
0
$221
$0
0
(79)
($79)
(9)
$88
(25)
0
$63
0
0
(47)
0
$16
(7)
$8
$0
0
(99)
($99)
(9)
$130
(32)
0
$98
0
0
(56)
(1)
$42
(11)
$30
($56)
(24)
(22)
($102)
(8)
$123
(32)
0
$91
0
0
(54)
1
$37
(12)
$25
($51)
(22)
(24)
($98)
(8)
$113
(32)
0
$82
0
0
(54)
(1)
$27
(11)
$16
($49)
(33)
0
($83)
(9)
$102
(32)
0
$70
0
0
(54)
0
$16
(6)
$10
($40)
(33)
0
($74)
(10)
$88
(32)
0
$56
0
0
(54)
0
$3
(1)
$2
($54)
(34)
0
($88)
(11)
$115
(32)
0
$83
0
0
(54)
0
$29
(11)
$19
($57)
(35)
0
($92)
(12)
$111
(32)
0
$79
0
0
(53)
0
$26
(11)
$15
($58)
(35)
0
($94)
(13)
$110
(32)
0
$78
0
0
(53)
0
$24
(11)
$14
($61)
(36)
0
($96)
(14)
$110
(33)
0
$77
0
0
(53)
0
$24
(11)
$13
$0.01
$0.00
$0.03
$0.00
$0.10
$0.00
$0.06
$0.00
$0.05
$0.00
$0.03
$0.00
$0.01
$0.00
$0.06
$0.00
$0.05
$0.00
$0.04
$0.00
$0.04
$0.00
55%
51%
36%
55%
50%
36%
58%
54%
41%
56%
53%
39%
55%
52%
37%
57%
52%
36%
57%
51%
33%
59%
54%
39%
57%
52%
37%
57%
51%
36%
56%
50%
35%
October 14, 2014
Vantage Drilling
2007
Assets
Cash & equivalents
Restricted cash
Accounts receivable
Inventories
Prepaid expenses & other
Current assets
PPE
Goodwill
Investments in JV
Other
Total assets
$1
273
0
0
0
$274
0
0
0
1
$276

Accounts payable
Accrued expenses
Other
Current liabilities
Total debt
Deferred taxes
Total liabilities
Common stock
Total
0
9
0
$9
0
0
79
$89
0
187
$276
2008
2009
2010
2011
2012
2013
2014E
2015E
$17
2
3
0
2
$24
631
0
0
11
$665
$16
29
18
11
8
$81
888
0
120
29
$1,119
$120
29
50
20
11
$231
1,718
0
0
54
$2,003
$110
7
101
24
17
$259
1,805
0
0
317
$2,123
$503
4
119
38
25
$689
2,718
0
0
124
$3,530
$55
2
169
56
24
$305
3,191
0
0
133
$3,628
$36
0
122
61
15
$233
3,111
0
0
115
$3,460
$94
0
156
61
19
$330
3,662
0
0
115
$4,107
4
15
0
$19
150
0
0
$169
0
496
$665
16
14
0
$30
412
0
0
$442
0
677
$1,119
32
75
0
$107
1,112
0
13
$1,233
0
770
$2,003
46
104
0
$150
1,246
0
30
$1,426
0
696
$2,123
51
123
0
$174
2,742
0
46
$2,962
0
568
$3,530
67
97
0
$164
2,916
0
43
$3,123
0
505
$3,628
43
76
0
$120
2,736
0
48
$2,903
0
557
$3,460
57
100
0
$156
3,286
0
48
$3,490
0
618
$4,107
2009
2010
2011
2012
2013
2014E
2015E

2007
Net income
Depreciation and amortization
Other
Chg in Working Capital
Capex
Asset sale (acquisitions)
Chg in restricted cash
Other
Cash from investing
Payments on LT debt
Debt issuance costs
Proceeds from share issuance
Other
Cash flow financing
Chg in cash
Beginning cash
Ending cash
351
2008
$4
0
(0)
0
1
$5
($47)
0
(2)
30
14
($6)
$9
11
1
(19)
(32)
($30)
($48)
33
1
39
(10)
$16
($80)
64
(4)
52
(17)
$16
($145)
69
4
35
(112)
($151)
($82)
107
1
19
(98)
($53)
$47
127
(0)
20
20
$214
$61
129
0
0
(2)
$188
($0)
0
(273)
(274)
($274)
($171)
(213)
273
273
($111)
($314)
0
0
(157)
($471)
($566)
(80)
0
0
($646)
($145)
0
0
0
($144)
($874)
0
0
(31)
($905)
($585)
0
0
0
($585)
($60)
0
0
0
($60)
($680)
0
0
0
($680)
$0
0
0
262
8
$270
$139
0
(9)
0
2
$132
$273
(19)
(12)
255
4
$500
$964
(293)
(32)
0
102
$740
$241
(110)
(13)
0
0
$118
$2,527
(1,006)
(72)
0
0
$1,448
$1,230
(1,028)
(30)
0
0
$172
$0
(186)
(0)
0
0
($186)
$750
(200)
0
0
0
$550
$1
0
$1
$15
1
$17
($1)
17
$16
$111
16
$127
($10)
120
$110
$393
110
$503
($466)
503
$37
($32)
55
$23
$58
36
$94
October 14, 2014
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 companys 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. Weatherfords core businesses of well construction, artificial lift, and
formation evaluation should outgrow the market will the companys stimulation business is undergoing
a solid rebound.
352
October 14, 2014
Weatherford
The third quarter cash build is likely to be significant with the sale of the companys 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 companys 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.
28x
WFT current trades at 10.8x,

a -7% discount to the group's
discount to its historical
15.9x.
24x
20x
16x
12x
8x
WFT
Big Four Average
4x
'04
'05
'06
353
'07
'08
'09
'10
'11
'12
'13
'14
October 14, 2014
Weatherford
2004
Revenues
North America
MidEast/N. Africa/Asia
Europe/SSA/Russia
Latin America
Other
Total revenues
EBITDA
D&A
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$1,670
NA
NA
301
1,161
$3,132
$2,401
NA
NA
424
1,509
$4,333
$3,673
1,353
827
726
0
$6,579
$3,937
1,824
1,189
882
0
$7,832
$4,460
2,392
1,539
1,210
0
$9,601
$2,766
$4,164
$6,023
$6,824
$6,390
$6,835
$7,429
2,368
2,450
2,441
2,795
3,344
3,265
3,642
1,616
1,981
2,300
2,519
2,693
3,034
3,441
2,077
1,617
2,227
3,077
2,836
2,352
2,532
0
0
0
0
0
0
0
$8,827 $10,211 $12,991 $15,215 $15,263 $15,486 $17,044
$672
$1,030
$1,849
$2,255
$2,750
$1,695
$2,032
$2,622
$2,682
$2,651
$3,086
$3,792
(256)
(334)
(483)
(606)
(732)
(891)
(1,048)
(1,143)
(1,283)
(1,402)
(1,342)
(1,280)
Operating Income
North America
Europe/SSA/Russia
Latin America
R&D
Corporate
Operating Income
Other
Pretax income
Taxes
Minority interest
Net income
NA
NA
NA
NA
(84)
(56)
$416
($60)
($4)
$352
(92)
0
$260
NA
NA
NA
NA
(107)
(74)
$695
(68)
8
$635
(169)
0
$467
1,028
273
171
133
(149)
(95)
$1,366
(103)
(22)
$1,241
(348)
(4)
$891
1,011
416
288
203
(169)
(106)
$1,648
(172)
(9)
$1,468
(290)
(20)
$1,160
1,125
561
383
277
(193)
(135)
$2,018
(244)
(45)
$1,730
(296)
(34)
$1,400
197
442
252
282
(195)
(174)
$804
(367)
(38)
$400
(10)
(26)
$364
695
282
230
165
(214)
(175)
$983
(406)
(50)
$528
(89)
(15)
$424
1,261
104
306
255
(249)
(198)
$1,479
(453)
(107)
$919
(373)
(13)
$533
1,078
64
315
395
(257)
(196)
$1,399
(486)
(100)
$813
(539)
(28)
$246
822
230
298
365
(266)
(200)
$1,249
(516)
(77)
$656
(162)
(31)
$463
1,094
309
480
317
(279)
(178)
$1,744
(496)
(66)
$1,181
(264)
(45)
$873
1,454
455
690
347
(277)
(157)
$2,512
(485)
(76)
$1,951
(507)
(56)
$1,388
Per Share Data

Diluted Earnings
Dividend
$0.44
$0.00
$0.73
$0.00
$1.25
$0.00
$1.67
$0.00
$2.01
$0.00
$0.51
$0.00
$0.58
$0.00
$0.70
$0.00
$0.32
$0.00
$0.60
$0.00
$1.12
$0.00
$1.75
$0.00
NA
NA
NA
NA
13%
21%
NA
NA
NA
NA
16%
24%
28%
20%
21%
18%
21%
28%
26%
23%
24%
23%
21%
29%
25%
23%
25%
23%
21%
29%
7%
19%
16%
14%
9%
19%
17%
12%
12%
10%
10%
20%
21%
4%
13%
11%
11%
20%
16%
2%
13%
13%
9%
18%
13%
7%
11%
13%
8%
17%
16%
9%
16%
13%
11%
20%
20%
12%
20%
14%
15%
22%
Margins Summary
Operating Margins
North America
Europe/SSA/Russia
Latin America
Total Operating Margins
Total EBITDA Margin
354
October 14, 2014
Weatherford
2013
1Q13
Revenues
North America
$1,692
Middle East/North Afr
785
Europe/SSA/Russia
633
Latin America
727
Other
0
Total revenues
$3,837
EBITDA
D&A
$663
2014
3Q14E
2Q13
3Q13
4Q13
1Q14
2Q14
$1,529
919
681
739
0
$3,868
$1,597
819
691
713
0
$3,820
$1,572
821
688
657
0
$3,738
$1,610
781
664
541
0
$3,596
$1,659
754
750
548
0
$3,711
$627
$744
$617
$637
$754
4Q14E
1Q15E
2015
2Q15E
3Q15E
4Q15E
$1,792
811
760
606
0
$3,969
$1,774
920
860
657
0
$4,210
$1,739
859
797
595
0
$3,990
$1,808
867
863
595
0
$4,132
$1,917
904
836
636
0
$4,294
$1,964
1,011
946
706
0
$4,628
$804
$891
$840
$900
$965
$1,088
(346)
(341)
(352)
(363)
(351)
(355)
(328)
(308)
(311)
(317)
(323)
(329)
Operating Income
North America
Europe/SSA/Russia
Latin America
Research & Developm
Corporate
Operating Income
Other
Pretax income
Taxes
Minority interest
Net income
224
45
65
98
(67)
(48)
$317
(131)
(13)
$173
(48)
(8)
$117
167
66
83
90
(71)
(49)
$286
(128)
(18)
$140
(17)
(7)
$116
215
69
103
115
(65)
(45)
$392
(129)
(30)
$233
(47)
(9)
$177
216
50
47
62
(63)
(58)
$254
(128)
(16)
$110
(50)
(7)
$53
201
54
54
93
(69)
(47)
$286
(126)
(9)
$151
(43)
(9)
$99
252
73
126
68
(75)
(45)
$399
(128)
(19)
$252
(54)
(12)
$186
312
78
127
68
(66)
(42)
$476
(121)
(19)
$336
(72)
(12)
$252
330
105
172
88
(68)
(44)
$582
(121)
(19)
$442
(95)
(12)
$335
316
96
150
73
(66)
(40)
$528
(121)
(19)
$388
(101)
(14)
$273
343
98
173
72
(68)
(37)
$582
(121)
(19)
$442
(115)
(14)
$313
387
111
164
87
(69)
(39)
$642
(121)
(19)
$502
(131)
(14)
$358
408
149
203
115
(74)
(42)
$759
(121)
(19)
$619
(161)
(14)
$444
Per Share Data

Diluted Earnings
Dividend
$0.15
$0.00
$0.15
$0.00
$0.23
$0.00
$0.07
$0.00
$0.13
$0.00
$0.24
$0.00
$0.32
$0.00
$0.43
$0.00
$0.35
$0.00
$0.40
$0.00
$0.45
$0.00
$0.55
$0.00
13%
6%
10%
13%
8%
17%
11%
7%
12%
12%
7%
16%
13%
8%
15%
16%
10%
19%
14%
6%
7%
9%
7%
17%
12%
7%
8%
17%
8%
18%
15%
10%
17%
12%
11%
20%
17%
10%
17%
11%
12%
20%
19%
11%
20%
13%
14%
21%
18%
11%
19%
12%
13%
21%
19%
11%
20%
12%
14%
22%
20%
12%
20%
14%
15%
22%
21%
15%
21%
16%
16%
24%
Margins Summary
Operating Margins
North America
Europe/SSA/Russia
Latin America
Total Operating Margi
Total EBITDA Margin
355
October 14, 2014
Weatherford
2004
Assets
Cash & equivalents
Accounts Receivable
Inventories
Other
Total Current Assets
PPE
Goodwill
Investments
Other
Total assets
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
$317
742
680
204
$1,943
1,377
1,670
170
383
$5,543
$134
$126
$171
$238
$253
$416
$371
$300
$435
$354
$280
1,260
1,561
1,962
2,443
2,505
2,619
3,235
3,885
3,594
3,705
4,073
890
1,239
1,608
2,088
2,240
2,592
3,158
3,675
3,371
3,818
4,197
355
434
732
801
1,143
1,336
935
1,169
1,374
2,771
3,046
$2,639
$3,360
$4,472
$5,570
$6,141
$6,962
$7,699
$9,029
$8,774 $10,647 $11,595
2,367
3,004
4,154
5,922
6,992
6,940
7,283
8,299
8,368
7,204
7,723
3,430
3,607
3,358
4,232
4,935
4,926
5,133
4,637
4,335
4,044
4,044
37
0
369
516
543
540
616
646
296
262
262
108
168
838
236
256
247
454
184
204
201
201
$8,580 $10,139 $13,191 $16,477 $18,866 $19,615 $21,185 $22,795 $21,977 $22,358 $23,825

Short-Term Debt
$22
Accounts Payable
280
Other Accrued Liabilities
358
Total Current Liabilities
$660
Long-Term Debt
1,404
Minority Interest
0
Deferred Tax and Other
31
Other Liabilities
135
Total Liabilities
$2,230
Shareholders Equity
$3,313
Total
$5,543
$955
$649
$774
$1,256
$870
$235
$1,320
$1,585
$1,666
$2,404
$2,404
476
512
613
886
1,002
1,335
1,567
2,108
2,091
2,067
2,352
567
882
815
880
925
994
1,326
2,017
1,942
1,787
1,960
$1,998
$2,043
$2,202
$3,022
$2,797
$2,564
$4,213
$5,710
$5,699
$6,258
$6,715
632
1,565
3,066
4,564
5,847
6,530
6,286
7,049
7,061
6,521
6,521
0
(4)
(20)
(34)
(26)
(15)
(13)
(28)
(31)
(45)
(56)
88
136
197
229
0
0
0
0
0
0
0
195
220
318
296
423
563
1,133
1,218
1,014
941
941
$2,913
$3,964
$5,784
$8,110
$9,067
$9,657 $11,632 $13,977 $13,774 $13,720 $14,177
$5,667
$6,175
$7,407
$8,366
$9,799
$9,958
$9,553
$8,818
$8,203
$8,638
$9,648
$8,580 $10,139 $13,191 $16,477 $18,866 $19,615 $21,185 $22,795 $21,977 $22,358 $23,825

2004
Net income
Depreciation
Other
Working Capital Chg
$330
256
0
(64)
(18)
$503
2005
$467
334
0
18
(317)
$503
2006
$896
483
0
7
(299)
$1,087
2007
$1,071
606
29
(833)
0
$873
2008
$1,354
732
(41)
9
(949)
$1,105
2009
$280
907
(110)
54
(516)
$614
2010
$246
1,048
(112)
219
(406)
$995
2011
$278
1,135
149
162
(891)
$833
2012
($750)
1,282
(13)
1,024
(322)
$1,221
2013
($314)
1,402
(33)
438
(264)
$1,229
2014E
$423
1,342
16
301
(1,518)
$564
2015E
$1,388
1,280
0
0
(943)
$1,726
Capex
Acquisition
Other
Cash from investing
($331)
($527) ($1,071) ($1,635) ($2,484) ($1,569)
(26)
(991)
(194)
(275)
(799)
(10)
253
263
23
(323)
273
62
($105) ($1,255) ($1,242) ($2,233) ($3,010) ($1,517)
Change of Debt
Change in Equity
Other
Cash flow financing
($268)
128
(0)
($140)
$380
191
(2)
$569
$623
(479)
4
$148
$1,589
(212)
25
$1,402
$1,956
10
11
$1,978
$834
0
72
$906
$43
0
(7)
$36
$798
0
(2)
$796
$990
65
(43)
$1,012
$12
0
(6)
$6
$202
22
(2)
$222
$0
0
0
$0
$0
$0
$0
$0
($4)
$11
($23)
($0)
$2
$4
$7
$0
$48
$307
$307
$124
$124
$116
$116
$157
$229
$232
$232
$414
$414
$369
$369
$298
$298
$433
$433
$351
$351
$277
Effect of Exchange Rate

Beginning cash
Ending cash
356
$157
$229
($977) ($1,524) ($2,177) ($1,575)

(58)
(144)
(165)
471
209
(6)
36
0
($826) ($1,674) ($2,306) ($1,104)
($1,414) ($1,800)
517
0
23
0
($874) ($1,800)
Appendix
357
October 14, 2014
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 worlds refineries, and has served 24 of the
25 largest refining companies, including ExxonMobil, Petrobas and Chevron.
Products
Aspens 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. Aspens business is divided into two segments: Products and Research
Services. The Products unit ultimately defines the company and accounts for
approximately 95% of revenues.
358
October 14, 2014
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.
359
October 14, 2014
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 companys strength lies in its cutting edge tools,
equipment and product offerings, including drill bits, specialty chemicals, electric
submersible pumps and completion tools.
Bakers international presence has been expanding in recent years, and the company
now has operations in over 80 countries. The companys 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. Bakers geomarket structure
was implemented in 2009, the latest among its big four counterparts, so there may be
some lingering growing pains.
Segments
Bakers 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 companys 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 segments
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.
360
October 14, 2014

Company Description
Basic Energy is a diversified oilfield services company that offers products and
services for every stage of the wells 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.
361
October 14, 2014
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. Bristows 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. Bristows 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.
362
October 14, 2014
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 companys 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&Js 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&Js 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.
363
October 14, 2014

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 companys core competency.
Calfracs 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
Calfracs 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.
Calfracs 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.
364
October 14, 2014
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.
365
October 14, 2014
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 worlds 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. CARBOs 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.
366
October 14, 2014
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 companys 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 Charts cryogenic and lowtemperature storage expertise. The D&S unit is Charts 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.
367
October 14, 2014
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 CHCs 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 companys core
focus, generating roughly 90% of the companys 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 multiyear of purchase 28 new helicopters to service deepwater and ultra-deepwater
locations, as exploration and drilling efforts continue to move farther offshore.
368
October 14, 2014
Core Laboratories
Company Description
Core Laboratories is a leading provider of proprietary and patented reservoir
description, production enhancement, and reservoir management services. Core
Labs 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 companys 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 Labs is able to assist customers increase production and recovery from
reservoirs.
369
October 14, 2014
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 companys 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 ultradeepwater 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 firms 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.
370
October 14, 2014
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.
Dressers 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 lions share of the segments 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.
371
October 14, 2014
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-Quips 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.
372
October 14, 2014
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
Enscos floater fleet is 14 years currently, but will fall to just nine years with
managements 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.
373
October 14, 2014

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 companys 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
Ensigns 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 ADRs 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 companys oilfield rental equipment
business was effectively doubled following a significant asset purchase from the
Enviro Group of Companies in 2013.
374
October 14, 2014
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, dryleasing 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.
375
October 14, 2014
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
countrys 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 companys 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.
376
October 14, 2014
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 FTIs 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.
377
October 14, 2014

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 lions 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.
378
October 14, 2014
Company Description
Franks 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. Franks tends to bolster its global
presence via strategic acquisitions in foreign markets, executing more than 50
transactions since 1982.
Franks 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
Franks 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 companys 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 countrys 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.
379
October 14, 2014
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
Gulfmarks 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.
380
October 14, 2014
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 companys
growth strategy remains focused on deepwater, unconventional and mature assets.
HALs 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
Halliburtons 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 HALs 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.
381
October 14, 2014
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
companys largest international exposure, currently with seven active rigs and six
additional FlexRigs in transit.
The companys offshore fleet consists of nine offshore platform rigs primarily
operated in the Gulf of Mexico, with operations offshore California and Equatorial
Guinea as well.
382
October 14, 2014
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
companys 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 companys 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
companys 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 selfelevating 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.
383
October 14, 2014
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 companys fifth OSV newbuild program,
expected to cost approximately $1.25B.
The U.S. GoM continues to serve as Hornbecks 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, Hornbecks 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.
Hornbecks 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.
384
October 14, 2014
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 1500s, 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 MidContinent region, the company is currently operating only in the Permian Basin with
intermediate plans to expand to adjacent basins.
385
October 14, 2014
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. IONs products and
services are used by E&P operators and seismic contractors to generate highresolution 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 companys other segments,
providing a more predictable revenue stream. IONs 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 companys fastest growing
segment since 2006.
386
October 14, 2014
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.
387
October 14, 2014
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 thirdparty 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.
388
October 14, 2014
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 companys scale was largely achieved through a series of strategic acquisitionsan average of one per year for the past five years- aimed to increase the scope and
reach of the companys 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
companys 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, wellservicing 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.
389
October 14, 2014

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 spinoff 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 NOVs 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 companys lowest margin segment, with
operating margins typically less than 14%.
390
October 14, 2014
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 companys 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 Corps 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).
391
October 14, 2014

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 Russias 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 companys 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 Rosnefts land drilling operation.
392
October 14, 2014
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 Varcos 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 lions 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 segments
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.
393
October 14, 2014
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 dualderrick 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.
394
October 14, 2014
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 regions 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.
395
October 14, 2014
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).
396
October 14, 2014
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 Nobles standard-spec business.
Paragons 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 Paragons contract backlog.
Fleet
Paragons 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)
397
October 14, 2014
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 companys 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 Parkers 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.
Parkers 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.
398
October 14, 2014
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.
399
October 14, 2014
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
Precisions 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 companys
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.
Precisions 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.
400
October 14, 2014
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 companys
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 Rowans 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 companys 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 companys international presence. In November,
the Rowan Resolute will be deployed in the Gulf of Mexico on a three year contract
with Anadarko through 2017.
401
October 14, 2014
Schlumberger
Company Description
Schlumberger is the worlds 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. Schlumbergers 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
Schlumbergers 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.
402
October 14, 2014
SEACOR Holdings
Company Description
SEACOR Holdings primarily operates as a provider of marine services and equipment
to the international energy and agricultural industries. SEACORs 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. SEACORs
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 SEACORs 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.
403
October 14, 2014
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, semisubmersibles 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 companys 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 companys
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.
404
October 14, 2014

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.
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.
405
October 14, 2014

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 companys 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.
406
October 14, 2014
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.
407
October 14, 2014
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. TETRAs 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.
408
October 14, 2014
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 companys 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
Thermons 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.
409
October 14, 2014
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.
Tidewaters 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 Tidewaters presence in the North Sea and the harsh environment
capabilities of the fleet.
Fleet
The deepwater class of vessels contributed 55% of the companys 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.
410
October 14, 2014
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 ultradeepwater 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 highspecification KFELS jackups, all expected for delivery in 2016 or later and are not yet
under contract.
411
October 14, 2014
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.
Tricans 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.
412
October 14, 2014
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 companys 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.
413
October 14, 2014
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. Weatherfords
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
companys 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 companys bread and butter,
generating approximately 20% of total revenues while occupying a fortified position
as the market leader.
414
October 14, 2014
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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.
415
October 14, 2014
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)
$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).
the economic climate, OPEC behavior, increasing non-OPEC oil production, and international political and
economic risks.
416
October 14, 2014
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).
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&Js 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 companys 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).
Cameron International (CAM)
CARBO Ceramics (CRR)
Valuation Methodology: Our price target of $62 is based on 16.5x our 2015 EPS estimate of $3.75
Chart Industries Inc. (GTLS)
Valuation Methodology: Our price target of $72 is based on 19.0x our 2015 EPS estimate of $3.80.
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).
417
October 14, 2014

Valuation Methodology: Our price target of $151 is based on 21.5x our 2015 EPS estimate of 7.03.
the economic climate, gas storage levels, OPEC behavior, increasing non-OPEC oil production and international
Valuation Methodology: Our price target of $151 is based on 21.5x our 2015 EPS estimate of 7.03.
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).
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).
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
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)
$13.3 billion and 2015 EBITDA of $2.27 billion).
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).
418
October 14, 2014
Era Group
Exterran Holdings Inc. (EXH)
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)
political and economic risks. A protracted downturn in the airline industry could have a adverse impact on the
company's earnings.
Forum Technologies (FET)
Frank's International (FI)
NOW Inc. (DNOW)
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
GulfMark Offshore, Inc. (GLF)
419
October 14, 2014
Halliburton Co. (HAL)

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).
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).
Hornbeck Offshore Services (HOS)
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).
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 IONs legacy
business and INOVA joint venture with BGP Inc.
420
October 14, 2014
Key Energy Services (KEG)

Valuation Methodology: Our price target of $5 price target is based on 5.1x our 2015 EV/EBITDA estimate
MRC Global (MRC)
Nabors Industries (NBR)
the economic climate, OPEC behavior, increasing non-OPEC oil production, and international political and
economic risks.
National Oilwell Varco (NOV)
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).
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).
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.
421
October 14, 2014
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).
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)
Pacific Drilling SA (PACD)
$4.2bn and 2015E EBITDA of $716MM).
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)
Pacific Drilling (PACD)
422
October 14, 2014
Paragon Offshore (PGN)

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)
geopolitical and economic risks. The company also has international exposure to potentially politically and
economically unstable environments which could impact earnings.
geopolitical and economic risks.
Precision Drilling (PD CN / PD.TO)
geopolitical and economic risks
Rowan Companies (RDC)
Schlumberger Ltd. (SLB)
423
October 14, 2014
SEACOR (CKH)
Valuation Methodology: Our 12-month price target of $85 is based on 1.25x target forward book value multiple.
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.
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).
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.
geopolitical and economic risks..
Tenaris S.A. (TS)
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)
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 companys 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).
Transocean Ltd. (RIG)
424
October 14, 2014
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
Vantage Drilling (VTG)
Valuation Methodology: Our price target of $1 is based on 6.6x EV/EBITDA multiple (Enterprise value of $3.1
Weatherford International (WFT)
Valuation Methodology: Our price target of $29 is based on 16.5x our 2015 earnings estimate of $1.75.
425

ISI Evercore OFS Initiation

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ISI Evercore OFS Initiation

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October 14, 2014

Oil Services, Equipment & Drilling

Initiating Coverage: Near-Term Industry Growth Increasingly Shifting West!

October 14, 2014

Our Key Calls in this Report

The Group is Oversold; Buying Opportunity

The State of the Oil Service Industry

Oil Market Outlook

North America Natural Gas Outlook

The Major Themes

Aspen Aerogels (ASPN)

October 14, 2014

North Atlantic Drilling (NADL)

Production and Completion Services

SMID Cap Niche Technology

SMID Cap Capital Equipment

Large Cap Capital Equipment

SMID Cap Diversified Services

October 14, 2014

October 14, 2014

Our Key Calls in this Report

The Group is Oversold; Buying Opportunity

October 14, 2014

We Believe the Stocks are Bottoming

Sell-Off has Created Opportunities in Select Stocks

October 14, 2014

Source: ISI Energy Research, Bloomberg

Source: ISI Energy Research, Bloomberg

October 14, 2014

Investor Allocations To Energy Have Recently Diminished

Institutional equity sector allocation

Source: ISI Research

Forward P/Es for the Big Four are Attractive

The "big four" diversified services

Source: ISI Energy Research, Bloomberg

October 14, 2014

Production & Completion Services

Onshore Drillers historically trades at a

Source: ISI Energy Research, Bloomberg

Capital Equipment Multiples Exhibit some Value

Source: ISI Energy Research, Bloomberg

October 14, 2014

Despite Substantial Underperformance Offshore Drillers are Not Cheap

Offshore drillers are trading at 5.8x, only a 13%

Source: ISI Energy Research, Bloomberg

Niche Offshore Technology Providers are Attractive

Source: ISI Energy Research, Bloomberg

October 14, 2014

Offshore Support Outlook Remains Healthy & Multiples could Improve

Offshore Support companies are generally trading in

Source: ISI Energy Research, Bloomberg

The State of the Oil Service Industry

October 14, 2014

Global E&P Spending Levels have Entered a New Paradigm

Rest of the World

October 14, 2014

Global E&P Spending Heading Towards $1 Trillion/Yr by 2020

Rest of the World

Source: ISI Energy Research