GoM JPM

North America Equity Research
24 May 2010
Offshore Drillers
Lowering Offshore Driller Numbers as Deepwater
Costs Likely Climb
With changes to deepwater drilling clearly on they way, we’ve made our Oilservice
first pass at quantifying the impact to the Oilfield Service industry. While J. David Anderson, PE, CFA
AC
many of the potential changes will likely be positive in the medium and (1-212) 622-6684
longer term, we see a number of negative implications for Offshore jdavid.anderson@jpmchase.com
Drillers over the next several years, causing us to reduce our estimates and Adam Aron
price targets for the group. (1-212) 622-0144
adam.aron@jpmchase.com
• Looking toward the North Sea for guidance. The stricter
Samantha Hoh, CFA
environmental safety standards employed in the North Sea could be (1-212) 622-5248
adopted in the U.S. Gulf, potentially becoming best practice globally. samantha.k.hoh@jpmchase.com
Higher rated BOPs, acoustic sensors, more safety procedures, and J.P. Morgan Securities Inc.
greater testing frequency would all contribute to higher costs for drillers.
• Capital equipment increases of up to $20mm per rig. We estimate the
worldwide fleet could need an additional 233 ram and 206 annular BOPs
in order for every rig to have at least two 15kpsi ram and one 10kpsi
annular BOP. This corresponds to about $5.5bn in capital expenditures or
approximately $20mm/rig. The biggest question is the timing of
spending as BOP manufacturers have limited capacity.
• Diamond, Pride, and Noble would be most impacted. Not
surprisingly, older fleets would require the most capital improvements,
crimping free cash flow in future years. We estimate Diamond's free cash
flow could be reduced by as much as 22% in 2011 and 27% in 2012,
putting its special dividend further at risk.
• Cutting estimates and price targets for the group. Taking into account
lower utilization rates for down days, higher maintenance costs, and
increased insurance premiums, we have trimmed our 2011/12 EPS
estimates by 7%/6%. We expect increased capex requirements to
collectively reduce return on capital by over 150bp over the same time
period.
• Still cautious on Offshore Drillers, prefer HAL and SLB here.
Demand for deepwater rigs remains weak, and leading edge dayrates are
poised to move lower through the year. While shares of RIG are
increasingly attractive, we still see downside risk. Instead, we would use
market weakness as an opportunity to own HAL and SLB.
Equity Ratings and Price Targets

Mkt Cap Rating Price Target
Company Symbol ($ mn) Price($) Cur Prev Cur Prev
Diamond Offshore Drilling Inco DO 9,808.30 70.55 UW n/c 79.00 87.00
Ensco plc ESV 5,524.07 38.76 OW n/c 52.00 60.00
Noble Corporation NE 8,294.34 32.42 N n/c 42.00 49.00
Pride International Inc. PDE 4,416.75 25.15 N n/c 30.00 33.00
Transocean Ltd. RIG 19,859.34 59.24 N n/c 80.00 87.00
Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 21 May 10.
See page 25 for analyst certification and important disclosures.

J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision.
J. David Anderson, PE, CFA North America Equity Research
(1-212) 622-6684 24 May 2010
jdavid.anderson@jpmchase.com
Sorting Out the Winners and Losers

Everyone acknowledges that changes in the deepwater are on the way, but figuring
out the true financial impact to Oilfield Service stocks is daunting with so many
unknowns. While politicians and regulators wrangle with the consequences of the
Deepwater Horizon accident, we are starting to get a picture as to the potential
winners and losers over the next several years. But recognize that this is only our first
of many attempts at quantifying the impact to deepwater operations; this is simply
how we see it unfolding as of now.
• Losers – Offshore Drillers. Over the near to medium term, drillers are poised to
see an increase in costs in maintenance, capital equipment, and insurance
premiums. Furthermore, we expect utilization rates to be lower to account for
increased down days related to maintenance and BOP testing. Collectively, we
have lowered our 2011 earnings estimates by 7%, free cash flow by 15%, and
return on capital trimmed by 130bp. Most impacted are Diamond, Noble, and
Pride.
• Winners – Capital Equipment. On BOP upgrades alone, we see up to $5.5 bn in
potential orders, while the aftermarket business for parts and service could easily
double. Manufacturing capacity will be the limiting factor – Cameron, National
Oilwell Varco, and Hydril (GE Oil and Gas) are the only BOP manufacturers.
• Probably a winner, but hard to say right now – Large Cap Service. The
biggest near-term negative will likely be a more rigid permitting process to
results in lower activity levels, but this should get worked out over time. Further
out, we see increased technology for decreasing risk and a greater emphasis on
quality control, which should be positives for the group. We also see a potential
for greater services to enhance safety, such as more concrete plugs required. We
haven’t adjusted our numbers for large cap service yet.
Over the longer term, we see deepwater changes as an overall positive for the oilfield
services industry, along with locking in a higher floor for oil prices. History has
shown that higher costs should eventually be passed along in the form of higher
dayrates from rig contractors and overall higher well costs. In the meantime,
predicting changes to regulations and practices is likely a futile exercise, but we'll try
anyway. We broadly see five changes to the industry over the next several years:
• Increased regulation and new procedures. We expect the permitting process to

take considerably longer, while drilling operations will also likely lengthen with
additional procedures to ensure safer drilling operations. Look toward the North
Sea for a guide, which includes more concrete plugs in well design, among other
things.
• Greater use of technologies to minimize risk. Over the past decade,
technologies have focused on improving performance. This is likely to shift
toward reducing risk.
• Changing mix of operators in the deepwater. Raising the strict liability limit
for oil companies from $75mm to $10bn, as some have proposed, would
effectively limit only the super majors from participating in the deepwater Gulf.
2
(1-212) 622-6684 24 May 2010
We expect a limit short of $10bn, but this would undoubtedly change the
economics for many smaller producers, leaving the deepwater to only the super
majors and large independents.
• Higher insurance premiums. Rig contractors are likely to face a 20-30%
increase in insurance premiums. While the spike in insurance premiums
following Hurricane Katrina was short-lived and limited to the Gulf, the new rate
increase is likely to linger longer and expand globally.
• Substantial build-out in capital equipment. We expect greater redundancy and
increased capacity across the board for virtually every critical piece of equipment.
The most obvious is the blowout preventers, which are likely to be retrofitted and
replaced, in many cases. Furthermore, we would expect BOPs to be tested more
frequently, likely doubling the annual maintenance costs for service and spare
parts. Although many in the industry doubt the effectiveness of acoustic switches
on BOPs, that is probably irrelevant—more is better, expect them to be mandated
in the Gulf.
For the most part, we have difficulty quantifying the impact to large cap service
companies. Over the near and medium term, we are most concerned about delays
that may be incurred from an extended permitting process. But taking into account
that this will be limited to the Gulf of Mexico, service companies shouldn’t see too
much of an impact with their diversified revenue streams. We note that during
hurricane seasons, service company earnings are generally impacted by only a few
pennies per share. Furthermore, any reduced activity levels may be offset by an
increased reliance on technologies that reduce risk, along with a greater emphasis on
procedures that could potentially increase service company involvement.
We feel that we have a better handle on the impact to offshore drilling

contractors, which looks rather negative over the next few years. Not only will
contractors likely face higher costs on rising insurance premiums and increased
maintenance, but lower utilization rates are likely as well, particularly with BOPs to
be tested more frequently. Capital equipment requirements over the next several
years will likely be material, reducing free cash flow and lowering returns on capital.
We do not believe these changes will be limited to the Gulf of Mexico but are more
likely to become “best practice” on a global basis.
3
(1-212) 622-6684 24 May 2010
Table 1: Summary Changes to our Models

EPS Before After % Change
2010E 2011E 2012E 2013E 2010E 2011E 2012E 2013E '11 y -y '12 y -y '13 y -y
RIG $8.09 $10.60 $11.39 $11.78 $7.92 $9.77 $10.55 $10.95 -8% -7% -7%
DO 8.30 9.47 10.39 10.67 8.17 8.67 9.58 9.95 -9% -8% -7%
PDE 1.57 3.17 4.65 4.93 1.52 2.84 4.32 4.60 -10% -7% -7%
NE 5.51 5.63 6.16 5.99 5.46 5.37 5.88 5.71 -5% -5% -5%
ESV 4.00 5.65 7.11 8.32 3.94 5.41 6.82 7.97 -4% -4% -4%
Total $27.48 $34.52 $39.69 $41.70 $27.01 $32.06 $37.15 $39.19 -7% -6% -6%
Returns Before After % Change

2010E 2011E 2012E 2013E 2010E 2011E 2012E 2013E '11 y -y '12 y -y '13 y -y
RIG 10% 12% 13% 14% 10% 11% 12% 13% -7% -7% -8%
DO 28% 32% 35% 38% 28% 29% 30% 30% -9% -14% -20%
PDE 5% 9% 12% 12% 5% 8% 11% 11% -11% -9% -10%
NE 20% 20% 23% 23% 20% 19% 21% 21% -5% -7% -11%
ESV 12% 15% 19% 23% 11% 15% 18% 22% -4% -4% -4%
Total 15% 18% 20% 22% 15% 16% 19% 19% -7% -9% -12%
FCF Before After % Change

2010E 2011E 2012E 2013E 2010E 2011E 2012E 2013E '11 y -y '12 y -y '13 y -y
RIG $2,594 $3,557 $4,773 $4,761 $2,567 $3,166 $4,257 $4,094 -11% -11% -14%
DO 1,092 1,225 1,668 1,674 1,083 960 1,226 1,132 -22% -27% -32%
PDE (978) (127) 565 814 (982) (261) 410 559 -105% -27% -31%
NE 939 1,443 1,961 1,967 930 1,245 1,689 1,574 -14% -14% -20%
ESV 21 585 1,097 1,255 22 561 1,063 1,207 -4% -3% -4%
Total $3,667 $6,682 $10,064 $10,472 $3,620 $5,672 $8,644 $8,566 -15% -14% -18%
Source: J.P. Morgan estimates.
The changes to our estimates are predicated on several assumptions, which are likely
to change over the coming quarters – consider this our first iteration.
• Lower utilization rates. We have cut our utilization rates for the industry by
100bp to account for increased downtime related to maintenance procedures and
increased safety testing. The most glaring example is BOP testing, which may
now be done every 7 days instead of every 14 days. As the BOP is owned by the
rig contractor, any downtime related to maintenance is likely to be incurred by
the contractor. As a stress test, an additional 100bp decrease in utilization lowers
2011/12 EPS by about 3% for the group.
• Higher insurance premiums. Rig insurers indicate that insurance premiums
could rise by as much as 20-30% across the board—and not just in the Gulf. In
general, this works out to an incremental approximately $0.5 mm in costs per rig.
• Increased maintenance costs. More stringent regulations will clearly focus on
We estimate equipment maintaining equipment, stressing conservatism in the wake of this accident. Just
upgrades could add $10-20kpd,
looking at BOPs, doubling up the testing would likely double the service and
while additional insurance
premium could add an additional parts required.
$10kpd for a total cost increase
• Capital equipment improvements. Redundancies and higher ratings for
on $20-30kpd.
equipment across the board will likely become standard practice. Clearly this
would be a huge positive for capital equipment companies, particularly Cameron
and National Oilwell Varco, the two leading BOP manufacturers.
4
(1-212) 622-6684 24 May 2010
Start Placing Orders for BOPs

With so much public attention on the blowout preventers, it seems clear that new
standards and regulations will be established. Current designs for BOPs allow for
shear rams to cut through drill pipe only, not joint, tools, or casing. We have long
suspected that the Cameron BOP at Macondo has worked properly, but it may have
encountered a much thicker drill pipe joint. One future solution would be to increase
the shearing capacity of the ram, but this could also be solved by adding another
shear ram. For our analysis, we look toward the harsh environment floaters in the
North Sea as a guide.
Table 2: Transocean Harsh Environment Floaters

Ram BOPs Annular BOPs
Depth Location Year # BOPs Max Psi # BOPs Max psi
Henry Goodrich 5,000 US 2007 3 15,000 1 10,000
Transocean Leader 4,500 N. Sea 1997 2 15,000 1 10,000
Paul B. Loy d, Jr. 2,000 N. Sea 1990 2 15,000 1 10,000
Transocean Arctic 1,700 N. Sea 1986 2 15,000 2 10,000
Polar Pioneer 1,500 N. Sea 1985 2 15,000 1 10,000
Harsh Floaters 2,940 1993 2.2 15,000 1.2 10,000
Source: Company documents, J.P. Morgan.
North Sea harsh environment As shown above, Transocean’s harsh environment floaters have at least 2 ram and 1
floaters typically have at least annular blowout preventer at maximum usable pressure of 15kpsi/10kpsi,
two 15kpsi ram BOPs and one respectively. Therefore, if we assume this becomes the industry standard for
10kpsi annular BOP.
deepwater drilling, companies with the newest fleets like ESV and SDRL would
have limited capital equipment requirements as they have the highest pressure rated
BOP stacks—recently built rigs have been outfitted with the latest equipment.
Although annular BOPS are not used on all rigs, both ESV and SDRL have 15kpsi
ram style double actuator BOPs and 10kpsi annular BOPs, when used. Additionally,
since ESV's floater fleet is so new, the company’s rigs have an average of about 6
ram BOPs per rig compared to the industry average of 2.3.
Table 3: Floater BOP Statistics

Ram BOPs Annular BOPs
Av g. Depth # Rigs # BOPs BOP / Rig Av g Psi # BOPs BOP / Rig Av g. psi
RIG 5,440 69 157 2.3 13,841 97 1.4 8,359
DO 4,207 33 71 2.2 12,273 61 1.8 7,424
NE 7,163 16 29 1.8 13,333 26 1.6 7,333
PDE 6,238 18 43 2.4 12,222 33 1.8 8,056
ESV 8,438 8 47 5.9 15,000 10 1.3 10,000
SDRL 8,964 14 37 2.6 15,000 3 0.2 10,000
Rest of Industry 4,720 100 219 2.2 12,625 108 1.1 8,237
Total Floaters 5,450 258 603 2.3 13,124 338 1.3 8,247
Source: RigLogix, J.P. Morgan.
Note: The majority of Ram style BOPs are the dual ram variety. The table above only lists rigs with BOP information available. For
example, newbuild rigs that have not yet chosen a drilling package have been omitted.
5
(1-212) 622-6684 24 May 2010
On the other hand, drilling contractors with older fleets have noticeably fewer BOPs
per rig and lower pressure ratings. Diamond, Pride, and Noble stand out as drilling
Drilling contractors with an older
contractors that may require substantial upgrades to their fleet’s blowout preventers.
fleet have noticeably fewer BOPs
per rig and lower pressure Diamond has the oldest average fleet in the industry, and although some of this
ratings than companies with a equipment has likely been upgraded periodically, our analysis shows the company
newer fleet. Diamond, Pride, and still has fewer BOPs per rig than the industry average and one of the lowest
Noble stand out as drilling maximum pressure ratings for both ram and annular style BOPs. Noble and Pride
contractors that may require
also have lower average maximum BOP pressure ratings, and Noble has the fewest
substantial upgrades to their
fleet’s blowout preventers. ram style BOPs per rig in our coverage universe. Although the recent newbuild rigs
from these contractors will likely meet or exceed the potential increased BOP
requirements, their older rigs would need substantial upgrades.
In our analysis we have conservatively assumed the North Sea environmental safety
standards with regards to BOPs become standard on the entire floater fleet. While
some rigs working offshore West Africa (for example) may never require the
environmental safety standards of the North Sea, this may eventually become
industry standard. In other words, the timing of rig upgrades in less environmentally
restricted areas will likely take longer.
Table 3: Floaters that Require BOP Upgrades

Ram BOPS (likely upgrades) Annular BOPs (likely upgrades)
# rigs # BOPs # Needed per Rig % BOPs # BOPs # Needed per Rig % BOPs
RIG 69 157 34 0.5 22% 97 36 0.5 37%
DO 33 71 38 1.2 54% 61 31 0.9 51%
NE 16 29 12 0.8 41% 26 16 1.0 62%
PDE 18 43 30 1.7 70% 33 20 1.1 61%
ESV 8 47 0 0.0 0% 10 0 0.0 0%
SDRL 14 37 10 0.7 27% 3 11 0.8 367%
Rest of Industry 100 219 109 1.1 50% 108 92 0.9 85%
Total Floaters 258 603 233 0.9 39% 338 206 0.8 61%
Assuming the entire floater fleet eventually has to be upgraded to a minimum of two
15kpsi ram and one 10kpsi annular BOPs per rig, then 233 ram and 206 annular
Assuming the entire floater fleet
BOPs would be required. This corresponds to almost one (0.9) added/upgraded ram
eventually has to be upgraded to
a minimum of two 15kpsi ram BOP per rig and almost one (0.80) added/upgraded annular BOP per rig. Of the
and one 10kpsi annular BOPs companies we cover, Pride, Diamond, and Noble would require the most new BOPs
per rig, then 233 ram and 206 to upgrade their fleet. Both Pride and Diamond would need at least an additional ram
annular BOPs would eventually BOP per floater while needing approximately one more annular BOP as well to reach
be required.
the standards we highlighted above. On the other hand, Ensco's floater fleet currently
meets the requirements we anticipate and therefore would not need to upgrade BOPs
to reach the harsh environment standards set in the North Sea region.
Notably, a major drilling contractor we spoke to confirmed upgrading a BOP would

most likely require the purchase of a new unit. Increasing maximum pressure
capacity of these units tends to require a different design with larger rams, thicker
seals, and a general larger footprint to be able to handle higher pressures. Therefore,
assuming a completely new unit on all non-compliant rigs is likely the best
assumption.
6
(1-212) 622-6684 24 May 2010
Figure 1: Ram BOPs Needed Figure 2: Annular BOPs Needed

40 2.0 40 1.2
# Annular BOPs Needed
# Annular BOPs / Rig

1.0
# Ram BOPs Needed
# Ram BOPs / Rig

30 1.5 30
0.8
20 1.0 20 0.6
0.4
10 0.5 10
0.2
0 0.0 0 0.0
PDE
RIG
DO
SDRL
NE
ESV
RIG
DO
SDRL
PDE
NE
ESV
# BOPs needed BOPs needed / rig # BOPs needed BOPs needed / rig
Source: RigLogix, J.P. Morgan. Source: RigLogix, J.P. Morgan.
Total capital expenditure impact to the offshore drillers

As a rough estimate we assume As a rough estimate we assume that a new BOP costs approximately $1,000/psi or
that a new BOP costs $15 million for a new 15,000psi ram BOP and $10 million for a new 10,000psi
approximately $1,000/psi or $15 annular BOP. While it is possible that some of the existing BOPs could be upgraded,
million for a new 15,000psi ram
BOP and $10 million for a new
we assume that most of the lower rated BOPs would have to be replaced. If we use
10,000psi annular BOP. the North Sea as a guide, we estimate that the industry would have to spend
approximately $5.5bn or about $20 million on average per rig to bring the current
floater fleet up to standard (two 15kpsi ram, one 10kpsi annular).
Table 4: Estimated Capital Required for Floater Fleet Upgrade

Total Floaters Ram BOPS (est. upgrades) Annular BOPs (est. upgrades) Total
# rigs # Cost per Total cost per Rig # Cost per Total cost per Rig Capex per Rig
RIG 69 34 $15 $510 $7.4 36 $10 $360 $5.2 $870 $13
DO 33 38 15 570 17.3 31 10 310 9.4 880 27
NE 16 12 15 180 11.3 16 10 160 10.0 340 21
PDE 18 30 15 450 25.0 20 10 200 11.1 650 36
ESV 8 0 15 0 0.0 0 10 0 0.0 0 0
SDRL 14 10 15 150 10.7 11 10 110 7.9 260 19
Rest of Indus. 100 109 15 1635 16.4 92 10 920 9.2 2,555 26
Total Floaters 258 233 $15 $3,495 $13.5 206 $10 $2,060 $8.0 $5,555 $22
We estimate that the industry
would have to spend
As shown above, Diamond and Pride would have the greatest capex requirements to
approximately $5.5bn or about
$20 million on average per rig to bring BOPs up to a potential new standard. Although Pride’s four recent newbuilds
bring the current floater fleet up (Ascension, Clarion, Mendocino, and Molokai) are all up to standard, only three rigs
to the harsh environment BOP of the remaining 14 have specifications equal to or higher than two 15kpsi ram and
standard. one annular 10kpsi BOPs (North America, South Atlantic, South Pacific).
The limiting factor would be manufacturing capacity

The biggest question we have is how these capital expenditures would be allocated
over the next several years. Three companies comprise the BOP market for floaters:
Cameron (39% share), National Oilwell Varco (34% share), and GE Oil & Gas’s
Hydril (28% share). The charts below show the top manufactures broken out by ram
and annular type.
7
(1-212) 622-6684 24 May 2010
Figure 3: Ram BOP Market Share Figure 4: Annular BOP Market Share
Other
2% Hy dril
NOV
23%
On a worldwide basis, CAM is 24%
CAM
the top BOP manufacturer with NOV
39% share, followed by NOV with 47%
51%
34% and Hydril with 28%. Hy dril CAM
27% 26%
Source: RigLogix, J.P. Morgan Source: RigLogix, J.P. Morgan.
Of the approximately 250 floaters that we have data on, CAM has the highest share
of ram BOPs with 47%, representing 278 ram BOPs on 117 rigs. Hydril has the
second highest ram market share with 27%, representing 165 ram BOPs on 58 rigs,
while NOV manufactured 146 ram BOPs on 73 rigs. Annular BOP manufacturing is
dominated by NOV on a worldwide basis with a 51% market share representing 173
annular BOPs on 119 rigs. CAM has the second most share with 87 BOPs on 71 rigs,
while Hydril manufactured 78 BOPs on 61 different rigs.
To get a sense of the potential impact of approximately $5.5 billion in orders over the
next several years we looked at the top two BOP suppliers, Cameron and National
Oilwell Varco. Notably, the charts below show CAM inbound orders and backlog for
the drilling sub-segment and NOV inbound orders and backlog companywide. We
assumed the estimated $5.5bn in capital upgrades would be broken out 20%, 30%,
50% from the years 2011-2013, but this is likely an aggressive estimate as CAM’s
total inbound orders for all of drilling is about $1bn per year. Therefore, it is more
likely that the upgrade process would stretch out over a longer period of time,
accounting for a lower percentage of the capital equipment company’s total capacity.
Figure 5: CAM Drilling Orders and Backlog Figure 6: NOV Total Orders and Backlog
$5,000 $12,000
$4,000 $10,000
$8,000
$3,000
$6,000
$2,000
$4,000
$1,000 $2,000
$0 $0
2007 2008 2009 2007 2008 2009
Drilling Orders Drilling Backlog Total Orders Total Backlog
Source: Company reports Source: Company reports
8
(1-212) 622-6684 24 May 2010
The biggest question is industry manufacturing capacity. BOPs are not "off the
shelf"; rather they are custom designed with a typical 12-24 month lead time. While
From order to delivery, the cycle none of the companies provide specific data on capacity, Cameron and GE may have
time for a new BOP is anywhere
an advantage in being able to convert some manufacturing from subsea trees to
from 12 to 24 months depending
on configuration. BOPs. In our analysis, the capital equipment spending requirements for the six
largest offshore drillers will be spent by 2013 and residual orders from the rest of the
industry in later years.
Table 5: Estimated Change in Capex and Free Cash Flow

Capex Free Cash Flow
Beginning 2010E 2011E 2012E 2013E 2010E 2011E 2012E 2013E
RIG $1,399 $1,000 $800 $800 $2,579 $3,518 $4,731 $4,716
DO 498 400 360 360 1,092 1,225 1,668 1,674
PDE 1,342 715 400 200 (978) (127) 565 814
NE 944 500 200 200 939 1,443 1,961 1,967
We assumed any upgrades to
ESV 765 370 200 200 48 585 1,097 1,255
the floater rig fleet would not be
required for 2010 but start in Total $4,948 $2,985 $1,960 $1,760 $3,680 $6,643 $10,021 $10,427
2011 and be completed by the (+) Increased Capex 20% 30% 50%
end of 2013. In our opinion this RIG $174 $261 $435
is a worst-case scenario where DO 176 264 440
the actual capital upgrades
PDE 68 102 170
would likely take considerably
longer. NE 130 195 325
ESV 0 0 0
Total $548 $822 $1,370
(=) Potential Increase in Capex ($,mm) (=) Decrease in Free Cash Flow ($, mm)
RIG $1,174 $1,061 $1,235 $3,344 $4,470 $4,281
DO 576 624 800 1,049 1,404 1,234
PDE 783 502 370 (195) 463 644
NE 630 395 525 1,313 1,766 1,642
ESV 370 200 200 585 1,097 1,255
Total $3,533 $2,782 $3,130 $6,095 $9,199 $9,057
Increase in Capex (%) Decrease in Free Cash Flow (%)
RIG 17% 33% 54% -5% -6% -9%
DO 44% 73% 122% -14% -16% -26%
PDE 10% 26% 85% -53% -18% -21%
NE 26% 98% 163% -9% -10% -17%
ESV 0% 0% 0% 0% 0% 0%
Total 18% 42% 78% -8% -8% -13%
Source: J.P. Morgan estimates.
The drillers under our coverage We assumed any upgrades to the floater rig fleet would not be required for 2010 but
would show an approximate start in 2011 and be completed by the end of 2013. In our opinion this is a worst-
20%, 40%, and 80% increase in
capex for 2011, 2012, and 2013.
case scenario where the actual capital upgrades could take considerably longer.
Using this scenario we assumed 20% of the upgrade capex would be spent in 2011,
These increases would therefore 30% in 2012, and the remaining 50% will be spent in 2013. Using these assumptions,
reduce free cash flow during the
same time periods by 8%, 8%,
the drillers under our coverage would show an approximate 20% increase in capex
and 13% respectively. for 2011, 40% increase for 2012, and 80% increase in 2012. These increases would
therefore reduce free cash flow during the same time periods by 8% in 2011, 8% in
2012, and 13% in 2013.
9
(1-212) 622-6684 24 May 2010
On an individual company basis there are several stand-outs worth highlighting. As

stated above, Diamond, Pride, and Noble would see the largest increases in capex
and the largest decreases in free cash flow on a percentage basis. Over the 2011-2013
time period, Pride’s free cash flow would fall the most on a percentage basis,
averaging a 27% decline, while Diamond would fall 19% on average and Noble
would fall 12% compared to the group falling 10%.
Could capital expenditures increases translate into higher dayrates?

In the long-run it stands to Since it is too early to actually determine the exact increases in capital upgrades that
reason that any required capital might be required, it is also far too early to determine future impacts to offshore
upgrades would eventually
transfer to higher oil prices, but
dayrates. Some of the unknowns include not only the amount of capital upgrades that
in the short-run the effect is would be required but also whether these costs can be fully passed on. In the long-
much more uncertain. run it stands to reason that any required capital upgrades would eventually transfer to
higher oil prices, but in the short-run the effect is much more uncertain. Clearly any
rigs that are already contracted would have to absorb these costs, but whether future
contracts will incorporate these changes completely is still unknown.
Table 6: Required dayrate ($ ‘000/day)

New build IRR
Cost ($,mm) 8% 9% 10% 11% 12% 13%
$400 306 319 333 348 363 378
$500 337 354 372 390 408 427
$600 369 389 410 432 454 477
$700 400 424 448 474 500 527
$800 431 458 487 516 546 576
$900 463 493 525 558 591 626
$1,000 494 528 563 600 637 676
Source: J.P Morgan estimates.
The table above shows the required dayrate necessary for a specified newbuild cost
(capital upgrade) and a desired internal rate of return. Interpolating within the table
and assuming a desired IRR of 11%, an approximate $20mm in additional capital
upgrades to a rig could translate into a 10k/day required increase in floater
dayrates to offset the capital increase.
How much could insurance premiums increase?

Rates to insure a deepwater rig We expect insurance premiums to increase across the industry for offshore drilling as
range from 50-100bps of the the event in the Gulf has raised the risk profile of these activities. Insurance
insured value annually. These
premiums have been falling for the offshore drilling industry ever since hurricane
rates could rise as much as
20-30% but depend on many Katrina, but this event should certainly stop this trend, according to an insurance
factors. insider. Rates are expected to rise for new policies, possibly by as much as 20-30%
as the risks for operating offshore, particularly deepwater, have increased. The rates
to insure deepwater rigs vary widely by rig type, location, and owner. For example,
larger companies like Transocean usually pay lower rates than a smaller company
Transocean could end up paying
up to an additional $100mm like Atwood Oceanics because the larger companies buy policies in bulk and have
annually to insure its fleet more rigs in different locations, adding diversification. As a rough estimate, current
against property loss. Increases average rates to insure a deepwater rig for property insurance are around 50-100bps
in liability coverage would on the value of the rig annually. Therefore, insurance premiums on the Deepwater
provide further increases.
Horizon would have cost Transocean about $3-5mm/yr or between $8-14kpd. If
insurance premiums increase in the 20-30% range, it is possible to see additional
10
(1-212) 622-6684 24 May 2010
premiums of $1mm/year or $3,000 per day for each ultra deepwater vessel and
relatively less per vessel for the rest of the fleet.
Although these appear to be relatively small numbers, a company the size of

Transocean could end up paying as much as an additional $100mm a year in property
insurance premiums. This would squeeze margins for contracts that are already on
the books, but we expect future contracts to reflect this change and be priced
accordingly, since increased rates would affect the entire industry.
Notably, our estimates above are just for property insurance. We fully expect liability
insurance to increase as well; however, estimates of this kind are too hard to pin
down and would likely require time to fully determine. It is possible the insurance
firms will choose to limit the liability of these policies as well, particularly as the
U.S. government is talking about increasing the maximum amount of punitive
liability for operating in the Gulf.
11
(1-212) 622-6684 24 May 2010
Diamond Offshore
Valuation
We continue to rate DO Underweight and are lowering our Dec 2010 price
target to $79 from $87 previously. DO is still not obviously cheap, and while
currently trading at 8.0x our 2011E adjusted earnings compared to the group at 7.0x,
our new price target assumes the stock appreciates to 9.0x, in line with our price
target multiple for the group at 8.9x.
Risks
• Limited near-term downside, could be more defensive in a weaker market.
Diamond is highly contracted in the near term, particularly on the deepwater side.
This should limit downside risk in the near term as well as potentially make
Diamond more of a defensive name in a weakening market. Additionally, the
large annual dividend (9.2% current yield) also adds to the defensive nature of the
stock.
• Petrobras is Diamond’s biggest customer, and Diamond may be selected as a
"bridge" contractor before newbuild rigs are built. A near-term catalyst for
the stock could be a further delay of the 28 rig tender by Petrobras or if the timing
of these rigs is later than expected. In either case, Diamond could become a
leading contender as a "bridge" contractor, given the company’s already strong
presence in the region.
• Older fleet generates higher returns than the group. Diamond’s older fleet
does generate noticeably higher returns than the rest of the peer group. If
maintenance and upgrade capex is less than expected and dayrates remain
elevated compared to the rigs’ age, the older rigs could earn outsized returns for
an extended period, causing the company to outperform the group.
• Smaller jackup fleet, many are contracted. On a percentage basis, Diamond
has one of the lowest exposures to the jackup market with only 14 of its 47 rigs in
this segment and three in the US stacked. We believe this is a positive given the
large number of jackups rolling off contract in the next three months will likely
hold rates below the recovery many analysts are expecting. However, the jackups
Diamond does have are mostly contracted over the next three months, further
helping mitigate near-term weakness in the jackup market.
Underweight
Diamond Offshore Drilling Incorporated (DO;DO US)
Company Data 2009A 2010E 2010E 2011E 2011E
Price ($) 70.55 (Old) (New) (Old) (New)
Date Of Price 21 May 10 EPS ($)
52-week Range ($) 103.21 - Q1 (Mar) 2.51 2.09A 2.09A 2.17 1.98
65.40 Q2 (Jun) 2.79 1.87A 1.83A 2.07 1.85
Mkt Cap ($ mn) 9,808.30 Q3 (Sep) 2.62 2.18A 2.13A 2.29 2.12
Fiscal Year End Dec Q4 (Dec) 1.98 2.16A 2.11A 2.94 2.71
Shares O/S (mn) 139 FY 9.89 8.30A 8.17A 9.47 8.67
Price Target ($) 79.00 Bloomberg EPS FY ($) 10.18 8.32A 8.58
Price Target End 31 Dec 10 Source: Company data, Bloomberg, J.P. Morgan estimates. 'Bloomberg' above denotes Bloomberg
Date consensus estimates.
12
(1-212) 622-6684 24 May 2010
Ensco plc
Valuation
We continue to rate ESV Overweight with at $52 Dec 2010 price target down
from $60 previously. Given our 2011 adjusted earnings estimate the stock still looks
inexpensive compared to peers. ESV currently trades at 6.7x our 2011E adjusted
earnings compared to the group at 7.0x; our price target assumes the stock
appreciates to 9.0x, in line with our price target multiple for the group at 8.9x.
Risks
• Most near-term earnings downside if dayrates trend lower. Often the largest
potential for upside also comes with the most risk. Since Ensco has the least
contracted revenue in the medium to longer term, the company also has the
highest risks on the downside if rates trend lower. Ensco has particular
vulnerability in the near term to a weaker high-end jackup market, which also
tends to be more volatile than the floater market.
• Newbuild market could be a negative with high exposure to the ultra-deep
market. Ensco is relying very heavily on the ultra-deepwater market. Although
we mostly agree with this strategy, there is risk of this market getting over
supplied, particularly if Petrobras executes on building an additional 28 newbuild
rigs.
• Concentrated jackups in key markets with unique risks. Although half of
Ensco’s revenue should be ultra-deepwater in the longer term, in the near term
about 75% is derived from the jackup market. The jackup market has unique risks
based on location, including hurricane risk in the GOM, timing of spending plans
in the Middle East, and taxes and harsh weather in the North Sea.
Overweight
Ensco plc (ESV;ESV US)
32.26 Q2 (Jun) 1.43 0.74A 0.75A 1.22 1.17
Mkt Cap ($ mn) 5,524.07 Q3 (Sep) 1.06 1.06A 1.00A 1.44 1.38
Shares O/S (mn) 143 FY 5.53 4.08A 3.94A 5.63 5.41
13
(1-212) 622-6684 24 May 2010
Noble Corp.
Valuation
We continue to rate NE Neutral with a $42 Dec 2010 price target down from $49
previously. Although Noble continues to trade as one of the cheapest names in our
group on a straight valuation basis, we believe some of this discount is warranted.
The company has the largest concentration of commodity jackups within our
coverage, which we believe will continue to find difficulty in obtaining contracts,
causing pressure on dayrates. NE currently trades at 6.1x our 2011E adjusted
earnings compared to the group at 7.0x; our price target assumes the stock
appreciates to 8.0x, below our price target multiple for the group at 8.9x.
Risks
• Longer term EPS exposure to floating rig market is limited. In both the near
and longer term, Noble has the least amount of earnings exposure to the
deepwater and ultra-deepwater market, which should be the primary beneficiary
once the exploration cycle picks up in mid 2011.
• Almost half of jackup fleet contracts roll over within next 120 days. Over the
next 120 days, 17 of the company’s 43 jackup rigs come off contract, primarily in
Latin America and the Middle East. While individual data points aren't as
important as in floaters, the status of these rigs could go a long way toward
resetting expectations in the market for jackup rates.
• Highly leveraged to North Sea where tax regime changes could have
significant impact on future demand. Noble has four rigs operating in the
North Sea, one of the most volatile global markets. With higher F&D costs,
operators are looking for ways to cut costs, particularly if tax regime changes
have a negative impact on profitability.
• Highest leverage to jackups also provides the most leverage on the upside.
Noble has the most leverage to the jackup segment of the group with 43 jackups
operating, accounting for about 45% of revenue currently. Since jackup dayrates
have fallen the most from the peak, about 30%, there is risk to the upside if these
rates rebound.
Neutral
Noble Corporation (NE;NE US)
27.39 Q2 (Jun) 1.49 1.28A 1.27A 1.31 1.24
Mkt Cap ($ mn) 8,294.34 Q3 (Sep) 1.63 1.33A 1.32A 1.35 1.29
Shares O/S (mn) 256 FY 6.41 5.51A 5.46A 5.63 5.37
14
(1-212) 622-6684 24 May 2010
Pride International
Valuation
Pride shares trade at a premium to the group average on both a current P/E and
adjusted-P/E basis. Contract for the Deep Ocean Molokai or a return to work for the
idle/stacked rigs could provide further earnings upside, but the stock is expensive in
our view and there are better opportunities to put money to work in this space. Our
$30 Dec 2010 price target, lowered from $33 previously, is based on 9.7x our
2011E adjusted P/E, above our group price target multiple of 8.9x.
Investment Risks
• Greatest risk of downward earnings revision. In the near term, Pride has the
biggest risk to earnings revisions, particularly over the next 4 quarters. Given our
below consensus deepwater dayrate assumptions, consensus earnings
expectations are about 20% above our estimates.
• Petrobras is a major customer, newbuild rig program could be a risk.
Petrobras is one of Pride’s largest customers with 7 rigs operating in Brazil along
with another operating for OGX. Any additional newbuilds built in Brazil or
other uncontracted deepwater rigs that head to Brazil would be a negative for
Pride as the company looks to roll over the rigs it currently has in the region.
• Newbuild Drillships could be delayed. A delay in any or all of Pride's three
newbuild drillships could cause the stock to underperform. About half of Pride's
ultra-deepwater rigs are currently under construction and a delay would have a
material affect on our 2011 earnings. Toward the end of 2011, these newbuild
ultra-deepwater rigs account for about 15% of the company's revenue.
Neutral
Pride International Inc. (PDE;PDE US)
19.46 Q2 (Jun) 0.71 0.28A 0.26A 0.75 0.65
Mkt Cap ($ mn) 4,416.75 Q3 (Sep) 0.20 0.37A 0.34A 0.80 0.70
Fiscal Year End Dec Q4 (Dec) (0.22) 0.51A 0.46A 1.07 0.97
Shares O/S (mn) 176 FY 1.90 1.47A 1.52A 3.25 2.84
15
(1-212) 622-6684 24 May 2010
Transocean
Valuation
Transocean has been hit hard due to liability concerns over the Deepwater Horizon
incident last month. We acknowledge this will be an ongoing concern and have
slightly lowered the multiple relative to the group. Transocean currently trades at
6.4x our 2011E adjusted EPS estimate. Our $80 Dec 2010 price target (down from
$87 previously) assumes the stock appreciates to 8.8x, slightly below the group
price target average of 8.9x.
Risks
• If jackup market weakens, RIG will be forced to stack more rigs. Although
RIG has the largest fleet in the offshore market, which is mostly viewed as a
positive in a rising market, it can also be a curse in a declining market. As seen in
the current downturn, Transocean stacked the highest percentage of rigs, helping
the rest of the market stabilize rates, particularly in the jackup segment.
• Petrobras decision could go either way. Scenario 1: Petrobras could delay 28
newbuild tender or otherwise may be forced to the open market for rigs, then
floater dayrates could unexpectedly shift higher, which would be positive for the
entire market, lifting all boats. At the same time, RIG has less near-term earnings
upside and would likely underperform. Scenario 2: Petrobras goes ahead with
plans and does not come to market, leaving the floater market oversupplied. Rates
would move lower; however, Transocean would likely outperform because of its
higher contracted status.
• Newbuilds could be delayed. Transocean currently has five newbuild ultra
deepwater floaters under construction, and any newbuild rig has a risk of delayed
delivery, which could lead to lower 2011 EPS.
Neutral
Transocean Ltd. (RIG;RIG US)
57.84 Q2 (Jun) 2.81 1.71A 1.68A 2.28 2.20
Mkt Cap ($ mn) 19,859.34 Q3 (Sep) 2.66 1.90A 1.91A 2.42 2.35
Shares O/S (mn) 335 FY 11.46 7.89A 7.92A 10.06 9.77
16
(1-212) 622-6684 24 May 2010

Drilling contracter Rig Depth Ram Manufacturer Annular Manufacturer Rams Ram psi Annular Annular psi
Diamond
Ocean clipper 8,500 NOV NOV 2 15,000 2 10,000
Ocean Alliance 5,000 NOV NOV 2 15,000 2 10,000
Ocean Ambassador 1,100 CAM NOV 2 10,000 2 5,000
Ocean America 5,000 CAM CAM 2 15,000 2 10,000
Ocean Baroness 7,000 Hydril Hydril 2 15,000 2 10,000
Ocean Bounty 1,500 NOV NOV 2 10,000 2 5,000
Ocean Concord 2,000 CAM NOV 2 10,000 2 5,000
Ocean Confidence 10,000 NOV NOV 3 15,000 2 10,000
Ocean Courage 10,000 CAM CAM 3 15,000 1 10,000
Ocean Endeavor 10,000 Hydril Hydril 2 15,000 2 10,000
Ocean Epoch 1,640 CAM NOV 2 10,000 1 5,000
Ocean General 1,640 CAM NOV 2 10,000 2 5,000
Ocean Guardian 1,500 CAM CAM 2 10,000 2 10,000
Ocean Lexington 2,200 CAM NOV 2 10,000 2 5,000
Ocean Monarch 8,000 CAM NOV 2 10,000 2 5,000
Ocean New Era 1,500 CAM NOV 2 10,000 2 5,000
Ocean Nomad 1,200 Hydril NOV 2 10,000 2 5,000
Ocean Patriot 1,500 CAM CAM 2 15,000 2 10,000
Ocean Princess 1,500 CAM CAM 2 15,000 2 10,000
Ocean Quest 3,500 Hydril Hydril 2 15,000 2 10,000
Ocean Rover 6,500 Hydril Hydril 2 15,000 2 10,000
Ocean Saratoga 2,200 CAM NOV 2 10,000 2 5,000
Ocean Star 5,500 NOV NOV 2 15,000 2 10,000
Ocean Valiant 5,000 CAM CAM 2 15,000 2 10,000
Ocean Valor 10,000 CAM CAM 3 15,000 1 10,000
Ocean Vanguard 1,500 Hydril CAM 2 15,000 2 10,000
Ocean Victory 6,000 Hydril NOV 2 10,000 1 5,000
Ocean Voyager 3,200 Hydril NOV 2 10,000 1 5,000
Ocean Whittington 1,500 CAM NOV 2 10,000 2 5,000
Ocean Winner 3,500 NOV Hydril 4 10,000 2 5,000
Ocean Worker 3,500 CAM NOV 2 10,000 2 5,000
Ocean Yatzy 3,300 CAM NOV 2 10,000 2 5,000
Ocean Yorktow n 2,850 CAM NOV 2 10,000 2 5,000
ENSCO
ENSCO 7500 8,000 Hydril CAM 5 15,000 2 10,000
ENSCO 8500 8,500 Hydril Hydril 6 15,000 2 10,000
17
(1-212) 622-6684 24 May 2010

Pride
Deep Ocean Ascension 12,000 NOV NOV 1 15,000 2 15,000
Deep Ocean Clarion 12,000 NOV NOV 1 15,000 2 15,000
Deep Ocean Mendocino 12,000 NOV NOV 1 15,000 2 15,000
Deep Ocean Molokai 12,000 NOV NOV 1 15,000 1 15,000
Pride Africa 10,000 CAM NOV 2 10,000 1 5,000
Pride Angola 10,000 CAM NOV 2 10,000 2 5,000
Pride Brazil 5,000 CAM NOV 4 10,000 2 5,000
Pride Carlos Walter 4,921 CAM NOV 4 10,000 2 5,000
Pride Mexico 2,300 NOV CAM 1 10,000 2 5,000
Pride North America 7,500 CAM Hydril 3 15,000 2 10,000
Pride Portland 5,577 CAM NOV 4 10,000 2 5,000
Pride Rio de Janeiro 5,577 CAM NOV 4 10,000 2 5,000
Pride South America 3,400 NOV NOV 2 10,000 1 5,000
Pride South Atlantic 1,500 CAM CAM 4 15,000 2 10,000
Pride South Pacific 5,000 CAM Hydril 3 15,000 2 10,000
Pride South Seas 1,000 NOV NOV 2 10,000 2 5,000
Pride Venezuela 1,500 CAM NOV 2 15,000 2 5,000
Sea Explorer 1,000 CAM NOV 2 10,000 2 5,000
Noble
Noble Leo Segerius 5,600 CAM NOV 2 10,000 2 5,000
Noble Muravlenko 4,900 CAM CAM 0 - 1 10,000
Noble Roger Eason 7,200 Hydril Hydril 1 15,000 0 -
Noble Amos Runner 8,000 NOV NOV 2 15,000 2 5,000
Noble Clyde Boudreaux 10,000 NOV NOV 2 10,000 2 15,000
Noble Danny Adkins 12,000 NOV NOV 2 15,000 2 10,000
Noble Dave Beard 10,000 NOV NOV 2 15,000 2 10,000
Noble Homer Ferrington 7,200 NOV NOV 2 15,000 1 5,000
Noble Jim Day 12,000 NOV NOV 2 15,000 2 10,000
Noble Jim Thompson 6,000 NOV NOV 2 15,000 2 10,000
Noble Lorris Bouzigard 4,000 CAM Hydril 2 10,000 1 5,000
Noble Max Smith 7,000 NOV NOV 2 15,000 2 5,000
Noble Paul Romano 6,000 NOV NOV 2 15,000 2 5,000
Noble Paul Wolff 9,200 NOV NOV 2 15,000 2 5,000
Noble Therald Martin 4,000 CAM Hydril 2 10,000 1 5,000
Noble Ton Van Langeveld 1,500 CIW NOV 2 10,000 2 5,000
Transocean
Deepw ater Discovery 10,000 CAM CAM 3 15,000 1 10,000
Deepw ater Expedition 10,000 CAM CAM 3 15,000 2 10,000
Deepw ater Frontier 10,000 CAM CAM 2 15,000 2 10,000
Deepw ater Millennium 10,000 CAM CAM 3 15,000 2 10,000
Deepw ater Navigator 7,200 CAM CAM 1 15,000 1 10,000
Deepw ater Pathfinder 10,000 CAM CAM 3 15,000 2 10,000
Dhirubhai Deepw ater KG1 12,000 NOV NOV 2 15,000 1 10,000
Discoverer 534 7,000 NOV NOV 2 10,000 2 5,000
Discoverer Americas 12,000 Hydril Hydril 3 15,000 1 10,000
Discoverer Clear Leader 12,000 Hydril Hydril 3 15,000 1 10,000
Discoverer Deep Seas 10,000 Hydril Hydril 3 15,000 1 10,000
Discoverer Enterprise 10,000 Hydril Hydril 1 15,000 1 10,000
Discoverer Inspiration 12,000 Hydril Hydril 3 15,000 1 10,000
Discoverer Seven Seas 7,000 Hydril NOV 2 15,000 1 10,000
Discoverer Spirit 10,000 Hydril Hydril 6 15,000 1 10,000
18
(1-212) 622-6684 24 May 2010

Transocean cont.
GSF CR Luigs 10,000 CAM CAM 4 15,000 1 10,000
GSF Explorer 7,800 CAM NOV 3 15,000 2 5,000
GSF Jack Ryan 10,000 CAM NOV 4 15,000 2 10,000
Petrobras 10000 12,000 NOV NOV 2 15,000 2 10,000
Actinia 1,500 CAM CAM 2 10,000 2 5,000
C Kirk Rhein Jr 3,300 CAM NOV 2 10,000 1 5,000
Cajun Express 8,500 CAM CAM 3 15,000 1 10,000
Deepw ater Nautilus 8,000 CAM CAM 3 15,000 2 10,000
Development Driller III 7,500 Hydril Hydril 3 15,000 2 10,000
Falcon 100 2,500 CAM CAM 1 15,000 4 10,000
GSF Aleutian Key 2,300 NOV NOV 2 10,000 2 5,000
GSF Arctic I 3,400 CAM CAM 2 15,000 2 10,000
GSF Arctic III 1,800 CAM CAM 2 15,000 2 10,000
GSF Arctic IV 1,800 CAM CAM 2 15,000 2 10,000
GSF Celtic Sea 5,750 CAM NOV 2 15,000 2 10,000
GSF Development Driller I 7,500 1 15,000 0 -
GSF Grand Banks 1,500 CAM CAM 2 15,000 2 10,000
GSF Rig 135 2,800 Hydril Hydril 2 15,000 2 5,000
GSF Rig 140 1,500 Hydril NOV 2 15,000 2 5,000
Henry Goodrich 5,000 S&S NOV 3 15,000 1 10,000
J W McLean 1,500 NOV CAM 1 10,000 1 5,000
Jack Bates 5,400 CAM CAM 4 15,000 2 10,000
Jim Cunningham 4,600 NOV NOV 2 15,000 1 10,000
M G Hulme Jr 5,000 CAM CAM 2 15,000 1 10,000
Paul B Loyd Jr 2,000 CAM CAM 2 15,000 1 10,000
Sedco 601 1,500 NOV NOV 2 10,000 1 5,000
Sedco 700 3,600 CAM NOV 2 10,000 1 5,000
Sedco 702 6,500 CAM NOV 2 10,000 2 5,000
Sedco 703 2,000 NOV NOV 2 10,000 1 5,000
Sedco 704 1,000 Hydril NOV 2 15,000 1 5,000
Sedco 706 6,000 CAM NOV 2 10,000 1 5,000
Sedco 707 6,500 Hydril Hydril 2 15,000 1 10,000
Sedco 709 5,000 Hydril NOV 2 15,000 2 10,000
Sedco 710 4,500 CIW Hydril 2 10,000 2 5,000
Sedco 711 1,800 NOV NOV 2 15,000 2 10,000
Sedco Energy 7,500 Hydril CAM 3 15,000 2 10,000
Sedco Express 7,500 CAM CAM 2 10,000 1 5,000
Sedneth 701 1,500 NOV NOV 2 10,000 0 -
Sovereign Explorer 4,500 CAM CAM 2 15,000 0 -
Transocean Amirante 3,500 CAM NOV 2 10,000 1 5,000
Transocean Arctic 1,640 CAM CAM 2 15,000 2 -
Transocean Driller 3,000 Hydril Hydril 2 15,000 1 10,000
Transocean John Shaw 1,800 Hydril NOV 2 10,000 1 10,000
Transocean Leader 4,500 CAM Hydril 2 15,000 1 10,000
Transocean Legend 3,500 CAM NOV 2 10,000 2 5,000
Transocean Marianas 7,000 Hydril NOV 2 15,000 1 10,000
Transocean Polar Pioneer 1,640 Hydril Hydril 2 15,000 0 -
Transocean Prospect 1,500 Hydril Hydril 2 15,000 1 10,000
Transocean Rather 4,500 Hydril NOV 2 15,000 1 10,000
Transocean Richardson 5,000 Hydril NOV 2 15,000 1 10,000
Transocean Searcher 1,500 CAM CAM 2 15,000 1 10,000
Transocean Winner 1,500 Hydril Hydril 2 15,000 1 5,000
19
(1-212) 622-6684 24 May 2010
Diamond Offshore: Summary of Financials

Income Statement - Annual FY09A FY10E FY11E FY12E Income Statement - Quarterly 1Q10A 2Q10E 3Q10E 4Q10E
Revenues 3,631 3,673 4,113 4,393 Revenues 860 875 965 973
Cost of products sold (1,224) (1,445) (1,726) (1,766) Cost of products sold (305) (362) (385) (392)
Gross profit - - - - Gross profit - - - -
SG&A (63) (70) (78) (83) SG&A (17) (17) (18) (18)
DD&A (346) (416) (482) (540) DD&A (97) (100) (107) (113)
Other operating expenses - - - - Other operating expenses - - - -
Operating Income - - - - Operating Income - - - -
EBIT 1,905 1,663 1,759 1,936 EBIT 426 375 433 429
EBITDA 2,252 2,079 2,241 2,476 EBITDA 523 474 540 542
Net interest income / (expense) (45) (84) (84) (84) Net interest income / (expense) (21) (21) (21) (21)
Income applicable to minority interests - - - - Income applicable to minority interests - - - -
Pretax income 1,376 1,136 1,206 1,334 Pretax income 291 255 297 294
Taxes (492) (444) (469) (519) Taxes (115) (99) (115) (114)
Tax rate (%) 26.3% 28.1% 28.0% 28.0% Tax rate (%) 28.4% 28.0% 28.0% 28.0%
Reported net income 1,376 1,136 1,206 1,334 Reported net income 291 255 297 294
Non-recurring items, disc ops 0 0 0 0 Non-recurring items, disc ops 0 0 0 0
Adjusted net income 1,376 1,136 1,206 1,334 Adjusted net income 291 255 297 294
Average diluted shares outstanding 139 139 139 139 Average diluted shares outstanding 139 139 139 139
EPS 9.89 8.17 8.67 9.58 EPS 2.09 1.83 2.13 2.11
EPS growth rate (%) - - - - EPS growth rate (%) - - - -
Dividend per share 8.00 8.00 8.00 8.00 Dividend per share 2.00 2.00 2.00 2.00
WTI crude price ($/bbl) - - - - WTI crude price ($/bbl) - - - -

Henry Hub natural gas price ($/mcf) - - - - Henry Hub natural gas price ($/mcf) - - - -
Balance Sheet and Cash Flow Data FY09A FY10E FY11E FY12E Ratio Analysis FY09A FY10E FY11E FY12E
Cash and cash equivalents 777 1,151 1,151 1,151 Valuation

Other current assets 155 171 203 198 P/E (adjusted) 7.1 8.6 8.1 7.4
Total current assets 1,723 2,221 2,422 2,389 P/CF - - - -
Net PP&E 4,432 4,486 4,604 4,744 Enterprise value/EBITDA - - - -
Other assets 109 409 409 409 EV/DACF - - - -
Total assets 6,264 7,116 7,434 7,542
Ratios
Total debt 1,495 1,797 1,949 1,835 Net debt/equity - - - -
Total liabilities - - - - Net debt/capital 16.6% 15.1% 17.6% 14.8%
Minority interests - - - - Net coverage ratio - - - -
Preferred stock - - - - ROE 39.4% 31.2% 32.6% 34.6%
Shareholders' equity 6,264 7,116 7,434 7,542 ROCE 37.8% 27.7% 28.7% 30.3%
Net Income 1,376 1,136 1,206 1,334 Yield and cash returns
DD&A (346) (416) (482) (540) CFPS - - - -
Deferred taxes 86 (5) 0 0 CF yield 1.3% 10.3% 9.8% 12.5%
Other - - - - FCF yield - - - -
Cash earnings - - - - Dividend yield 11.3% 11.3% 11.3% 11.3%
Change in working capital (286) 7 (128) 32 Dividend payout ratio - - - -
Cash flow from operations 1,517 1,581 1,560 1,906 Buyback yield - - - -
Capex (1,362) (498) (600) (680) Total cash returns (%) - - - -
Dividends - - - -
Share buybacks (net) 0 0 0 0
Change in debt - - - - Mkt Cap (current) ($bn) 9.81
Change in preferred stock - - - - Enterprise Value (current) 11,764
Other uses of cash - - - -
Change in cash 40 124 (0) 0
Free cash flow 154 1,083 960 1,226
Source: Company reports and J.P. Morgan estimates.

Note: $ in millions (except per-share data). Fiscal year ends Dec
20
(1-212) 622-6684 24 May 2010
Ensco plc: Summary of Financials

Cost of products sold (735) (786) (979) (1,139) Cost of products sold (185) (183) (209) (210)
SG&A (64) (79) (101) (107) SG&A (21) (17) (20) (21)
DD&A (207) (229) (259) (289) DD&A (54) (56) (59) (60)
Other operating expenses (799) (865) (1,080) (1,245) Other operating expenses (206) (200) (229) (231)
EBIT 945 656 897 1,133 EBIT 190 122 167 177
EBITDA 1,152 885 1,156 1,422 EBITDA 244 179 226 237
Net interest income / (expense) 0 0 0 0 Net interest income / (expense) 0 0 0 0

Pretax income - - - - Pretax income - - - -
Taxes (177) (113) (146) (183) Taxes (33) (20) (29) (31)
Tax rate (%) 18.5% 16.9% 16.0% 16.0% Tax rate (%) 17.2% 16.0% 17.0% 17.0%
Reported net income 777 556 764 962 Reported net income 160 105 141 149
Non-recurring items, disc ops 0 0 0 0 Non-recurring items, disc ops 0 0 0 0
Adjusted net income 777 556 764 962 Adjusted net income 187 105 141 149
EPS 5.53 3.94 5.41 6.82 EPS 1.33 0.75 1.00 1.06

Cash and cash equivalents 1,141 1,151 1,515 2,380 Valuation

Total current assets 1,653 1,663 2,225 3,172 P/CF 14.7 254.1 9.7 5.1
Total assets 6,747 7,167 7,840 8,699
Ratios
Total debt 257 266 266 266 Net debt/equity - - - -
Total liabilities - - - - Net debt/capital (18.7%) (17.1%) (23.3%) (40.5%)
Net Income 777 556 764 962 Yield and cash returns
DD&A (207) (229) (259) (289) CFPS 2.64 0.15 3.98 7.53
Deferred taxes 20 11 0 0 CF yield - - - -
Other - - - - FCF yield 7.3% 0.4% 10.3% 19.6%
Change in working capital 148 (15) (91) 13 Dividend payout ratio - - - -
Cash flow from operations 1,239 829 931 1,263 Buyback yield - - - -
Capex (861) (765) (370) (200) Total cash returns (%) - - - -
Dividends - - - -
Share buybacks (net) - - - -
Change in debt (17) 9 0 0 Mkt Cap (current) ($bn) 5.52
Change in cash 352 10 364 865
Free cash flow 371 22 561 1,063

21
(1-212) 622-6684 24 May 2010
Noble Corp.: Summary of Financials

Cost of products sold (1,110) (1,247) (1,505) (1,634) Cost of products sold (280) (303) (323) (341)
Gross profit 2,530 2,209 2,246 2,463 Gross profit 561 522 541 585
SG&A (80) (95) (94) (102) SG&A (22) (23) (24) (26)
DD&A (408) (497) (536) (561) DD&A (116) (124) (127) (130)
EBIT 2,042 1,616 1,616 1,799 EBIT 423 375 390 429
EBITDA 2,450 2,113 2,152 2,360 EBITDA 539 499 517 559
Net interest income / (expense) (2) (0) 0 0 Net interest income / (expense) (0) 0 0 0
Taxes (365) (211) (227) (271) Taxes (55) (49) (51) (56)
Tax rate (%) 17.8% 13.0% 14.0% 15.0% Tax rate (%) 13.0% 13.0% 13.0% 13.0%
Non-recurring items, disc ops (3) 0 0 0 Non-recurring items, disc ops 0 0 0 0
EPS 6.41 5.46 5.37 5.88 EPS 1.43 1.27 1.32 1.44
EPS growth rate (%) 11.3% (15.0%) (1.7%) 9.5% EPS growth rate (%) (11.4%) (17.8%) (16.5%) (14.6%)

Cash and cash equivalents 735 1,459 2,573 4,130 Valuation

Total assets 8,397 9,701 11,007 12,429
Ratios
Total debt 751 751 751 751 Net debt/equity - - - -
Total liabilities 1,175 1,197 1,197 1,197 Net debt/capital 0.2% (9.7%) (24.5%) (46.4%)
Minority interests 0 0 0 0 Net coverage ratio - - - -
DD&A (408) (497) (536) (561) CFPS - - - -
Deferred taxes 37 (0) 0 0 CF yield 7.5% 10.4% 14.9% 20.1%
Change in working capital (38) (43) (47) (9) Dividend payout ratio - - - -
Capex (1,495) (944) (640) (400) Total cash returns (%) - - - -
Dividends - - - -
Share buybacks (net) (204) (152) (84) (84)
Change in debt (173) 0 0 0 Mkt Cap (current) ($bn) 8.29
Other uses of cash 0 0 0 0
Change in cash 222 724 1,114 1,557
Free cash flow 642 930 1,245 1,689

22
(1-212) 622-6684 24 May 2010
Pride International: Summary of Financials

Cost of products sold (955) (889) (1,188) (1,290) Cost of products sold (201) (197) (233) (257)
Gross profit 798 614 961 1,310 Gross profit 162 127 148 177
SG&A (121) (121) (172) (208) SG&A (30) (26) (30) (35)
DD&A (188) (174) (190) (200) DD&A (42) (44) (44) (44)
Operating Income 462 301 579 882 Operating Income 86 52 68 94
EBIT - - - - EBIT - - - -
EBITDA 650 475 769 1,082 EBITDA 128 96 112 138
Net interest income / (expense) 3 3 4 4 Net interest income / (expense) 0 1 1 1

Pretax income 462 313 583 886 Pretax income 95 53 69 95
Taxes (76) (47) (87) (133) Taxes (15) (8) (10) (14)
Tax rate (%) 16.5% 15.1% 15.0% 15.0% Tax rate (%) 15.4% 15.0% 15.0% 15.0%
Reported net income 330 265 495 753 Reported net income 73 45 59 80
Non-recurring items, disc ops - - - - Non-recurring items, disc ops (8) - - -
Adjusted net income 386 265 495 753 Adjusted net income 81 45 59 80
EPS 1.90 1.52 2.84 4.32 EPS 0.42 0.26 0.34 0.46
EPS growth rate (%) (40.2%) (31.6%) 87.2% 52.1% EPS growth rate (%) (49.2%) (62.9%) (26.4%) 188.8%

Cash and cash equivalents 763 500 500 500 Valuation

Total current assets 1,164 948 1,123 1,180 P/CF - - - -
Total assets 6,143 7,068 7,853 8,210
Ratios
Total liabilities 1,885 2,543 2,833 2,436 Net debt/capital 9.2% 23.7% 24.9% 17.9%
Net Income 330 265 495 753 Yield and cash returns
DD&A (188) (174) (190) (200) CFPS - - - -
Deferred taxes (13) 2 0 0 CF yield (9.2%) (21.4%) (6.0%) 9.5%
Change in working capital 146 (69) (146) (43) Dividend payout ratio - - - -
Cash flow from operations 627 359 539 910 Buyback yield - - - -
Capex (994) (1,342) (800) (500) Total cash returns (%) - - - -
Dividends - - - -
Change in debt 468 712 261 (410) Mkt Cap (current) ($bn) 4.42
Change in cash 51 (263) 0 0
Free cash flow (381) (982) (261) 410

23
(1-212) 622-6684 24 May 2010
Transocean: Summary of Financials

Revenues 11,556 10,431 11,800 12,210 Revenues 2,602 2,478 2,609 2,741
Cost of products sold (5,164) (5,079) (5,769) (5,875) Cost of products sold (1,196) (1,253) (1,288) (1,342)
SG&A (209) (243) (212) (220) SG&A (63) (57) (60) (63)
DD&A (1,464) (1,656) (1,763) (1,822) DD&A (401) (409) (418) (428)
Other operating expenses (5,373) (5,322) (5,981) (6,094) Other operating expenses (1,259) (1,310) (1,348) (1,405)
EBIT 4,719 3,452 4,056 4,294 EBIT 942 759 843 908
EBITDA 6,183 5,108 5,819 6,116 EBITDA 1,343 1,168 1,261 1,336
Net interest income / (expense) (479) (526) (441) (340) Net interest income / (expense) (127) (128) (133) (138)
Taxes (699) (445) (542) (593) Taxes (128) (95) (106) (116)
Tax rate (%) 16.0% 15.0% 15.0% 15.0% Tax rate (%) 15.0% 15.0% 15.0% 15.0%
Non-recurring items, disc ops (497) (42) 0 0 Non-recurring items, disc ops (42) 0 0 0
EPS 11.46 7.92 9.77 10.55 EPS 2.23 1.68 1.91 2.09

Cash and cash equivalents 1,168 851 1,112 4,381 Valuation

Other assets 8,942 9,102 9,102 9,102 EV/DACF - - - -
Total assets 36,436 36,216 36,452 38,841
Ratios
Total liabilities - - - - Net debt/capital 33.9% 27.7% 20.7% 10.4%
DD&A (1,464) (1,656) (1,763) (1,822) CFPS - - - -
Deferred taxes 13 (22) 0 0 CF yield - - - -
Other - - - - FCF yield 13.0% 12.4% 17.3% 22.9%
Change in working capital 433 (396) (520) 124 Dividend payout ratio - - - -
Capex (3,052) (1,399) (1,150) (1,050) Total cash returns (%) - - - -
Dividends - - - -
Change in debt (2,637) (2,309) (1,931) 0 Mkt Cap (current) ($bn) 19.86
Change in cash 167 (279) 260 3,269
Free cash flow 3,045 2,567 3,166 4,257

24
(1-212) 622-6684 24 May 2010
Analyst Certification:
The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily
responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with
respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report
accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research
analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the
research analyst(s) in this report.
Important Disclosures
• Lead or Co-manager: JPMSI or its affiliates acted as lead or co-manager in a public offering of equity and/or debt securities for
Diamond Offshore within the past 12 months.
• Client of the Firm: Diamond Offshore is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI
provided to the company investment banking services, non-investment banking securities-related services and non-securities-related
services. Ensco plc is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided to the company
non-investment banking securities-related services and non-securities-related services. Pride International is or was in the past 12
months a client of JPMSI. Transocean is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided
to the company investment banking services, non-investment banking securities-related services and non-securities-related services.
• Investment Banking (past 12 months): JPMSI or its affiliates received in the past 12 months compensation for investment banking
services from Diamond Offshore, Transocean.
• Investment Banking (next 3 months): JPMSI or its affiliates expect to receive, or intend to seek, compensation for investment
banking services in the next three months from Diamond Offshore, Ensco plc, Transocean.
• Non-Investment Banking Compensation: JPMSI has received compensation in the past 12 months for products or services other
than investment banking from Diamond Offshore, Ensco plc, Transocean. An affiliate of JPMSI has received compensation in the
past 12 months for products or services other than investment banking from Diamond Offshore, Ensco plc, Transocean.
Diamond Offshore (DO) Price Chart
259
Date Rating Share Price Price Target
($) ($)
222
03-Oct-06 UW 68.51 -
OW UW $50 UW $87
13-Feb-08 N 108.14 -
185
11-Apr-08 OW 125.67 -
UW N UW UW $92
148 13-Oct-08 UW 66.73 -
Price($) 14-Jan-09 UW 60.03 50.00
111 06-Apr-10 UW 92.22 92.00
23-Apr-10 UW 85.43 87.00
74
37
0
Oct Jul Apr Jan Oct
06 07 08 09 09
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Break in coverage Sep 08, 2009 - Apr 06, 2010. This chart shows J.P. Morgan's continuing coverage of this stock; the
current analyst may or may not have covered it over the entire period.
J.P. Morgan ratings: OW = Overweight, N = Neutral, UW = Underweight.
25
(1-212) 622-6684 24 May 2010
Ensco plc (ESV) Price Chart
144 Date Rating Share Price Price Target

($) ($)
120 03-Oct-06 N 41.65 -
UW UW $30 OW $60 08-Jan-07 UW 48.36 -
96 09-Nov-07 N 54.74 -
N N UW UW $34 OW $57
02-Sep-08 UW 67.78 -
Price($) 72 14-Jan-09 UW 27.86 34.00
02-Mar-09 UW 22.11 30.00
48 06-Apr-10 OW 47.54 57.00
23-Apr-10 OW 50.16 60.00
24
0
Oct Jul Apr Jan Oct
06 07 08 09 09
Noble Corp. (NE) Price Chart
120 Date Rating Share Price Price Target

($) ($)
100 28-Jan-08 N 44.82 --
N $28 14-Jan-09 N 22.39 29.00
80 04-Mar-09 N 22.56 28.00
N N $29 N $49
06-Apr-10 N 43.09 49.00
Price($) 60
40
20
0
Oct Jul Apr Jan Oct
06 07 08 09 09
26
(1-212) 622-6684 24 May 2010
Pride International (PDE) Price Chart

75 ($) ($)
14-Jan-09 UW 15.47 16.00
60 06-Apr-10 N 31.63 33.00
UW $16 N $33
45
Price($)
30
15
0
Oct Jul Apr Jan Oct
06 07 08 09 09
Transocean (RIG) Price Chart

306 ($) ($)
N $87
03-Oct-06 UW 75.69 --
255 N $60 N $92 12-Sep-07 N 152.87 --
09-Jul-08 OW 145.94 --
204 UW N OW N $58 N $95
14-Jan-09 N 52.01 58.00
Price($) 04-Mar-09 N 55.59 60.00
153
06-Apr-10 N 89.12 95.00
28-Apr-10 N 84.52 92.00
102
17-May-10 N 64.99 87.00
51
0
Oct Jul Apr Jan Oct
06 07 08 09 09
Explanation of Equity Research Ratings and Analyst(s) Coverage Universe:

J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve
months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s)
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of
the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] J.P. Morgan Cazenove’s UK Small/Mid-Cap dedicated research
analysts use the same rating categories; however, each stock’s expected total return is compared to the expected total return of the FTSE
All Share Index, not to those analysts’ coverage universe. A list of these analysts is available on request. The analyst or analyst’s team’s
coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying
analyst(s) coverage universe.
27
(1-212) 622-6684 24 May 2010
Coverage Universe: J. David Anderson, PE, CFA: Baker Hughes (BHI), Diamond Offshore (DO), Ensco plc (ESV),
Halliburton (HAL), Noble Corp. (NE), Pride International (PDE), Schlumberger (SLB), Transocean (RIG), Weatherford
International (WFT)
J.P. Morgan Equity Research Ratings Distribution, as of March 31, 2010

Overweight Neutral Underweight
(buy) (hold) (sell)
JPM Global Equity Research Coverage 45% 42% 13%
IB clients* 48% 46% 32%
JPMSI Equity Research Coverage 42% 49% 10%
IB clients* 70% 58% 48%
*Percentage of investment banking clients in each rating category.
For purposes only of NASD/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold
rating category; and our Underweight rating falls into a sell rating category.
Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks on
any securities recommended herein. Research is available at http://www.morganmarkets.com , or you can contact the analyst named on
the front of this note or your J.P. Morgan representative.
Analysts’ Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon
various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which
include revenues from, among other business units, Institutional Equities and Investment Banking.
Other Disclosures
J.P. Morgan is the global brand name for J.P. Morgan Securities Inc. (JPMSI) and its non-US affiliates worldwide. J.P. Morgan Cazenove is a
brand name for equity research produced by J.P. Morgan Securities Ltd.; J.P. Morgan Equities Limited; JPMorgan Chase Bank, N.A., Dubai
Branch; and J.P. Morgan Bank International LLC.
Options related research: If the information contained herein regards options related research, such information is available only to persons who
have received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation’s Characteristics and Risks of
Standardized Options, please contact your J.P. Morgan Representative or visit the OCC’s website at
http://www.optionsclearing.com/publications/risks/riskstoc.pdf.
Legal Entities Disclosures
U.S.: JPMSI is a member of NYSE, FINRA and SIPC. J.P. Morgan Futures Inc. is a member of the NFA. JPMorgan Chase Bank, N.A. is a
member of FDIC and is authorized and regulated in the UK by the Financial Services Authority. U.K.: J.P. Morgan Securities Ltd. (JPMSL) is a
member of the London Stock Exchange and is authorised and regulated by the Financial Services Authority. Registered in England & Wales No.
2711006. Registered Office 125 London Wall, London EC2Y 5AJ. South Africa: J.P. Morgan Equities Limited is a member of the Johannesburg
Securities Exchange and is regulated by the FSB. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated
by the Hong Kong Monetary Authority and the Securities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd,
Seoul Branch, is regulated by the Korea Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (ABN 52 002 888 011/AFS
Licence No: 238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (ABN 61 003 245 234/AFS Licence No: 238066) is a
Market Participant with the ASX and regulated by ASIC. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant of the Taiwan Stock
Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited is a member of
the National Stock Exchange of India Limited and Bombay Stock Exchange Limited and is regulated by the Securities and Exchange Board of
India. Thailand: JPMorgan Securities (Thailand) Limited is a member of the Stock Exchange of Thailand and is regulated by the Ministry of
Finance and the Securities and Exchange Commission. Indonesia: PT J.P. Morgan Securities Indonesia is a member of the Indonesia Stock
Exchange and is regulated by the BAPEPAM LK. Philippines: J.P. Morgan Securities Philippines Inc. is a member of the Philippine Stock
Exchange and is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de Valores
Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is a
member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange Commission.
Singapore: This material is issued and distributed in Singapore by J.P. Morgan Securities Singapore Private Limited (JPMSS) [MICA (P)
020/01/2010 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the
Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the
MAS. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a
Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets Services License issued by the Securities Commission in
Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities and
Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia Ltd. is authorised by the Capital Market Authority of the Kingdom
of Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and custody, with respect to securities business under licence number
28
(1-212) 622-6684 24 May 2010
35-07079 and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 51907, Riyadh 11553, Kingdom of Saudi
Arabia. Dubai: JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial Services Authority (DFSA) and its registered
address is Dubai International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE.
Country and Region Specific Disclosures
U.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by
JPMSL. Investment research issued by JPMSL has been prepared in accordance with JPMSL's policies for managing conflicts of interest arising
as a result of publication and distribution of investment research. Many European regulators require that a firm to establish, implement and
maintain such a policy. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial
Services and Markets Act 2000 (Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must
not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only
available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons
regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in
Australia to “wholesale clients” only. JPMSAL does not issue or distribute this material to “retail clients.” The recipient of this material must not
distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the terms
“wholesale client” and “retail client” have the meanings given to them in section 761G of the Corporations Act 2001. Germany: This material is
distributed in Germany by J.P. Morgan Securities Ltd., Frankfurt Branch and J.P.Morgan Chase Bank, N.A., Frankfurt Branch which are
regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht. Hong Kong: The 1% ownership disclosure as of the previous month end
satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities
and Futures Commission. (For research published within the first ten days of the month, the disclosure may be based on the month end data from
two months’ prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider for derivative warrants issued by J.P. Morgan Structured
Products B.V. and listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx website:
http://www.hkex.com.hk/prod/dw/Lp.htm. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of
share trading, and that a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan
Securities Japan Co., Ltd., will be receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the
commission rate which was individually agreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments
Firms: JPMorgan Securities Japan Co., Ltd., Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers
Association, The Financial Futures Association of Japan. Korea: This report may have been edited or contributed to from time to time by
affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any of the
securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosures
section above. India: For private circulation only, not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This
material is issued and distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the
course of and for the purposes of their business, habitually invest money. JPMSAL does not issue or distribute this material to members of "the
public" as determined in accordance with section 3 of the Securities Act 1978. The recipient of this material must not distribute it to any third
party or outside New Zealand without the prior written consent of JPMSAL. Canada: The information contained herein is not, and under no
circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of
an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in
Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only
by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the dealer registration requirement
in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to
be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the
information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory
of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory
authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the
securities described herein, and any representation to the contrary is an offence. Dubai: This report has been issued to persons regarded as
professional clients as defined under the DFSA rules.
General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan
Chase & Co. or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any
disclosures relative to JPMSI and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is as
of the close of market for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this
material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or
solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual
client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to
particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments
mentioned herein. JPMSI distributes in the U.S. research published by non-U.S. affiliates and accepts responsibility for its contents. Periodic
updates may be provided on companies/industries based on company specific developments or announcements, market conditions or any other
publicly available information. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home
jurisdiction unless governing law permits otherwise.
“Other Disclosures” last revised March 1, 2010.
Copyright 2010 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or
redistributed without the written consent of J.P. Morgan.
29
(1-212) 622-6684 24 May 2010
30

GoM JPM

Hochgeladen von

Dokumentinformationen

Originalbeschreibung:

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

GoM JPM

Hochgeladen von

Copyright:

Verfügbare Formate

North America Equity Research

Equity Ratings and Price Targets

See page 25 for analyst certification and important disclosures.

Sorting Out the Winners and Losers

• Increased regulation and new procedures. We expect the permitting process to

We feel that we have a better handle on the impact to offshore drilling

Table 1: Summary Changes to our Models

Returns Before After % Change

FCF Before After % Change

Start Placing Orders for BOPs

Table 2: Transocean Harsh Environment Floaters

Table 3: Floater BOP Statistics

Table 3: Floaters that Require BOP Upgrades

Notably, a major drilling contractor we spoke to confirmed upgrading a BOP would

Figure 1: Ram BOPs Needed Figure 2: Annular BOPs Needed

# Annular BOPs Needed

# Annular BOPs / Rig

# Ram BOPs Needed

# Ram BOPs / Rig

Total capital expenditure impact to the offshore drillers

Table 4: Estimated Capital Required for Floater Fleet Upgrade

The limiting factor would be manufacturing capacity

Source: RigLogix, J.P. Morgan Source: RigLogix, J.P. Morgan.

Drilling Orders Drilling Backlog Total Orders Total Backlog

Source: Company reports Source: Company reports

Table 5: Estimated Change in Capex and Free Cash Flow

On an individual company basis there are several stand-outs worth highlighting. As

Could capital expenditures increases translate into higher dayrates?

Table 6: Required dayrate ($ ‘000/day)

How much could insurance premiums increase?

Although these appear to be relatively small numbers, a company the size of

Table 7: Floater BOP Statistics

Table 8: Floater BOP Statistics

Table 9: Floater BOP Statistics

Diamond Offshore: Summary of Financials

WTI crude price ($/bbl) - - - - WTI crude price ($/bbl) - - - -

Cash and cash equivalents 777 1,151 1,151 1,151 Valuation

Free cash flow 154 1,083 960 1,226

Source: Company reports and J.P. Morgan estimates.

Ensco plc: Summary of Financials

Net interest income / (expense) 0 0 0 0 Net interest income / (expense) 0 0 0 0

WTI crude price ($/bbl) - - - - WTI crude price ($/bbl) - - - -

Cash and cash equivalents 1,141 1,151 1,515 2,380 Valuation

Free cash flow 371 22 561 1,063

Source: Company reports and J.P. Morgan estimates.

Noble Corp.: Summary of Financials

WTI crude price ($/bbl) - - - - WTI crude price ($/bbl) - - - -

Cash and cash equivalents 735 1,459 2,573 4,130 Valuation

Free cash flow 642 930 1,245 1,689

Source: Company reports and J.P. Morgan estimates.

Pride International: Summary of Financials

EBITDA 650 475 769 1,082 EBITDA 128 96 112 138

Net interest income / (expense) 3 3 4 4 Net interest income / (expense) 0 1 1 1

WTI crude price ($/bbl) - - - - WTI crude price ($/bbl) - - - -

Cash and cash equivalents 763 500 500 500 Valuation

Free cash flow (381) (982) (261) 410

Source: Company reports and J.P. Morgan estimates.

Transocean: Summary of Financials

WTI crude price ($/bbl) - - - - WTI crude price ($/bbl) - - - -

Cash and cash equivalents 1,168 851 1,112 4,381 Valuation

Free cash flow 3,045 2,567 3,166 4,257

Source: Company reports and J.P. Morgan estimates.

Diamond Offshore (DO) Price Chart