Offshore Drilling Rig Market Outlook

Rod Hutton ODS-Petrodata

Marine Money Conference, Oslo May 26, 2011

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Today's agenda

The offshore rig market

Newbuilds Whats happening by market segment

Jackups Midwater Deepwater North Sea

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Offshore rig market

A new round of rig building is underway Some consolidation already taking place Demand shifting to higher spec jackups Raising questions about older units Midwater rig developments restricted to harsh environment units Deepwater is the growth area
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Utilisation (%)
100.00 65.00 70.00 75.00 80.00 85.00 90.00 95.00

Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06
Jackups Drillships

The current picture

Sep-06 Jan-07 May-07

World Rig Total Contracted Utilisation Total offshore fleet January 2002 - April 2011

Semis

Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11

New rigs just keep on coming

Newbuild Rigs - Year in Service
As of May 16, 2011 2011 2012 2013 2014 2015 2016 2017 2018

Jackup (69)*

17

21

27

Semisubmersible (21)

11

Drillship (51)

14

21

* Excludes the "Iranian Ten"

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With a surge of orders in the past 12 months

New Offshore Rig Projects
Announced July 1, 2010 to May 16, 2011
50 45 40 35 30 25 20 15 10 5 0 Drillships Semis* Jackups Other Ordered/Planned Options

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30 26 19

* Includes monocolumn units

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Overall fleet makeup has changed little over the years

Offshore Fleet Make-up (if no attrition)
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1985 1995 2005 Others* Drillship Semisubmersible Jackup
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17% 7%

14% 4% 23%

12% 6% 24%

10% 12%

20%

23%

56%

60%

59%

56%

2014

*Arctic rigs, drill barges, submersibles and tender-assists

The jackup market

Global market seemingly insensitive to everything Newbuilds are adding to the fleet not replacing it with obvious consequences US market apparently in terminal decline Focus shifting to higher spec jackups

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Situation has changed considerably since the oil price crash

Jackup Utilisation Independent Leg Units
100 95 90

Contracted Utilsation (%)

85 80 75 301'+ 70 300' 65 60 0-299'

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Most but not all jackup owners going for long legs
Newbuild Jackup Orders Since 2005

301 ft and Greater Under Construction or On Order, 53

301 ft and Greater Delivered, 74

300 ft and Less Under Construction or On Order, 15

300 ft and Less Delivered, 18

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The bifurcation is forecast to continue

Rated Water Depth 300ft versus 301ft Mid-case Demand Forecast Comparison
250

Global Independent Leg Jackups

200

150

Rigs
100 301ft Mid-case Forecast 300ft Mid-case Forecast 50 0 1Q01

1Q03

1Q05

1Q07

1Q09

1Q11

1Q13

1Q15

1Q17

1Q19

Which would mean even more new jackups!

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The Midwater Fleet

Not a volatile market Niche newbuilds only Not much scope for more upgrades Widely distributed Old but serviceable

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Theres not much happening in the midwater market

Midwater Rigs: Contracted vs Non-contracted
(RWD <= 3,000 ft)
130 Not Under Contract 120 110 100 90 80 70 60 50 40 30 20 10 0 2000 Under Contract

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

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And not a lot will change outside niche markets

Midwater Rig Orders 1997 to 2011
5

Number of Orders

0 1997 1998 2005 2006 2007

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Mostly fairly old

Midwater Fleet*
Year in Service
16 14 12

Number of rigs

10 8 6 4 2 0 1970 1975 1980 1985 1990 1995 2000 2005 2010

* Drillships and semisubmersibles rated water depth 3,000 feet and less

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Deepwater market remains strong

Is it price or demand prompting new orders? There are a lot of uncontracted newbuilds in the pipeline Not to mention the normal turnover

However, the ultra-deep market in particular is holding its own and new areas are emerging

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Recent demand growth has varied widely

Regional Change in Deepwater Fleet* Contracted Rigs 2005 vs 2011**
60 50 2005 2011**

Contracted Rigs

40 30 20 10 0
Africa (West & South) Asia-Pacific Mexico & Mediterranean North America Central America & Middle East Northwest Europe South America

* Drillships and Semisubmersibles with 3,001 ft Rated Water Depth and Deeper ** January to May

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Even before the Deepwater Horizon accident there were potential problems with the deepwater and even ultra-deepwater rig markets

Rigs coming off contract (as is normal) Sublets available Backlog falling New uncontracted rigs arriving

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26 Uncontracted ultra-deep newbuilds due before 2014

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But outlook still good

Return of deepwater drilling to the US Gulf High oil price boosting E&P budgets Considerable pent-up demand in several regions e.g. interim demand off Brazil, development programmes worldwide Asia-Pacific the next hot spot ?

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North Sea outlook floaters

UK

UK Standard semi day rates have remained around USD 250,000 for 2 years Bulk of UK semi work remains short-term UK tax change may discourage drilling

Norway

Statoil tendering to create new standard water workhorse fleet, and to shift some work to well intervention units Long-term programmes still dominate in Norway, in contrast to UK sector Barriers to entry constricting Norway supply
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Smaller fields leading to falling demand

UK vs Norway semi demand
35 30 25 20 15 10 5 0 2000 Q1 2003 Q1 2006 Q1 Norway UK 2009 Q1

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Norway offering longer term work

Average new charter lengths UK vs Norway
1,800 1,600 1,400 1,200

Days

1,000 800 600 400 200 0 2000 2002 2004 UK 2006 Norway 2008 2010

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North Sea outlook jackups

Three distinct markets: Southern UK/NL/DK (21); UK Central North Sea (12); and Norway (7) Increasing high-spec supply up to 25 units capable of CNS work Southern North Sea jackups at full utilisation Older units being sold Growth in high-spec jackup market in UK and Norway High-spec market being driven by good oil price, and by competing with semi market

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Focus on North Sea high spec newbuilds

North Sea jackup supply (excluding Norway)
30

25

20

15

Rigs

10

0 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan Jul-14

Potential NS High Spec Fleet

NS Standard jackup f leet

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Final thoughts on the offshore rig market

Without significant scrapping there is probably limited upside for jackup rates Midwater market will be pressured by deepwater rigs for some years Deepwater market has some short-term issues but future still looks very good

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