Drilling Update
650
An industry entering an extended super-cycle
The deepwater offshore drilling market is positioned for four
promising years. In addition, the latest market observations
- including Petrobras charters related to the Tupi and Carioca
discovery - indicate estimated peak earnings will be extended
from 2011 until 2013-2015. We highlight our view in
this sector update.
Currently we see three- to six-year contracts with start-up in 2010/2011
supporting an incredibly strong market outlook for a long time. This would support
record earnings until at least 2011, and probably through 2015. This view is based,
for example, on: Pride and Seadrill's five and six-year contracts commencing in
2010/2011. See table below for deepwater rigs with start-up of contracts after 2009
with average contract length of 3.5 years and average day rates of USD 518,000.
Although the oil price has an indirect impact on the offshore drilling companies'
earnings, supply and demand for rigs will determine day rates and utilisation going
forward. Even with a much lower oil price than current levels we believe the demand
for oil service will be strong in the period 2008-2012 and potentially into 2014.
Meanwhile, new supply will, in our view, change the market balance after 2011,
keeping day rates stable.
With a potential extended cycle we believe in a "stronger for longer" scenario with
record day rates through 2014. In our view, Seadrill could potentially set a new level
with its 'longer than expected' contracts and 'higher than expected' day rates. In this
note we highlight our view, providing analysis of the industry and, specifically, of six
offshore drilling companies.

Contents
Drilling Update ............................................................................................... 3
In this note we look at the following issues: .................................................. 4
4Q07 highlights in drilling........................................................................... 4
Supply/demand in 2012 ............................................................................. 4
Seismic Update ............................................................................................ 13
Top pick for 2008; PGS ............................................................................ 14
The importance of geophysical services ...................................................... 14
Activity on the Norwegian Continental Shelf ................................................ 15
Wide and multi azimuth are important, but so are other acquisition techniques 17
Multiples are too low................................................................................ 19
Share price fall seems unjustified .............................................................. 20
Earnings growth and backlog .................................................................... 21
Fleet expansion ...................................................................................... 22
Seismic spending versus E&P spending....................................................... 23
Seadrill .................................................................................................... 27
Transocean............................................................................................... 34
Fred Olsen Energy ..................................................................................... 40
Songa Offshore ......................................................................................... 46
Awilco Offshore ......................................................................................... 53
Ocean Rig................................................................................................. 59
Petroleum Geo-Services.............................................................................. 64
TGS Nopec................................................................................................ 72
Wavefield Inseis ........................................................................................ 78
SeaBird Exploration.................................................................................... 84
Scan Geophysical....................................................................................... 90