Hornbeck Offshore Services Muneeb Ahmed and Alex Vegh 11/22/2014

Table of Contents Company Overview Investment Thesis Internal Analysis External Analysis Valuations Catalysts Risks Price Target and Conclusion

Historical Performance Company Summary Company Description Management Team Provides marine transportation services to E&P companies and U.S. military Transports petrochemicals from offshore platforms to refineries on land Offshore Supply Vessels (OSVs), Multi-Purpose Supply Vessel (MPSVs) Todd M. Hornbeck, CEO: co-founded company Carl G. Annessa, COO: experienced in naval architecture and marine engineering James O. Harp Jr., CFO: Previously served as VP in Energy Group of RBC securities. Worked with marine transportation companies in the past Historical Performance Key Facts Market Price(11/19/14) $30.93 52wk Range: 24.93 - 54.40 Market Cap: 1.09B P/E (ttm): 11.95 EPS (ttm): 2.51 Beta 1.64 Enterprise Value (EV) 1.92B

Investment Thesis Growing fleet – help generate FCF in future Super efficient – High gross margins and high utilization/dayrates Strong industry growth prospects Undervalued - comparable analysis and DCF analysis Recommendation: Buy Price Target: $37.00 Presents a 20% upside potential

One of the Largest Fleets and Growing Internal Analysis One of the Largest Fleets and Growing

Strong Revenue and EBITDA Growth Internal Analysis Strong Revenue and EBITDA Growth

Efficient Use of Fleet Assets Internal Analysis Operating Margins Efficient Use of Fleet Assets

External Analysis Strong Demand for Oil

External Analysis Industry Projections Large CAPEX from E&P companies driving demand for offshore supply vessels

External Analysis Industry Projections

External Analysis Porter’s Five Forces Analysis Bargaining power of suppliers: low 2 shipbuilders Many shipbuilders to choose from - competitive bidding process Threat of new entrants: low Threat of substitutes: low Industry rivalry: low Main customers -deepwater platforms Pipelines not economically feasible OSVs and MPSVs best option Low Requires huge capital investment (non-threat) Bargaining powers of buyers: moderate HOS has large fleet with highest DWT HOS services customers from “cradle-to-grave”

Valuation Comparable Analysis Hornbeck Offshore Services Tidewater Seacor Holdings Gulfmark Offshore Bristow Group Average Price Target Price to Earnings (TTM) 12.7 11.71 25.3 10.2 21.1 16.20 $40.18 EV/EBITDA 6.85 7.2 7.66 6.88 10.19 7.76 $38.06 Price to Book 0.84 0.7 1 0.8 1.4 0.95 $35.12 Net Income Growth (3yr Avg) 45.2 9.9 -46.7 42 12.2 12.52 Avg. PT: $37.79 Operating Margin % (TTM) 27.8 15.3 10.6 22.8 10.3 17.36 Net Margin % (TTM) 21.3 5.2 16 6.6 11.94 Return on Assets 4.08 3.66 1.08 4.01 4.72 3.51 Return on Equity 9.05 5.92 2.37 6.75 8.36 6.49

DCF Analysis WACC Calculations Sensitivity Analysis Cost of Equity Cost of Debt Rf=2.36% Rd=4.45% ß=1.63 Tax Rate=27% Rm = 5.59%   Re=7.63% Cost of Debt= 3.46% E/V=0.46 D/V=0.54 WACC = 5.26% WACC Exit Multiple 4.26% 4.76% 5.26% 5.76% 6.26% 16.3 26.59 25.28 24.09 22.99 21.98 21.3 34.48 32.95 31.54 30.24 29.02 26.3 42.38 40.62 34.00 37.48 36.06 31.3 50.27 48.29 46.45 44.73 43.11 36.3 58.16 55.96 53.90 51.97 50.15 Exit multiple: 26.3x (P/FCF) Fair Value= $34.00 Upside Potential = 13%

Catalysts and Risks Catalysts Oil price recovery Large oil discoveries in GoM and other Deepwater locations Risks Manufacturing delays Introduction of affordable, and scalable renewable energy sources Heavily affected by oil price volatility

Price Target and Conclusion Growing fleet – will help generate FCF in future Super efficient – High gross margins and high utilization/dayrates Strong industry growth prospects Undervalued in comparison with peers and based on DCF analysis Recommendation: Buy Price Target: $37.00 Presents a 20% upside potential

Thank You Questions?

Bibliography “Hornbeck Offshore Services Investor Presentation - September 2014”. PowerPoint presentation Bloomberg L.P. (2006) Stock Price of Hornbeck Offshore Services compared to Brent Crude Oil Spot Price 01/01/03 to 11/06/14. Retrieved Nov. 6, 2014 from Bloomberg database.  “Hornbeck Offshore Services." Hornbeck Offshore Services. Web. 6 Nov. 2014. <http://quote.morningstar.ca/quicktakes/Stock/s_ca.aspx?t=HOS®ion=USA&culture=en-CA>. http://www.chevron.com/chevron/pressreleases/article/10232014_chevronannouncesoildiscoveryindeepwaterusgulfofmexico.news

Appendix

DCF Analysis - Detailed HOS DCF Analysis HOS FCF calculations Previous Year (2013) 2015 2016 2017 2018 2019 Revenue Growth $ 548.10 $ 773.62 $ 850.98 $ 936.08 $ 1,020.32 $ 1,101.95 % increase - 18.80% 10.00% 9.00% 8.00% Operating Costs $ 541.53 $ 621.22 $ 702.06 $ 765.24 $ 837.48 Operating Cost Margin % 70 73 75 76 Tax expenses $ 62.66 $ 62.04 $ 63.19 $ 68.87 $ 71.41 Tax Rate 27 Net Investment 80 Working Capital $ 518.90 $ 600.89 $ 695.83 $ 744.53 $ 789.21 $ 828.67 Change in Working Capital $ 81.99 $ 94.94 $ 48.71 $ 44.67 $ 39.46 Free Cash Flows $ 7.44 $ (7.22) $ 42.13 $ 61.54 $ 73.60 HOS WACC calculations Cost of Equity (using CAPM model) Rf 2.36 ß (Beta) 1.63 Rm (using the earnings based approach- K%=E/P) 5.592841163 Re (Cost of Equity) 7.629531096 Cost of Debt Rd 2.35 Tax rate 27% Cost of Debt (after taxes) 1.7155 Cost of Equity Equity to Value (E/V) 0.46 Rf=2.36% Rd=2.35% Debt to Value (D/V) 0.54 ß=1.63 Tax Rate=27% WACC (Weighted Average Cost of Capital) 4.435954304 Rm = 5.59%   0.044359543 Re=7.63% Cost of Debt= 1.72% HOS Terminal Value 2462.013496 E/V=0.46 D/V=0.54 (using the exit multiple model) Exit multiple is 33.45 3.5098 0.9288 WACC = 4.4% EV $ 2,130.17 EV-debt $ 1,280.17 Fair Value $ 35.25 Current Shair Price $ 30.00 Upside potential 17.49036

Oil price projections  ”….falling prices curtail investment, you don’t have the same kind of growth and the market gets back in more balance” - Daniel Yergin, Pulitzer Prize winner

HOS earnings and Revenue vs Oil price

Industry projections

Industry projections Well depths are increasing and moving away from the shore

Industry projections On Oct 23, 2014, Chevron announced a new oil discovery at the Guadalupe prospect in the deepwater U.S. Gulf of Mexico.  The well is located approximately 180 miles off the Louisiana coast in 3,992 feet of water and was drilled to a depth of 30,173 feet Jay Johnson, senior vice president, Upstream, Chevron Corporation. “Our deepwater exploration and appraisal program continues to unlock important resources in the Gulf of Mexico.”

Risks-Safety RIR – Recordable Incident Rates