Grey Wolf Inc. (GW) Wednesday, November 15 th, 2006

Background Founded In 1978 Head Quarters In Houston, TX Other Locations (Colorado, Wyoming and Louisiana) Board 7 Members (Active w/ company For 5 years or longer) Board of Directors Staggered Executive 6 Officers CEO Salary/Bonus 1.02 M, Options Exercised 4.6 M Officers Average Salary/Bonus K Officers Average Options Exercised 151.5K Insiders Hold 14.51%

Operations What is their Business? –Provide oil and gas land drilling services Industry: Oil and Gas Drilling and Exploration –Highly Cyclical, Peaks at severe weather conditions –Overall market demand for natural gas has increased

Operations Divisions - Ark-La-Tex -Gulf Coast -South Texas -Rocky Mountain -Mid-Continent District

Contracts Contracts through competitive bidding or as result of negotiations with customers 3 Major Types: Day-work - low risk/lower returns Footage - middle risk/adequate returns Turnkey - high risk/higher returns % of Revenues: Day-work – 80.41% Turnkey – 19.59% Early Termination Fees

Customers/Suppliers Independent producers and major oil and natural gas companies. No one customer accounts for more than 10% revenues Customer retention ratio/ yearly turnover Customer relationships Supplier relationships

Competitors Helmerich & Payne Inc. (HP) –$2.6 Billion Market Cap Nabors Industries Ltd. (NBR) –$9.5 Billion Market Cap Patterson-UTI Energy Inc. (PTEN) –$4.0 Billion Market Cap $331.6 total market cap GW- $1.3 Billion –

ROE (3 yr) ROAP/BP/E D/E (2005) Industry AVG25.3% GW49.8%27.06%17.0% HP19.72%4.75%12.71% NBR29.01%11.77%11.14% PTEN47.33%14.61%33.96% Financial Ratios

Pros/Cons Pros –Highly experienced management –$100 Million common stock repo –Low P/E, P/B multiples Cons –Industry is cyclical/Uncertainty –Future market demand for natural gas –Risks associated with business

Industry Outlook - Natural Gas Market Demand Expectations/Growth –Short-term factors: Weather Fuel Switching US Economy –Long-term factors: Residential Demand: –1.5% growth per year from –0.9% growth per year from Commercial –1.7% growth per year from Industrial Demand –1.2% growth per year from Electric Generation Demand –1.8% growth per year from Transportation Sector –3% of total Natural Gas Market

DCF Model – Assumptions 1) Historical revenue growth is normalized and used as a benchmark to forecast future revenue streams 2) Perpetual growth is based on several factors, reliant on long-term natural gas market expected growth is between % ( ) 3) Operating Cost Margins have improved historically with improved periods of sales growth & higher day rates & will a margin of 53.63% 4) Normalized (high/low) sales growth = 20.29% 5) Depreciation, Gen/Admin, CAPEX, and ΔNWC Margin calculated (historical average 6-yr) 6) Projected sales growth is affected by increasing day rates and new contracts despite changing oil prices

DCF Model - Calculations Discount rate (wacc): 6.42% DCF(FCFF) = $2,272,228,000 Mkt Value of Debt = $363,100,000 DCF(FCFE) = $1,909,128,000 DCF = $9.98/sh Current Price = $7.10/sh

GW – Recent Trends Overall demand for land drilling services –Recently increasing & shown with increase in rig count Day rates received for services provided –Continually increasing –Higher rates more sustainable with drilling rigs HP Level of demand for turnkey/footage services –Historically has been at an all-time low Demand for deep versus shallow drilling services –Deep drilling services prove highly profitable over shallow areas Record drilling levels in the past few years –Despite no recent significant increases in overall gas production levels

Conclusion Recommendation: Hold Company Outlook: Neutral Risks: –Sales variability (day-rates), uncertainty –Industry Cyclicality –Operational Risks Minimize cyclical trends Improve operational cost margins

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