Diamond Offshore Drilling, Inc. April 21, 2009 Alan Lagunov, Pragnesh Podar, Gana Raman, Bilal Rathore

Offshore Drilling Diamond Offshore’s job is to drill and complete wells at the direction of customers – Completion in industry terms means preparing the well for production Rigs come with a full crew and the equipment and supplies needed to carry out the assigned task – May range from a few days to multiple years – Crews live on rigs for 14 days, then get 14 days off

Business Description Provides contract drilling services to the energy industry globally – Oil and gas Leading company in deepwater drilling One of the world’s largest fleets of offshore drilling rigs – 30 semisubmersibles – 14 jack-up units – 1 drill ship

Company History Incorporated in Delaware in 1989 Diamond Offshore is a collection of three companies – Ocean Drilling and Exploration Co. (ODECO) – Zapata Petroleum Corp. Partnership which included George H.W. Bush Purchased by Artheusa Ltd. in early 1990s – Diamond M Drilling Co. After oil collapse of 1980s, Loews bought assets of Diamond M (1989)

Company History In 1992, Diamond M bought out ODECO In 1993, changed name to Diamond Offshore Drilling, Inc. In 1995, Loews sold 30% of the company in an IPO – Wholly owned subsidiary of Loews prior to that In April 1996, acquired Artheusa Ltd. In February 2009, added to the S&P 500 index

Types of Rigs Semisubmersibles (30) – Used in water depths of 1,100 to 10,000 feet – Consist of an upper working and living deck resting on vertical columns connected to lower hull members approximately 55 feet to 90 feet below the water line – Typically anchored in position and remain stable for drilling in the semi-submerged floating position due to wave transparency characteristics at the water line – Three rigs use computer-controlled thruster (dynamic- positioning) system to maintain the rig’s position over a drill site

Types of Rigs Jack-up Units (14) – Mobile, self-elevating drilling platform equipped with legs that are lowered to the ocean floor until a foundation is established to support the drilling platform – Used in water depths of 20 to 350 feet Drill Ship (1) – Self-propelled – Positioned over a drill site through the use of either an anchoring system or a dynamic-positioning system – Used in water depths of up to 7,500 feet

Worldwide Rig Locations Total 45 rigs Source: Company Website

Source: Oil Market Report. March 2009

Key Deep Water Areas Source: Howard Weil Energy Conference. March 2009

Industry Overview Profitability depends on technical expertise and efficiency of operation. Labor Intensive Industry – Avg. Annual Rev. per Employee = $410,000 US oil and gas drilling support activities expected to grow at an annual compounded rate of 4% until Source: Hoovers Competitive Summary. April 2009

DO & Top Competitors Diamond Offshore (DO) – Market Cap: $9.64 Billion – Close (4/20/2009): $69.64 Transocean (RIG) – Market Cap: $20.49 Billion – Close (4/20/2009): $64.09 Noble (NE) – Market Cap: $6.68 Billion – Close (4/20/2009): $25.56 ENSCO (ESV) – Market Cap: $41.90 Billion – Close (4/20/2009): $29.55 Competitors from Hoovers

Comparables Source: Capital IQ

DO & Competitor 5 yr Returns Source: Google Finance

Floaters After Newbuild Deliveries Source: Howard Weil Energy Conference. March 2009

Crude Oil vs. DO Stock Price Source: Howard Weil Energy Conference. March 2009

DO Correlation with Crude Oil Spot Extremely High Correlation! R 2 = Source: Bloomberg. April 2009

DO Correlation with Rig Count Extremely High Correlation! R 2 = Source: Bloomberg. April 2009

Oil Cost Curve

Competitive Correlation

Competitor Dividends Source: Howard Weil Energy Conference. March 2009

Return on Capital Employed (From Credit Suisse) Source: Howard Weil Energy Conference. March 2009

Strengths & Weaknesses Strengths – Leading player in deepwater drilling – Recently finished upgrading three rigs in 2008 Increases efficiency and marketability – Conservative capital structure increases survivability in tough times Weaknesses – Cyclical industry with intense price competition – Heavily rely on a limited number of customers Top 5 customers accounted for 40% of revenues – Contracts do not adjust for increases in operating costs

Opportunities & Threats Opportunities – Capitalize on foreseeable growth in emerging markets – Profit from the decline in mature onshore oil fields which require offshore exploration. Threats – Worldwide demand for oil – The ability of the Organization of Petroleum Exporting Countries (OPEC) to control production levels and pricing. – Public Health for employees

Office Locations Headquarters in Houston, Texas Regional offices in Louisiana, Australia, Brazil, Indonesia, Scotland, Singapore and The Netherlands Source: Company Website

Ownership 50.4% owned by Loews Corporation(NYSE:L), a diversified holding company – Three officers from Loews serve on Diamond Offshore’s Board of Directors 94.83% owned by institutions

Key Management Executives James S. Tisch, Chairman of the Board and Director – Served as CEO until 2008 and a former CEO at Loews (parent company) Lawrence R. Dickerson, CEO, President and Director – Served in the United States Commission on Ocean Policy from Gary T. Krenek, CFO and Senior VP – Served as CFO since 2006

Valuation DCF : $63/share Triangulation: $60/share – 10% to Comp’s P/E ratio – 90% to DCF

Recommendation Write 1 Sept strike Call Contract Purchase 1 Sept strike Put Contract Execute Flat, or with slight credit to account Why? – Protection from market volatility during the summer. – Capitalize on potentially sharp price moves during the summer. – Protect downside with a net cash inflow. – Allows exit at a good price.