1. Diamond Offshore Drilling Inc. University of Illinois at Urbana-Champaign Real Client Managed Portfolio – Pranay Damania, Chia-Chia Hu, Juan Espinosa, Gani Beket Presented, November 4, 2008

2. 2 Presentation Outline Macroeconomic Outlook Industry Outlook Company overview Business drivers Financial Analysis Recommendation

3. 3 Macroeconomic outlook Major macroeconomic variables: GDP shrinks at 0.3% p.a. in 3Q 2008 Increase in unemployment rate from 5.7% (07/08) to 6.1% (09/08) Consumer confidence index hits its lowest levels in its history Productivity index has positive tendency since 01/08 Continued high volatility in stocks markets Bearish trend in majority of commodity markets High volatility of oil prices Lack of confidence in international credit markets despite measures taken by central banks and governments Fed cut rates to 1% to mitigate fears of economic recession

4. Industry Outlook 4 R 2 = 0.78 Share price is driven by oil prices Extremely high correlation Source: finance.yahoo.com, eia.doe.gov

5. 5 Presentation Outline Macroeconomic Outlook Industry Outlook Company overview Business drivers Financial Analysis Recommendation

6. Short Term Energy Outlook Industry Outlook 6 Oil prices down 28% from a year ago and 12% last week Global recession fears heighten concerns about declining energy demand. The OPEC slashed output by 1.5 million barrels per day (5% of its production) in an attempt to stabilize plunging oil prices as recession looms.

7. 7 Global Demand Growth Industry Outlook Source: Oil Market Report. Oct, 2008

8. 8 Source: www.eia.doe.gov Strong long run fundamentals Strong demand in China and India going forward Industry Outlook Projections

9. 9 Presentation Outline Macroeconomic Outlook Industry Outlook Company overview Business drivers Financial Analysis Recommendation

10. 10 Company Overview Diamond Offshore offers offshore oil and gas drilling services to the energy industry worldwide. The company started after several banks offered a Texas rancher and oil man to take control of a bankrupt onshore drilling company in the early 1960’s. Subsequently, DO, was formed in 1964. McMahon, the owner, took the company public in 1970 and expanded into offshore waters with the building and purchase of jack-up, barge, and semisubmersible rigs.

11. Company Overview 11 Fleet of 46 offshore rigs: 30 Semi-submersibles 15 Jack-ups 1 Drill-ship Objective - achieve optimum balance of flexibility and performance More than 4 decades of global drilling experience, working in the harshest environments 5,400 employees Headquartered in Houston, Texas, and offices globally 51% Owned by Lowes Corp (NYSE: LTR) Experienced top-level management

12. Company Overview Business Profile 12 Oil companies drill two basic types of wells - Exploratory (exploring new oil or gas deposits) - Development (preparing discovery for production) The Operator hires DO to drill exploratory/development wells offshore The Oil Company chooses the location and supervises the operation, which may take 15 days to 12 months DO drills and prepares wells for production in accordance with the requirements DO charges drilling day-rates for leasing fleet of offshore oil rigs regardless of results

13. Backlog As at July 1, 2008 the backlog reached $11 billion Semisubmersible fleet is almost fully booked out in 2008-2009 13 Source: 10K, 10Qs

14. Company Overview Strengths Leading deepwater drilling contractor Strong long term demand for crude oil Strong backlog International diversification Weaknesses High volatility of oil and gas prices High costs to repair and maintain equipment during periods of high sustained utilization High fixed cost when a rig is idle Expensive to retain high skilled workers Opportunities Increased incentive for oil and gas exploration worldwide as reserves become scarce Demand for equipment exceeding supply, triggering high day-rates for rigs. Threats Economic recession Downward trend in oil and gas prices. Increased competition for skilled workers. Political instability. 14 SWOT Analysis

15. 15 Presentation Outline Macroeconomic Outlook Industry Outlook Company overview Business drivers Financial Analysis Recommendation.

16. TypeNominal Water Depth (Feet)*Average Day-rate** High-Specification Floaters Semisubmersibles (12) 3,500 - 10,000$411,000 (+25% YOY) Intermediate Semisubmersibles (19)1,1000 - 4,000$297,000 (+41% YOY) Jack-ups (15)200 - 350$122,000 (+2% YOY) *2007 10-K **2008 10Q’s Semisubmersible Jack-up Drillship Business drivers The Fleet – Focused on Deep/Medium water 16

17. Deepwater Drilling Business drivers 17 Source: fearnley offshore

18. Deepwater day rates 18 Source: Company Presentation 9/3/08 Business drivers

19. Global Offshore Expenditures 19 Continued growth in offshore drilling, despite drop in oil prices, as E&P companies scramble to replace their aging reserves. Business drivers

20. 19 Presentation Outline Macroeconomic Outlook Industry Outlook Company overview Business drivers Financial Analysis Recommendation.

21. Peer Group Comparison – Business Focus Financial Analysis 21 Highly competitive industry Numerous industry participants Transocean– Offshore Oil Drilling Noble Corp.– Offshore Oil Drilling ENSCO Intl.– Offshore Oil Drilling Rowan Co.– Offshore Oil and Land Drilling Pride Intl.– Offshore Oil and Land Drilling

22. Peer Group Comparison Financial Analysis 22 Metric Diamond (DO) Transocean (RIG)Noble (NE) ENSCO (ESV) Jack-ups15654345 Semisubmersibles3054131 Submersibles--3- Drill-ships1143- Other-4-1 Total461376247

23. 5 Yr Stock price – DO, NE, ESV, RIG, S&P500 Financial Analysis 23

24. Comparison : Peer Companies Financial Analysis 24 DORIGNEESV Market Capitalization$9.28 Bn$22.03 Bn$6.77 Bn$4.77 Bn Revenue (ttm)$3.05 Bn$9.83 Bn$3.30 Bn$2.30 Bn Quarterly Revenue Growth (yoy)47.10%116.30%12.00%16.10% Gross Margin (ttm)60.98%58.21%64.89%67.04% EBITDA (ttm)$1.80 Bn$5.04 Bn$2.05 Bn$1.51 Bn Operating Margins (ttm)50.43%46.17%52.25%56.66% Net Income (ttm)$1.08 Bn$4.33 Bn$1.43 Bn$1.07 Bn EPS (ttm)7.74415.6215.2967.448 P/E (ttm)8.624.424.754.47 PEG (5 yr expected)0.250.310.210.27 P/S (ttm)3.382.522.312.36

25. Ratio Analysis : DuPont Financial Analysis 25 20072006200520042003 Revenues 2,567.70 2,052.60 1,221.00 814.70 680.90 Net Income 846.50 706.80 260.30 (7.20) (48.40) Total Assets 4,237.15 3,869.85 3,493.15 3,257.20 3,135.00 Total Equity 2,598.30 2,086.40 1,739.55 1,653.15 1,680.50 Net Profit Margin 32.97%34.43%21.32%-0.88%-7.11% Asset Turnover 0.610.530.350.250.22 Leverage 1.631.852.011.971.87 ROA 19.98%18.26%7.45%-0.22%-1.54% Return on Equity (ROE) 32.58%33.88%14.96%-0.44%-2.88%

26. Historical average day rates DCF assumptions 26 200320042005200620071H08 Average price of oil 27.11 34.62 49.87 60.32 69.19 102.360 High-Specification Floaters WA dayrates 95,300 96,138 138,457 221,650 322,396 374,048 % growth in day rates0.9%44.0%60.1%45.5%16.0% Intermediate specification floaters WA dayrates 57,800 58,348 75,553 133,660 174,230 282,867 % growth in day rates0.9%29.5%76.9%30.4%62.4% Jack-ups WA dayrates 28,100 37,050 61,428 97,957 107,070 99,939 % growth in day rates31.9%65.8%59.5%9.3%-6.7% Source: 10Qs,10Ks, company data

27. Projected day rates DCF assumptions 27 2008E*2009E*2010E2011E2012E2013E2014E2015E Average projected oil price 6065 70 75 80 High-Specification Floaters WA dayrates 401,533 400,139 322,396 306,276 315,464 331,238 354,424 382,778 % growth in day rates7.3%-0.3%-19.4%-5.0%3.0%5.0%7.0%8.0% Intermediate specification Floaters WA dayrates 229,172 311,977 174,230 165,518 170,484 179,008 191,538 206,861 % growth in day rates-19.0%36.1%-44.2%-5.0%3.0%5.0%7.0%8.0% Jack-ups WA dayrates 126,212 120,335 107,070 96,363 99,254 104,217 111,512 120,433 % growth in day rates26.3%-4.7%-11.0%-10.0%3.0%5.0%7.0%8.0% *Based on company’s backlog as at September 22, 2008 Source: 10Qs,10Ks, company data, team estimates

28. Sales projections 28 DCF assumptions 2008E*2009E**2010E2011E2012E2013E2014E2015E REVENUE 3,589,051 4,020,020 2,724,163 2,627,567 2,740,937 2,877,984 3,079,443 3,325,798 Reimbursabl e Expenses 107,672 120,601 81,725 78,827 82,228 86,340 92,383 99,774 TOTAL 3,696,723 4,140,621 2,805,888 2,706,393 2,823,165 2,964,323 3,171,826 3,425,572 % growth44.0%12.0%-32.2%-3.5%4.3%5.0%7.0%8.0% 20032004200520062007 CONTRACT DRILLING REVENUE 652,098 782,405 1,179,015 1,987,114 2,505,663 Reimbursable Expenses 28,843 32,257 41,987 65,458 62,060 TOTAL REVENUES 680,941 814,662 1,221,002 2,052,572 2,567,723 % growth 19.6%49.9%68.1%25.1% *Based on 9month actual figures + backlog for 4Q 2008 **2009 backlog as at September 22, 2008 Source: 10Qs,10Ks, company data, team estimates

29. Model inputs 29 DCF assumptions Input nameValueSource Beta1.05bloomberg, finance.yahoo.com RF4.00%yield on 10-yr t-bonds Rm6%g.a. historical Rm Re10.30% Rd4.94%bloomberg, yield on debt LT Debt$503,071 MVE$10,088,693Current market cap MVD$503,071Book value of LT debt VF$10,591,764 g4% Tax Rate27%Effective income tax rate Debt/FV Equity/FV95.25% WACC9.98%

30. DCF valuation 30 DCF Valuation Description Value Sum of P.V. of FCF$14,382,113 Minus Outstanding Debt($503,071) Plus: Cash and ST investments$639,262 Equity Value$14,518,304 Divided by shares outstanding$104.45 Equals Value +/- 10%$115- $94 Source: 10Qs, company data, team estimates

31. DCF valuation 31 Sensitivity analysis WACC 8.00%8.50%9.00%9.98%10.00%10.50%11.00% Terminal Value 2.00%$114.43$105.66$98.15$86.16$85.95$80.93$76.47 2.50%$121.82$111.74$103.22$89.83$89.59$84.06$79.18 3.00%$130.68$118.93$109.13$94.01$93.75$87.60$82.22 3.50%$141.52$127.55$116.12$98.85$98.55$91.65$85.67 4.00%$155.06$138.09$124.51$104.49$104.15$96.32$89.61 4.50%$172.47$151.26$134.76$111.16$110.76$101.76$94.15 5.00%$195.69$168.20$147.58$119.17$118.70$108.20$99.45 Source: team estimates

32. Correlation 32 Correlation with RCMP Portfolio Source: finance.yahoo.com DOAEEAEOCPRTFRJKHYKMBWFRSRCLWAG DO 1.0000 AEE 0.5831 1.0000 AEO 0.2948 0.4005 1.0000 CPRT 0.1719 0.2141 0.3782 1.0000 FR 0.2557 0.3189 0.3701 0.2575 1.0000 JKHY 0.2207 0.5348 0.4475 0.2232 0.4793 1.0000 KMB 0.3517 0.6763 0.3815 0.1864 0.4014 0.5516 1.0000 WFR 0.3723 0.2980 0.3266 0.3332 0.3471 0.3212 0.3164 1.0000 SRCL 0.3223 0.4375 0.3062 0.1687 0.3424 0.3126 0.5336 0.3489 1.0000 WAG 0.1944 0.3361 0.3084 0.3340 0.2277 0.2245 0.2827 0.2107 0.26411.0000

33. Current Portfolio RCMP Portfolio 33

34. Current Position RCMP purchased 100 shares of DO on February 28th, 2008 for $122.90/share Currently DO is trading at $83.67 as of November 3, 2008 for an unrealized loss of $3,923 or 31.92% 34 RCMP Portfolio

35. 35 Presentation Outline Macroeconomic Outlook Industry Outlook Company overview Business drivers Financial Analysis Recommendation

36. Intrinsic Value = $94 - $115 ▫ High intrinsic value with conservative assumptions ▫ Strong long-term growth potential in deepwater drilling Current Market Price = $83.67 BUY 50 Shares 36 RCMP Portfolio

37. Thank You