ESV Ensco plc Sector: Energy SELL

Analysts: Spencer Elkinton, Jake Gregg and Adam Smith Washburn University Applied Portfolio Management ESV Sector: Energy SELL Report Date: 4/18/2016 Market Cap (mm) $2,013 Annual Dividend.60 2 Yr Beta (S&P 500 Index) 1.71 Return on Capital 11.8% Dividend Yield 6.9% Annualized Alpha 103.9% Compared With: EPS (ttm) $6.88 Price/Earnings (ttm) 1.3 Institutional Ownership 10.8% Transocean Ltd. Current Price $8.67 Economic Value Added (ttm) $587 Short Interest (% of Shares) 9.7% Noble Corporation plc 12 mo. Target Price $9.00 Free Cash Flow Margin 78.3% Days to Cover Short 2.8 and the S&P 500 Index Business Description provides offshore contract drilling services to the oil and gas industry worldwide. It operates through three segments: Floaters, Jackups, and Other. The company owns and operates an offshore drilling rig fleet of 68 rigs, including 4 rigs under construction located in the Middle East and Africa, the Asia Pacific, Europe, North and South America, Europe, and the Mediterranean. It also offers management services on rigs owned by third parties. The company serves government owned and independent oil and gas companies. was founded in 1975 and is headquartered in London, the United Kingdom. 2 1 1 2 3 4 5 6 7 8 ESV RIG NE Investment Thesis Due to the downturn in the oil market, Ensco has faced heavy competition in the offshore drilling industry as prices have fallen due to the effect of over supply in the market. Ensco has been forced to reduce its fleet of floaters and jackups by 31% over the past year. Projected slow recovery in the oil industry will cause the current negative conditions to continue for ESV for the forseeable future. The negative economic outlook leads us to believe energy options other than offshore drilling would be better suited for the Student Investment Fund. Revenue is expected to decline through 2018, and ESV's annual dividend has been cut to $.04 and is projected to be cut entirely. The market is not expected to correct severe undervaluation through 2020, due to the expected slow recovery of the oil industry. The original investment thesis no longer supports the SIF owning ESV. ANNUALIZED 3 YEAR CAGR Total Revenue 3.7% Free Cash Flow 160. EBIT 2.3% Total Invested Capital 3.2% NOPAT 9.1% Total Assets 9.8% Earnings Per Share 210.4% Economic Value Added 58.5% Dividends Per Share 26.3% Market Value Added 218.8% 1 1 2 3 4 5 6 7 8 2 1 1 2 3 4 5 6 ESV ^SPX ROA ROE ROIC Margins and Yields Operating Margin Free Cash Flow Margin Earnings Yield Dividend Yield Per Share Metrics Earnings Dividends NOPAT Free Cash Flow 27.9% 38.6% 40.1% 39.8% 37. N/A 5. 13.3% 52.5% 78.3% 6.7% 8.6% 10.7% 56.3% 44.6% 3. 2.5% 3.9% 10. 3.9% 3.12 5.10 6.14 (16.85) (6.87) 1.40 1.50 2.25 3.00 0.60 3.42 5.05 6.57 7.85 6.47 N/A 0.79 2.49 10.34 13.70 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 EBIT Net Operating Profit After Tax $1,000 $800 $600 $400 $200 $200 $400 Economic Value Added Market Valued Added $1,000 $1,000 $3,000 $4,000 80 70 60 50 40 30 20 10 0 Price/Earnings Price/Free Cash Flow Datasource: Capital IQ

ESV Sector Energy Transocean Ltd. RIG Sector Energy Income Statement Highlights Income Statement Highlights Total Revenue 2,798 3,639 4,323 4,565 4,063 Total Revenue 8,027 8,945 9,249 9,174 6,953 Cost of Goods Sold 1,449 1,643 1,947 2,077 1,870 Cost of Goods Sold 5,179 5,103 5,563 5,129 3,743 Gross Profit 1,349 1,996 2,376 2,488 2,194 Gross Profit 2,848 3,842 3,686 4,045 3,210 SG&A Expense 159 149 147 132 118 SG&A Expense 288 282 286 234 193 R&D Expense 0 0 0 0 0 R&D Expense 0 0 0 0 0 Dep. & Amort. 409 444 496 538 573 Dep. & Amort. 1,109 1,122 1,109 1,139 963 Other Oper. Exp. 0 0 0 0 0 Other Oper. Exp. 0 0 0 0 0 Operating Income 781 1,403 1,733 1,818 1,503 Operating Income 1,451 2,438 2,291 2,672 2,054 Interest Expense (96) (124) (159) (161) (216) Interest Expense (621) (723) (584) (483) (432) Other Non Oper. Exp. 16 2 12 1 6 Other Non Oper. Exp. (99) (25) (10) 21 37 EBT ex Unusuals 718 1,305 1,603 1,670 1,302 EBT ex Unusuals 775 1,746 1,749 2,249 1,681 Total Unusual Exp. 5 0 31 (4,219) (2,774) Total Unusual Exp. (6,213) (862) (93) (4,049) (651) Earnings Before Tax 723 1,305 1,633 (2,549) (1,471) Earnings Before Tax (5,438) 884 1,656 (1,800) 1,030 Income Tax Expense 115 229 203 141 (14) Income Tax Expense 324 52 258 146 206 Net Income 600 1,170 1,418 (3,903) (1,595) Net Income (5,754) (219) 1,407 (1,913) 791 Earnings per Share $3.12 $5.10 $6.14 $16.85 $6.87 Earnings per Share $17.87.62 $3.91 $5.28 $2.18 Dividends per Share $1.40 $1.50 $2.25 $3.00.60 Dividends per Share $3.16.00 $2.24 $3.00.30 Effective Tax Rate 15.96% 17.52% 12.44% Effective Tax Rate 5.88% 15.58% 2 Total Common Shares 192 229 231 232 232 Total Common Shares 322 356 360 362 363 Year end Stock Price $46.92 996 $59.28 997 $57.18 998 $29.95 999 $15.39 1000 Year end Stock Price $38.39 996 $44.66 997 $49.42 998 $18.33 999 $12.38 1000 Balance Sheet Highlights Balance Sheet Highlights Assets Assets Cash and Equivalents 431 487 166 665 121 Cash and Equivalents 4,017 5,134 3,243 2,635 2,339 Short Term Investments 37 50 50 757 1,180 Short Term Investments 0 0 0 0 0 Total Cash & ST Invest. 467 537 216 1,422 1,301 Total Cash & ST Invest. 4,022 5,140 3,243 2,635 2,339 Total Receivables 852 811 856 883 582 Total Receivables 2,213 2,235 2,168 2,120 1,379 Inventory 201 208 256 240 235 Inventory 529 610 737 818 635 Prepaid Expenses 87 83 107 124 94 Prepaid Expenses 0 0 0 0 0 Total Current Assets 1,681 1,724 1,535 2,891 2,285 Total Current Assets 7,536 8,647 6,772 5,840 4,785 Net PPE 12,422 13,146 14,311 12,535 11,088 Net PPE 20,788 20,880 21,707 21,538 20,818 Total Assets 17,899 18,565 19,473 16,041 13,637 Total Assets 35,032 34,255 32,546 28,571 26,329 Liabilities and Equity Liabilities and Equity Accounts Payable 644 358 341 373 225 Accounts Payable 880 1,047 1,106 784 448 Accrued Expenses 229 299 310 298 250 Accrued Expenses 602 693 684 560 489 Short Term Debt 125 0 0 0 0 Short Term Debt 0 0 0 0 0 Total Current Liab. 1,333 990 1,047 1,102 776 Total Current Liab. 5,528 5,463 3,554 3,769 2,669 Long Term Debt 4,878 4,798 4,719 5,886 5,895 Long Term Debt 10,721 10,455 9,762 8,425 6,829 Total Liabilities 7,014 6,713 6,674 7,818 7,120 Total Liabilities 19,289 18,525 15,861 14,578 11,513 Preferred Equity 0 0 0 0 0 Preferred Equity 0 0 0 0 0 Common Stock & APIC 5,277 5,423 5,491 5,542 5,579 Common Stock & APIC 12,193 12,651 11,931 10,966 10,932 Retained Earnings 5,613 6,435 7,327 2,720 985 Retained Earnings 4,180 3,855 5,262 3,349 4,140 Treasury Stock (19) (31) (45) (59) (64) Treasury Stock (240) (240) (240) (240) (240) Total Common Equity 10,879 11,846 12,792 8,215 6,513 Total Common Equity 15,637 15,745 16,691 13,671 14,498 Total Equity 10,885 11,852 12,799 8,223 6,517 Total Equity 15,743 15,730 16,685 13,993 14,816 Total Liab. and Equity 17,899 18,565 19,473 16,041 13,637 Total Liab. and Equity 35,032 34,255 32,546 28,571 26,329 1. Margins and Profitability ESV, Page 2 of 21 Copyright Robert A. Weigand, Ph.D., 2016

ESV RIG Transocean Ltd. Profit Margins Profit Margins Gross Profit Margin 48.2% 54.9% 55. 54.5% 54. Gross Profit Margin 35.5% 43. 39.9% 44.1% 46.2% Operating Profit Margin 27.9% 38.6% 40.1% 39.8% 37. Operating Profit Margin 18.1% 27.3% 24.8% 29.1% 29.5% Net Profit Margin 21.5% 32.1% 32.8% 85.5% 39.2% Net Profit Margin 71.7% 2.4% 15.2% 20.9% 11.4% Free Cash Flow Margin N/A 5. 13.3% 52.5% 78.3% Free Cash Flow Margin N/A 13.9% 32.4% 32.4% 45.7% 6 Gross Profit Margin Operating Profit Margin 6 Gross Profit Margin ESV RIG 5 Gross Profit Margin Operating Profit Margin 5 4 3 2 1 5 4 3 2 1 4 3 2 1 45. 40. 35. 30. 25. 20. 15. 10. 5. 0. Operating Profit Margin ESV RIG Net Profit Margin ESV RIG 40. 20. 0. 20. 40. 60. 80. 100. Free Cash Flow Margin ESV RIG 90. 80. 70. 60. 50. 40. 30. 20. 10. 0. Analyst Comments: Profit margins measure a company's ability to convert revenues to profit. Ensco's gross and operating margins are in consolidation; operating margins falling 2.8% from 2014 to 2015 due to rising depreciation and amortization expenses. ESV's net profit margin fell negative to 85.5% in 2014 and remained negative through 2015 as ESV wrote off large amount of assets and impaired goodwill, resulting in negative net income. RIG has grown gross and operating profit margins from 2013 through 2015 by maintaining expenses even though revenue has fallen. RIG wrote off assets and impaired goodwill in 2014, generating negative net income, resulting in a 20.9% net profit margin. Both ESV and RIG have written off all goodwill. Gross and operating profit margins are at healthy levels due to efficient cost management, signaling a strong financial position, though negative net profit margins a red flag to investors in the present. 1. Margins and Profitability ESV, Page 3 of 21 Copyright Robert A. Weigand, Ph.D., 2016

ESV RIG Transocean Ltd. Profitability Ratios Profitability Ratios Net Profit Margin 21.5% 32.1% 32.8% 85.5% 39.2% Net Profit Margin 71.7% 2.4% 15.2% 20.9% 11.4% Total Asset Turnover 0.2 0.2 0.2 0.3 0.3 Total Asset Turnover 0.2 0.3 0.3 0.3 0.3 = Return on Assets 3.4% 6.3% 7.3% 24.3% 11.7% = Return on Assets 16.4% 0.6% 4.3% 6.7% 3. Equity Multiplier 1.6 1.6 1.5 2.1 Equity Multiplier 2.2 2.2 1.8 = Return on Equity 5.5% 9.9% 11.1% 47.5% 24.5% = Return on Equity 36.5% 1.4% 8.4% 13.7% 5.3% 2 1 1 2 3 4 5 6 Return on Assets Return on Equity 0.4 0.3 0.3 0.2 0.2 0.1 0.1 Total Asset Turnover ESV RIG 2 1 1 2 3 4 Return on Assets Return on Equity 2.5 1.5 1.0 0.5 Equity Multiplier ESV RIG 10. 5. 0. 5. 10. 15. 20. 25. 30. Return on Assets ESV RIG 20. 10. 0. 10. 20. 30. 40. 50. 60. Return on Equity ESV RIG Analyst Comments: Profitability ratios indicate returns earned on deployment of assets and equity. ESV's negative ROA 2014 2015 is driven by asset write offs resulting in negative net income, while total equity in 2015 has fallen to half the levels realized in 2013. Assets originally scheduled to go on ESV's books in 2015 have been intentionally delayed in order to improve ROA. RIG also recorded negative ROA and ROE in 2014, though RIG was able to recover and generate positive ratios in 2015. ESV outperformed RIG's total asset turnover for the first time in 2015, rising a fractional amount from 0.2 to 0.3 in 2014, mirroring RIG's low total asset turnover. Assets and equity are skewed to the negative due to massive asset and goodwill impairment write offs generating negative net income. 1. Margins and Profitability ESV, Page 4 of 21 Copyright Robert A. Weigand, Ph.D., 2016

ESV RIG Transocean Ltd. Multiples and Yields Multiples and Yields Price/Earnings 15.0 11.6 9.3 N/A N/A Price/Earnings N/A N/A 12.6 N/A 5.7 Price/Book 0.5 0.7 0.7 0.4 0.3 Price/Book 0.4 0.5 0.5 0.2 0.2 Price/Free Cash Flow N/A 75.1 23.0 2.9 1.1 Price/Free Cash Flow N/A 12.8 5.9 2.2 1.4 Earnings Yield 6.7% 8.6% 10.7% 56.3% 44.6% Earnings Yield 46.5% 1.4% 7.9% 28.8% 17.6% Dividend Yield 3. 2.5% 3.9% 10. 3.9% Dividend Yield 8.2% 0. 4.5% 16.4% 2.4% 8 7 6 5 4 3 2 1 Price/Earnings Price/Free Cash Flow 14.0 1 1 8.0 6.0 4.0 Price to Earnings ESV RIG 14.0 1 1 8.0 6.0 4.0 Price/Earnings Price/Free Cash Flow 20. 10. 0. 10. 20. 30. 40. 50. 60. Earnings Yield Dividend Yield 30. 20. 10. 0. 10. 20. 30. 40. 50. 60. Earnings Yield ESV RIG 20. 10. 0. 10. 20. 30. 40. Earnings Yield Dividend Yield 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 Price to Book ESV RIG 18. 16. 14. 12. 10. 8. 6. 4. 2. 0. Dividend Yield ESV RIG 8 7 6 5 4 3 2 1 Price to Free Cash Flow ESV RIG Analyst Comments: Relative valuation expresses stock price as a multiple to support the stock's intrinsic value. ESV's price to book ratio is most indicative of its current position as book value has declined at 16% in the past two years while stock price has fallen 48% over the same period, creating a sharp downward trend. ESV's recorded negative earnings have resulted in a lack of P/E ratios in 2014 and 2015. Price to free cash flow has dropped from 75.1 in 2012 to 1.1 in 2015 as stock price has fallen rapidly while free cash flow has increased since 2012. Dividend yield has fallen from a high of 1 in 2014 to 3.9% in 2015 as ESV cut the annual dividend $2.40 from 2014 to 2015. RIG's dividend yield is also exaggerated, driven by a $2.70 cut in annual dividends from 2014 to 2015. Though both companies' dividend yields are in decline, ESV's yield has experienced less volatility and has outpaced RIG's yield in 2015. Falling price to book and dividend yields driven by dividend cuts are a negative sign to dividend seeking investors. 2. Relative Valuation and Debt ESV, Page 5 of 21 Copyright Robert A. Weigand, Ph.D., 2016

ESV RIG Transocean Ltd. Liquidity and Debt Liquidity and Debt Current Ratio 1.26 1.74 1.47 2.62 2.95 Current Ratio 1.36 1.58 1.91 1.55 1.79 Quick Ratio 1.11 1.53 1.22 2.41 2.64 Quick Ratio 1.27 1.47 1.70 1.33 1.55 Days Sales Outstanding 111.12 81.39 72.24 70.63 52.28 Days Sales Outstanding 100.63 91.20 85.56 84.35 72.39 Inventory Turnover 13.89 17.51 16.86 19.00 17.27 Inventory Turnover 15.17 14.66 12.55 11.22 10.95 Total Debt to Assets 27.9% 25.8% 24.2% 36.7% 43.2% Total Debt to Assets 30.6% 30.5% 30. 29.5% 25.9% Long Term Debt to Equity 44.8% 40.5% 36.9% 71.6% 90.5% Long Term Debt to Equity 68.6% 66.4% 58.5% 61.6% 47.1% Times Interest Earned 8.14 11.35 10.91 11.26 6.95 Times Interest Earned 2.34 3.37 3.92 5.53 4.75 3.5 3.0 2.5 1.5 1.0 0.5 Current Ratio Quick Ratio 3.5 3.0 2.5 1.5 1.0 0.5 Current Ratio ESV RIG 2.5 1.5 1.0 0.5 Current Ratio Quick Ratio 12 Days Sales Outstanding Inventory Turnover 5 Total Debt to Assets ESV RIG 12 Days Sales Outstanding Inventory Turnover 10 8 6 4 2 4 3 2 1 10 8 6 4 2 10 8 6 4 2 Total Debt to Assets Long-Term Debt to Equity 10 8 6 4 2 Long-Term Debt to Equity ESV RIG 80. 70. 60. 50. 40. 30. 20. 10. 0. Total Debt to Assets Long-Term Debt to Equity Analyst Comments: Debt ratios measure a company's ability to pay off and strategically manage debt. ESV's increasing current and quick ratios indicate its increase in current assets to current liabilities, a signal that they want to remain as liquid and able to cover unexpected expenses as possible. Current and quick ratios above 2.5 is a concern as current assets with no return are held in excess: a sign of management's concern to stay liquid is outweighing a choice to invest in financial vehicles to earn returns. Total debt to equity has increased rapidly since 2013, driven by falling equity while debt remains relatively constant as it is cheaper. ESV is reducing assets, resulting in a 2 rise in debt to assets since 2013. RIG has maintained a constant current ratio relative to ESV, indicating lower liquidity and higher confidence in current position. RIG's mild decline in debt to assets indicates a proportionate decline in debt as assets are written off, while ESV continues to increase debt while assets are simultaneously written off. ESV is overprepared for short term obligations, indicating possible mismanagement of current assets, coupled with an increase in leverage. 2. Relative Valuation and Debt ESV, Page 6 of 21 Copyright Robert A. Weigand, Ph.D., 2016

ESV RIG Transocean Ltd. Total Invested Capital Total Invested Capital Total Cash and ST Investments 467 537 216 1,422 1,301 Total Cash and ST Investments 4,022 5,140 3,243 2,635 2,339 + Receviables 852 811 856 883 582 + Receviables 2,213 2,235 2,168 2,120 1,379 + Inventory 201 208 256 240 235 + Inventory 529 610 737 818 635 Accounts Payable 644 358 341 373 225 Accounts Payable 880 1,047 1,106 784 448 Accrued Expenses 229 299 310 298 250 Accrued Expenses 602 693 684 560 489 = Net Oper. Working Capital 647 900 677 1,875 1,644 = Net Oper. Working Capital 5,282 6,245 4,358 4,229 3,416 + Net Property, Plant & Equip. 12,422 13,146 14,311 12,535 11,088 + Net Property, Plant & Equip. 20,788 20,880 21,707 21,538 20,818 = Total Invested Capital 13,069 14,045 14,988 14,410 12,732 = Total Invested Capital 26,070 27,125 26,065 25,767 24,234 Total Weighted Shares 192 229 231 232 232 Total Weighted Shares 322 356 360 362 363 = Total Invested Capital/Share $68.00 $61.23 $64.91 $62.22 $54.83 = Total Invested Capital/Share $80.96 $76.19 $72.40 $71.18 $66.76 Net Property, Plant & Equip. Total Invested Capital Total Invested Capital per Share ESV RIG Net Property, Plant & Equip. Total Invested Capital $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $90 $80 $70 $60 $50 $40 $30 $20 $10.00 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 ESV RIG Transocean Ltd. NOPAT and Free Cash Flow NOPAT and Free Cash Flow Operating Income (EBIT) 781 1,403 1,733 1,818 1,503 Operating Income (EBIT) 1,451 2,438 2,291 2,672 2,054 (1 Effective Tax Rate) 16. 17.5% 12.4% 0. 0. (1 Effective Tax Rate) 0. 5.9% 15.6% 0. 20. = Net Oper. Profit After Tax 656 1,157 1,518 1,818 1,503 = Net Oper. Profit After Tax 1,451 2,295 1,934 2,672 1,643 Total Invested Capital N/A 976 943 (578) (1,678) Total Invested Capital N/A 1,055 (1,060) (298) (1,533) = Free Cash Flow N/A 181 575 2,396 3,181 = Free Cash Flow N/A 1,240 2,994 2,970 3,176 NOPAT per Share $3.42 $5.05 $6.57 $7.85 $6.47 NOPAT per Share $4.51 $6.45 $5.37 $7.38 $4.53 Free Cash Flow per Share N/A.79 $2.49 $10.34 $13.70 Free Cash Flow per Share N/A $3.48 $8.32 $8.20 $8.75 $3,500 $3,000 $2,500 $1,500 $1,000 $500 Net Operating Profit After Tax Free Cash Flow $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $0 $1.00.00 NOPAT per Share ESV RIG $3,500 $3,000 $2,500 $1,500 $1,000 $500 Net Operating Profit After Tax Free Cash Flow Analyst Comments: NOPAT measures a company's pre tax operating profit, and free cash flow measures NOPAT less invested capital, or the remaining cash available to pay out to investors. Net PPE has been declining at a faster rate than total invested capital, meaning ESV is holding a higher balance of net operating working capital. This means that ESV is trading hard assets for working capital. NOPAT rose through 2014, then decreased by 17% from 2014 to 2015, while RIG's free cash flow fell 23% over the same period. ESV's free cash has risen $3 billion since 2012, while RIG's free cash flow has remained around $3 billion since 2013. These free cash flows are inflated by decreases in total invested capital for both RIG and ESV, as both companies have scaled back investments when the oil market downturned. Positive and increasing free cash flow coupled with careful management of invested capital is a positive signal to investors. 3. Value Creation and DCF Model ESV, Page 7 of 21 Copyright Robert A. Weigand, Ph.D., 2016

ESV RIG Transocean Ltd. Cost of Capital 2015 Weight % Cost Weighted % Cost of Capital 2015 Weight % Cost Weighted % Equity Capitalization $3,574 37.7% 11.752% 4.435% Equity Capitalization $4,494 39.7% 12.592% 4.998% + Total Debt $5,895 62.3% 5.00 2.756% + Total Debt $6,829 60.3% 5.00 2.412% + Preferred Stock 0. 0 0 + Preferred Stock 0. 0 0 = Value of All Securities $9,469 100. = Value of All Securities $11,323 100. Effective Tax Rate 11.48% Alternative RF Rate: Effective Tax Rate 2 Alternative RF Rate: Risk Free Rate 1.742% 1.742% Risk Free Rate 1.742% 1.742% Beta (5 Yr) 1.430 Alternative Beta: 1.67716 Beta (5 Yr) 1.550 Alternative Beta: 1.88372 Market Risk Premium 7. 1.430 Market Risk Premium 7. 1.550 CAPM Cost of Equity 11.752% CAPM Cost of Equity 12.592% Weighted Average Cost of Capital: 7.191% Weighted Average Cost of Capital: 7.41 7.191% 7.191% 7.191% 7.191% 7.191% ESV RIG Transocean Ltd. ROIC, EVA and MVA ROIC, EVA and MVA Return on Invested Capital 5. 8.2% 10.1% 12.6% 11.8% Return on Invested Capital 5.6% 8.5% 7.4% 10.4% 6.8% Economic Value Added 283 147 440 782 587 Economic Value Added 481 285 3 763 153 Market Valued Added 1,861 1,752 411 1,279 2,939 Market Valued Added 3,275 154 1,100 7,036 10,004 EVA per Share ($1.47).64 $1.91 $3.37 $2.53 EVA per Share ($1.49).80.01 $2.11 (.42) MVA per Share ($9.68) $7.64 $1.78 ($5.52) ($12.66) MVA per Share ($10.17).43 $3.06 ($19.44) ($27.56) 1,000 800 600 400 200 0 200 400 Economic Value-Added Market Valued-Added 2,000 1,000 0 1,000 2,000 3,000 4,000 $4.00 $3.00 $0 $1.00.00 $1.00 $0 EVA per Share ESV RIG 1,000 800 600 400 200 0 200 400 600 Economic Value-Added Market Valued-Added 2,000 0 2,000 4,000 6,000 8,000 10,000 12,000 2 1 1 2 3 4 5 6 Return on Invested Capital Return on Equity Return on Invested Capital ESV RIG 14. 12. 10. 8. 6. 4. 2. 0. 2 1 1 2 3 4 Return on Invested Capital Return on Equity Analyst Comments: EVA measures how well ESV is creating value each year, while ROIC and ROE measure the firm's return generated for every dollar of invested capital and equity. ESV's ROIC has been in an upward trend since 2011, reaching 11.8% in 2015, 4.6% higher than ESV's 7.19% WACC. This has resulted in positive EVA. RIG's ROIC has fallen below its WACC in 2015, creating negative EVA, or a destruction of value. ESV is outperforming RIG in ROIC, EVA, and MVA. ESV's rising ROIC and positive EVA is a positive signal to investors. 3. Value Creation and DCF Model ESV, Page 8 of 21 Copyright Robert A. Weigand, Ph.D., 2016

Long Term Growth Rate: Long Term Growth Rate: ESV 2. RIG Transocean Ltd. 2. Intrinsic Value Model Intrinsic Value Model PV of Future FCFs 52,364 55,949 59,397 61,272 62,497 PV of Future FCFs 53,523 56,250 57,424 58,709 59,883 + Value of Non Oper. Assets 467 537 216 1,422 1,301 + Value of Non Oper. Assets 4,017 5,134 3,243 2,635 2,339 = Total Intrinsic Firm Value 52,832 56,486 59,612 62,694 63,799 = Total Intrinsic Firm Value 57,540 61,384 60,667 61,344 62,222 Total Debt 5,003 4,798 4,719 5,886 5,895 Total Debt 10,721 10,455 9,762 8,425 6,829 = Intrinsic Value of Equity 47,829 51,687 54,893 56,809 57,904 = Intrinsic Value of Equity 46,819 50,929 50,905 52,919 55,393 Total Weighted Shares 192 229 231 232 232 Total Weighted Shares 322 356 360 362 363 = Per Share Intrinsic Value $248.85 $225.32 $237.74 $245.29 $249.37 = Per Share Intrinsic Value $145.40 $143.06 $141.40 $146.19 $152.60 vs. Year End Stock Price $46.92 $59.28 $57.18 $29.95 $15.39 vs. Year End Stock Price $38.39 $44.66 $49.42 $18.33 $12.38 Over (Under) Valuation/Share ($201.93) ($166.04) ($180.56) ($215.34) ($233.98) Over (Under) Valuation/Share ($107.01) ($98.40) ($91.98) ($127.86) ($140.22) % Over (Under) Valued 81.1% 73.7% 75.9% 87.8% 93.8% % Over (Under) Valued 73.6% 68.8% 65.1% 87.5% 91.9% $300 $250 $200 $150 $100 $50 Year-End Stock Price Per Share Intrinsic Value $10 $5 $5 $10 $15 $20 $25 $30 MVA per Share ESV RIG $180 $160 $140 $120 $100 $80 $60 $40 $20 Year-End Stock Price Per Share Intrinsic Value ($50) ($100) ($150) ($200) ($250) $ Over (Under) Valued % Over (Under) Valued 2 4 6 8 10 14% 12% 1 8% 6% 4% 2% Return on Invested Capital WACC ($20) ($40) ($60) ($80) ($100) ($120) ($140) ($160) $ Over (Under) Valued % Over (Under) Valued 2 4 6 8 10 Analyst Comments: Per share intrinsic value represents the present value of expected future cash flows, allowing investors to select stocks that are undervalued with beliefs that the market will realize the true intrinsic value of a company and raise the price. ESV's ROIC is above its WACC, indicating positive economic value added. ESV is severly undervalued as its 2015 instrinsic value is $249.37 per share, though market price was $15.39. This resulted in undervaluation of 93.8%. The intrinsic value determined by the DCF model is highly inflated by large free cash flows, and is a concern as ESV has consistently been heavily undervalued. RIG has also been heavily undervalued for the same reasons. While undervalued stocks are generally enticing to investors interested in capitalizing on a future market correction, the spread between intrinsic value and year end stock price, as well the consistency of undervaluation, is a concern for investors. ROIC rising above the WACC is a positive sign for investors, though the extremity of undervaluation is a concern. 3. Value Creation and DCF Model ESV, Page 9 of 21 Copyright Robert A. Weigand, Ph.D., 2016

ESV RIG Transocean Ltd. Piotroski Financial Fitness Scorecard Piotroski Financial Fitness Scorecard Positive Net Income 1 1 0 0 Positive Net Income 0 1 0 1 Positive Free Cash Flow 1 1 1 1 Positive Free Cash Flow 1 1 1 1 Growing ROA (% change NI > % change TA) 1 1 0 1 Growing ROA (% change NI > % change TA) 1 1 0 1 Earnings Quality (Operating Income > Net Income) 1 1 1 1 Earnings Quality (Operating Income > Net Income) 1 1 1 1 Total Assets Growing Faster Than Total Liabilities 1 1 0 0 Total Assets Growing Faster Than Total Liabilities 1 1 0 1 Increasing Liquidity (Current Ratio) 1 0 1 1 Increasing Liquidity (Current Ratio) 1 1 0 1 % Change Shares Outstanding < +2. 0 1 1 1 % Change Shares Outstanding (Diluted) < +2. 0 1 1 1 Expanding Operating Margin 1 1 0 0 Expanding Operating Margin 1 0 1 1 Asset Turnover (% change sales > % change assets) 1 1 1 1 Asset Turnover (% change sales > % change assets) 1 1 1 0 Total Liabilities to Operating Cash Flow (EBIT) < 4.0 0 1 0 0 Total Liabilities to Operating Cash Flow (EBIT) < 4.0 0 0 0 0 Piotroski Score (max = 10) 8 9 5 6 Piotroski Score (max = 10) 7 8 5 8 ESV RIG Transocean Ltd. Altman Probability of Bankruptcy Z Score Altman Probability of Bankruptcy Z Score (Current Assets Current Liabilities)/Total Assets 475 301 0.1338 0.1328 ## (Current Assets Current Liabilities)/Total Assets 0.1115 0.1187 870 964 Retained Earnings/Total Assets 0.4159 0.4515 0.2035 867 ## Retained Earnings/Total Assets 0.1350 0.1940 0.1407 0.1887 Earnings Before Interest & Tax/Total Assets 0.2494 0.2937 0.3740 0.3637 ## Earnings Before Interest & Tax/Total Assets 0.2349 0.2323 0.3086 0.2574 Market Value Equity/Total Liabilities 1.2154 1.1870 0.5323 0.3012 ## Market Value Equity/Total Liabilities 0.5149 0.6730 0.2731 0.2342 Sales/Total Assets 0.1958 0.2218 0.2843 0.2977 ## Sales/Total Assets 0.2609 0.2839 0.3208 0.2638 Altman Score 2.12 2.18 1.53 1.18 Altman Score 1.26 1.50 1.13 1.04 Altman Z Score Scale: Safe Zone = Z > 2.9, Grey Zone = 1.23 < Z < 2.9, Distress Zone = Z < 1.23 Altman Z Score Scale: Safe Zone = Z > 2.9, Grey Zone = 1.23 < Z < 2.9, Distress Zone = Z < 1.23 3. Value Creation and DCF Model ESV, Page 10 of 21 Copyright Robert A. Weigand, Ph.D., 2016

31 Dec 11 31 Dec 12 31 Dec 13 31 Dec 14 31 Dec 15 ESV Energy Report Date: April 18, 2016 Historical Income Statement Drivers Average Forecasted Income Statement Drivers 2011 2015 2016E 2017E 2018E 2019E 2020E Total Revenue 2,798 3,639 4,323 4,565 4,063 Total Revenue 2,763 2,487 2,362 2,410 2,458 % growth N/A 30.1% 18.8% 5.6% 11. 9.8% % growth 32. 10. 5. 2. 2. Gross Profit 1,349 1,996 2,376 2,488 2,194 Gross Profit 1,326 1,219 1,181 1,284 1,310 Gross Margin (% of sales) 48.2% 54.9% 55. 54.5% 54. 53.3% Gross Margin (% of sales) 48. 49. 50. 53.3% 53.3% Operating Income (EBIT) 781 1,403 1,733 1,818 1,503 Operating Income (EBIT) 967 895 874 916 959 Operating Margin (% of sales) 27.9% 38.6% 40.1% 39.8% 37. 36.7% Operating Margin (% of sales) 35. 36. 37. 38. 39. Earnings Before Tax 723 1,305 1,633 (2,549) (1,471) Income Tax Expense 115 229 203 141 (14) Forecasted Effective Tax Rate 0. 10. 15. 15. 15. Effective Tax Rate 16. 17.5% 12.4% 0. 0. 9.2% Effective Tax Rate Adjustment 0. 10. 15. 15. 15. Net Income 600 1,170 1,418 (3,903) (1,595) Net Income (213) 149 165 193 221 Net Margin (% of sales) 21.5% 32.1% 32.8% 85.5% 39.2% 7.7% Net Margin (% of sales) 7.7% 6. 7. 8. 9. Total Common Shares 192 229 231 232 232 Total Common Shares 233 234 234 235 236 % growth N/A 19.4% 0.7% 0.3% 0.3% 4.8% % growth 0.3% 0.3% 0.3% 0.3% 0.3% Earnings per Share $3.12 $5.10 $6.14 $16.85 $6.87 Earnings per Share.91.64.71.82.94 Dividends per Share $1.40 $1.50 $2.25 $3.00.60 Dividends per Share.04.00.00.00.00 % growth N/A 7.1% 50. 33.3% 80. 19.1% % growth 93. 100. 0. 0. 0. Year end Stock Price $46.92 996 $59.28 997 $57.18 998 $29.95 999 $15.39 1000 996 997 998 999 1000 Historical Balance Sheet Drivers Forecasted Balance Sheet Drivers 2016E 2017E 2018E 2019E 2020E Cash + ST Investments 467 537 216 1,422 1,301 Cash + ST Investments 1,105 995 874 843 811 % of sales 16.7% 14.8% 5. 31.2% 32. 19.9% % of sales 40. 40. 37. 35. 33. Total Receivables 852 811 856 883 582 Total Receivables 414 398 425 458 492 % of sales 30.4% 22.3% 19.8% 19.4% 14.3% 21.2% % of sales 15. 16. 18. 19. 20. Inventory 201 208 256 240 235 Inventory 166 149 142 145 147 % of sales 7.2% 5.7% 5.9% 5.3% 5.8% 6. % of sales 6. 6. 6. 6. 6. Net PPE 12,422 13,146 14,311 12,535 11,088 Net PPE 10,362 10,320 9,450 9,036 8,603 % of sales 444. 361.3% 331. 274.6% 272.9% 336.8% % of sales 375. 415. 400. 375. 350. Total Assets 17,899 18,565 19,473 16,041 13,637 Total Assets 11,881 11,191 10,631 9,639 9,340 % of sales 639.8% 510.2% 450.4% 351.4% 335.6% 457.5% % of sales 430. 450. 450. 400. 380. Payables and Accruals 874 657 651 671 475 Payables and Accruals 304 249 248 289 369 % of sales 31.2% 18. 15.1% 14.7% 11.7% 18.1% % of sales 11. 10. 10.5% 12. 15. ST Debt plus LT Debt 5,003 4,798 4,719 5,886 5,895 ST Debt plus LT Debt 5,885 5,844 5,812 5,783 5,653 % of sales 178.8% 131.9% 109.1% 128.9% 145.1% 138.8% % of sales 213. 235. 246. 240. 230. Total Equity 10,885 11,852 12,799 8,223 6,517 Total Equity 6,493 6,466 6,450 6,434 6,415 % of sales 389.1% 325.7% 296. 180.1% 160.4% 270.3% % of sales 235. 260. 273. 267. 261. Analyst Comments: Revenue decline is based on a conservative reflection of Capital IQ's projections, and supported by Morningstar. Gross and operating profits were given a margin of safety because a 32% decline in revenue will make it difficult for ESV to maintain expenses proportionally. Net income decline is driven by increasing interest expenses and expected asset writedown. ESV cut dividends to $.01 per share in Q1 2016 and has warned investors in the 10 K that the dividend could be cut or suspended indefinitely at management's discretion. Balance sheet forecasts have been forced to maintain assets at current levels due to lack of investment and writedowns. 4. Forecasting and Valuation ESV, Page 11 of 21 Copyright Robert A. Weigand, Ph.D., 2016

Total Revenue Operating Income (EBIT) Earnings per Share Dividends per Share Gross Profit Margin Operating Profit Margin $5,000 $10 6 $4,000 $5.00 5 $3,000 $1,000.00 ($5.00) ($10) ($15.00) 4 3 2 1 2016E 2017E 2018E 2019E 2020E ($20) 2016E 2017E 2018E 2019E 2020E 2016E 2017E 2018E 2019E 2020E Historical Performance Forecasted Performance Total Invested Capital Total Invested Capital 2016E 2017E 2018E 2019E 2020E Cash and ST Investments 467 537 216 1,422 1,301 Cash and ST Investments 1,105 995 874 843 811 + Receviables 852 811 856 883 582 + Receviables 414 398 425 458 492 + Inventory 201 208 256 240 235 + Inventory 166 149 142 145 147 Payables and Accruals 874 657 651 671 475 Payables and Accruals 304 249 248 289 369 = Net Oper. Working Capital 647 900 677 1,875 1,644 = Net Oper. Working Capital 1,382 1,293 1,193 1,157 1,081 + Net Property, Plant & Equip. 12,422 13,146 14,311 12,535 11,088 + Net Property, Plant & Equip. 10,362 10,320 9,450 9,036 8,603 = Total Invested Capital 13,069 14,045 14,988 14,410 12,732 = Total Invested Capital 11,743 11,613 10,643 10,193 9,684 Total Common Shares 192 229 231 232 232 Total Common Shares 233 234 234 235 236 = Total Invested Capital/Share $68.00 $61.23 $64.91 $62.22 $54.83 = Total Invested Capital/Share $50.42 $49.72 $45.42 $43.37 $41.09 4 2 2 4 6 8 10 Net Profit Margin Effective Tax Rate (right axis) 20. 15. 10. 5. 0. 2016E 2017E 2018E 2019E 2020E $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 Total Invested Capital Net Fixed Assets 2016E 2017E 2018E 2019E 2020E $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 Total Invested Capital Net Operating Working Capital 2016E 2017E 2018E 2019E 2020E Historical Performance Forecasted Performance NOPAT and Free Cash Flow NOPAT and Free Cash Flow 2016E 2017E 2018E 2019E 2020E Operating Income (EBIT) 781 1,403 1,733 1,818 1,503 Operating Income (EBIT) 967 895 874 916 959 (1 Effective Tax Rate) 16. 17.5% 12.4% 0. 0. (1 Effective Tax Rate) 0. 10. 15. 15. 15. = Net Oper. Profit After Tax 656 1,157 1,518 1,818 1,503 = Net Oper. Profit After Tax 967 806 743 778 815 Total Invested Capital N/A 976 943 (578) (1,678) Total Invested Capital (989) (130) (970) (450) (509) = Free Cash Flow N/A 181 575 2,396 3,181 = Free Cash Flow 1,956 936 1,713 1,228 1,324 NOPAT per Share $3.42 $5.05 $6.57 $7.85 $6.47 NOPAT per Share $4.15 $3.45 $3.17 $3.31 $3.46 Free Cash Flow per Share N/A.79 $2.49 $10.34 $13.70 Free Cash Flow per Share $8.40 $4.01 $7.31 $5.23 $5.62 Analyst Comments: Revenues in the offshore drilling industry are directly connected to the price of oil, which has caused ESV's decline in revenue. Revenue is forecasted to decline 32% in 2016 and continue falling through 2018 as contracts expire and are not renewed, or renewed at lower prices. Dividends per share will remain low in 2016, then dividends are expected to be cut entirely in 2017. Total invested capital is projected to decline as rigs will be stacked (out of use and in storage) and contracts will not be renewed. Net operating working capital has increased since 2013 as ESV holds a higher percentage of total invested capital as cash. We expect ESV to sell off, decommission, and scrap some rigs that are up for contract renewal. 4. Forecasting and Valuation ESV, Page 12 of 21 Copyright Robert A. Weigand, Ph.D., 2016

Cost of Capital 2015 Weight % Cost Weighted % Dividend Discount Valuation Model Equity Capitalization $3,574 37.7% 11.675% 4.406% + Total Debt $5,895 62.3% 5.00 3.113% Year 2016E 2017E 2018E 2019E 2020E = Value of All Securities $9,469 100. Dividend Growth Rates 93. 100. 0. 0. 0. Expected Future Dividends.04.00.00.00.00 Effective Tax Rate Alternative RF Rate: Risk Free Rate 1.875% 1.875% 1.742% PV Dividends 1 4.04 Dividend Yield 0.3% Beta (5 Yr) 1.400 Alternative Beta: 1.67716 PV Perpetual Div..00 Market Risk Premium 7. 1.400 Intrinsic Value.04 If Purchased For: $10 CAPM Cost of Equity 11.675% Current Price $12.37 Expected Return = 99.6% Weighted Average Cost of Capital: 7.519% 7.519% 7.519% 7.519% 7.519% 7.519% ($10).04 7.519%.00 7.519%.00 7.519%.00 7.519%.00 7.519% Historical Performance Forecasted Performance ROIC, EVA and MVA ROIC, EVA and MVA 2016E 2017E 2018E 2019E 2020E Return on Invested Capital 5. 8.2% 10.1% 12.6% 11.8% Return on Invested Capital 8.2% 6.9% 7. 7.6% 8.4% Economic Value Added 326 101 391 734 546 Economic Value Added 84 68 57 12 87 Market Valued Added 1,866 1,747 404 1,286 2,944 Market Valued Added 4,474 12,088 12,062 12,610 13,206 EVA per Share ($1.70).44 $1.69 $3.17 $2.35 EVA per Share.36 (.29) (.24).05.37 MVA per Share ($9.71) $7.61 $1.75 ($5.55) ($12.68) MVA per Share ($19.21) $51.75 $51.48 $53.66 $56.03 $3,500 $3,000 $2,500 $1,500 $1,000 $500 NOPAT Free Cash Flow 2016E 2017E 2018E 2019E 2020E $16 $14 $12 $10 $8 $6 $4 $2 NOPAT per Share Free Cash Flow per Share 2016E 2017E 2018E 2019E 2020E 800 600 400 200 0 200 400 EVA MVA (right axis) 2016E 2017E 2018E 2019E 2020E 15,000 10,000 5,000 0 5,000 10,000 Perpetual Growth Rate: 2. Historical Performance Forecasted Performance DCF Intrinsic Value Model DCF Intrinsic Value Model 2016E 2017E 2018E 2019E 2020E PV of Future FCFs 22,088 23,568 24,765 24,231 22,872 PV of Future FCFs 22,636 23,403 23,449 23,984 24,464 + Cash and ST Investments 467 537 216 1,422 1,301 + Cash and ST Investments 1,105 995 874 843 811 = Total Intrinsic Firm Value 22,555 24,105 24,980 25,653 24,173 = Total Intrinsic Firm Value 23,742 24,397 24,323 24,827 25,275 Total Debt 5,003 4,798 4,719 5,886 5,895 Total Debt 5,885 5,844 5,812 5,783 5,653 = Intrinsic Value of Equity 17,553 19,306 20,261 19,767 18,278 = Intrinsic Value of Equity 17,856 18,553 18,511 19,044 19,622 Total Common Shares 192 229 231 232 232 Total Common Shares 233 234 234 235 236 = Per Share Intrinsic Value $91.33 $84.16 $87.75 $85.35 $78.72 = Per Share Intrinsic Value $76.67 $79.43 $79.01 $81.04 $83.25 vs. Year End Stock Price $46.92 $59.28 $57.18 $29.95 $15.39 vs. Most Recent Stock Price $8.67 Over (Under) Valuation/Share ($44.41) ($24.88) ($30.57) ($55.40) ($63.33) Over (Under) Valuation/Share ($68.00) % Over (Under) Valued 48.6% 29.6% 34.8% 64.9% 80.4% % Over (Under) Valued 88.7% Analyst Comments: NOPAT is projected to fall in 2016 and 2017 and remain steady through 2020. Free cash flow is expected to fall dramatically from 2015 to 2016 and again from 2016 to 2017. FCF is expected to rise in 2018, fall in 2019, and rise again through 2020 as ESV copes with the declining oil market and slow recovery. The changes in FCF are closely tied to decreases in total invested capital. Total invested capital is expected to decline at a slower rate in 2016 and 2017 compared to 2015 because ESV will continue with asset write off, but at a slower rate. ESV is projected to record negative economic value added in 2017 and 2018 following a sharp decline since 2014. This indicates ESV will be destroying value. We expect ESV to cut its dividend entirely in 2017, therefore the dividend discount model is no longer valid for ESV. Per the DCF Intrinsic value model, ESV is consistently undervalued, reaching $68 undervaluation in 2016. The consistency and disparity of ESV's undervaluation is driven by high free cash flows as ESV holds more short term investments and reduces invested capital. Because high intrinsic value is caused by high free cash flows, we do not believe this model accurately represents ESV's true intrinsic value. 4. Forecasting and Valuation ESV, Page 13 of 21 Copyright Robert A. Weigand, Ph.D., 2016

ROIC WACC Year-End Stock Price Per Share Intrinsic Value $ Over (Under) Valued % Over (Under) Valued 14% 12% 1 8% 6% 4% 2% 2016E 2017E 2018E 2019E 2020E $100 $80 $60 $40 $20 2016E 2017E 2018E 2019E 2020E $10 $20 $30 $40 $50 $60 $70 $80 2016E 2 4 6 8 10 Historical Performance Forecasted Performance Relative Valuation Relative Valuation 2016E 2017E 2018E 2019E 2020E Price to Earnings 15.0 11.6 9.3 1.8 2.2 Price to Earnings 9.5 124.3 111.9 98.8 88.7 Price to Free Cash Flow N/A 75.1 23.0 2.9 1.1 Price to Free Cash Flow 1.0 19.8 10.8 15.5 14.8 Price to Sales 3.2 3.7 3.1 1.5 0.9 Price to Sales 0.7 7.5 7.8 7.9 8.0 Price to Book 0.5 0.7 0.7 0.4 0.3 Price to Book 0.2 1.7 1.7 2.1 Earnings Yield 6.7% 8.6% 10.7% 56.3% 44.6% Earnings Yield 10.5% 0.8% 0.9% 1. 1.1% Dividend Yield 3. 2.5% 3.9% 10. 3.9% Dividend Yield 0.5% 0. 0. 0. 0. Price to Earnings Price to Free Cash Flow Price to Sales Price to Book (right axis) Earnings Yield Dividend Yield 14 12 10 8 6 4 2 2 2016E 2017E 2018E 2019E 2020E 9.0 8.0 7.0 6.0 5.0 4.0 3.0 1.0 2016E 2017E 2018E 2019E 2020E 2.5 1.5 1.0 0.5 20. 10. 0. 10. 20. 30. 40. 50. 60. 2016E 2017E 2018E 2019E 2020E Analyst Comments: ESV's WACC rises above ROIC in 2017 and 2018, indicating the cost of capital is higher than the returns expected to be earned on their projects. Beyond 2018, the spread between ROIC and WACC is minimal, indicating low returns earned above cost. Undervaluation of ESV grows larger from 2012 to 2016, which is a concern for investors that the market price will never reach the modeled intrinsic value. This is supported by inflated P/E ratios from 2017 to 2020. Price to sales and price to book are also much higher than historical levels. 4. Forecasting and Valuation ESV, Page 14 of 21 Copyright Robert A. Weigand, Ph.D., 2016