Energy Sector Stock Recommendation March 2, 2010 Eric DeWees Honglei Gong Charles Hathaway Danqing Zhou

S & P 500 Sector Weights (as of 2/28/2010)

Sector Performance YTD (2/28/2010)

Sector Performance YTD

Sector Performance (1 month)

Sector Recommendation Reduce the Energy Sector to 50 Basis Points Underweight Current holdings are BP, ConocoPhillips, Transocean, National Oilwell Varco We would like to: –Sell 100% of BP Plc. (BP) –Sell 100% of ConocoPhillips (COP) –Buy Noble Energy (NE)

Noble Corporation Noble Corporation (NE) is a oil drilling company that was spun-off the parent company Noble Energy in The company, with operations in waters off the coasts of five continents, has a fleet of 63 offshore drilling units: three submersibles, four dynamically positioned drillships, 13 semisubmersibles, and 43 jack-up rigs. Many of its rigs are capable of operating in depths greater than 5,000 feet. The group, which derives most of its revenues from offshore contracts, has positioned itself to ride the global trend toward deepwater exploration. Through acquisitions and equipment upgrading, Noble has been expanding its geographical reach and increasing its ability to drill in deeper off-shore areas.

Noble Corporation Advantages Low Taxes –Moved from Cayman Islands to Switzerland. Avg Tax Rate (16%) Geographically Dispersed –World-wide, primarily in Mexico, Brazil, and Nigeria Long-Term Historical Growth –Has experienced over 6% Earnings and Revenue Growth since 2000 –Baseline has a long-term growth rate of 5% First energy industry to recover –Oil & Gas Drilling Services is one of the first industry to recover when oil prices increase. –Exploration and Production must first acquire leases on drilling rigs, years and months in advance

Noble Corporation Advantages Maintained high margins despite downturn –44% in 2009, 44% in 2008 –Utilization went down from 88% to 83% Financially Stable –735 Million Cash on Hand, $2.80 Per Share –Low Debt (750 Million), $2.82 Per Share –Growth Financed Heavily through Retained Earnings (70% of Total Liabilities and Equity) Noble increased its capital expenditures –Building more rigs to sustain growth, don’t build until contracts are made –1.4 Billion in 2009, 1 Billion in Guidance in 2010 is 1 Billion –Oil Majors are increasingly turning to offshore drilling –Expecting a slew of contract announcement for 2011 in 1Q and 2Q

Noble Corporation Baseline Filter Energy Sector P/Latest Earnings less than 1.0 Market Capitalization: 1 Billion or greater Earnings: 3 Year Historical Growth Rate 6% or Greater Earnings: 5 Year Growth Rate 6% or better Long-Term Future Growth Rate: 4% or greater ROE: 26% or greater Reinvestment Yield: 10.0% Price-Relative Strength to all stocks 70% or better Earnings Momentum Value: 90% or greater Noble Corporation (NE) the only energy stock to meet this criteria

Noble Corporation Risks Tax Increase –Currently taxes average 16%, there’s some risk that Switzerland, and other countries that Noble does business in will increase taxes Currency Risk –Earnings are in Swiss Francs, not dollars. If dollar strengthens significantly, earnings will suffer in dollar terms Huge Capital Investments –79% of assets are in drilling equipment and facilities –Utilization dropped from 83% from 88% Oil Prices Decrease Significantly –Sustained Oil Prices sinking to the $30-$40 level would reduce the desirability of offshore oil production –In the short term, we believe oil prices will be fluctuating between $65 and $85 per barrel

Noble Corporation Stock Repurchases and Dividends Stock Repurchase –Yearly stock repurchase –2009: $204 Million –2008: $314 Million Dividend –Current Dividend is 16 cents per share. –Current dividend yield is.38%. –Talk of Possible Increase at Annual Shareholders Meeting April 30, Mentioned in 4Q Earnings Call Debt to Total Capital is 10.5%.

Energy Industries Relative Strength

Noble Corporation EPS Surprise History

Noble Corporation Earnings Growth Rates Noble is trading at one of the lowest Price to Books in years

Noble Corporation Margins Margins have been increasing since ’05 but are expected to fall back slightly as contracts are renewed in ‘10 and ‘11

Noble Corporation Valuation Analysis Relative to IndustryHighLowMedianCurrent P/Trailing E P/Forward E P/B P/S P/CF Relative to S&P 500HighLowMedianCurrent P/Trailing E P/Forward E P/B P/S P/CF

Noble Corporation Valuation Analysis Absolute Valuation HighLowMedianCurrentTarget Multiple Target E,S,B /Share Target Price P/Forward E P/S P/B P/EBITDA P/CF Current Share Price : $43.24 Implied equity value/share : $62 Upside/(Downside) to Valuation : 43%

Noble Corporation Discounted Free Cash Flow Terminal Growth Rate: 5% Discount Rate: 12% Implied Value: $60.34 Upside: 39.5%

Noble Corporation Target Price Sensitivity Matrix Target Price for Noble Corporation: $60 Current Price: $43.24 DCF: $60.38 Valuation: $61 Upside Potential: 39%

Noble Corporation Performance Year to Date Noble Corporation has consistently outperformed the S&P since it was spun off. It has significantly outperformed since This can be attributed to the increase in oil prices and world demand

Noble Corporation Performance 1 Year

Noble Corporation Performance 2 Year

Noble Corporation Performance 5 Year

Noble Corporation Performance 10 Year

Noble Corporation Performance 20 Year

BP Plc. Report Current Price: $53.05 Target Price: $60 Upside: 14.7% Dividend Yield: 3.36 / 6.28% % of SIM:.97% Recommendation: Sell 100%

BP Plc. Valuation

BP Plc. Discounted Free Cash Flow Implied Value: $60.63 Discount Factor: 12% Terminal Growth Rate: 3% Upside: 15.9%

BP Plc. DCF Sensitivity

ConocoPhillips Report Current Price: $48.91 Target Price: $57.00 Upside: 16.5% Dividend Yield: 4.17% % of SIM: 3.18% Recommendation: Sell 100%

ConocoPhillips DCF Implied Value: $ Discount Factor: 12% Terminal Growth Rate: 3% Upside: 17.3%

COP Valuation Absolute Valuation HighLowMedianCurrentTarget Multiple Target E,S,B /Share Target Price P/Forward E P/S P/B P/EBITDA P/CF

Proposed Energy Sector Holdings As % of SIM Noble Corporation (NE): 1.68% Transocean (RIG): 4.18% National Oilwell Varco (NOV): 4.78% Proposed SIM Weight: 10.64% S&P Energy Sector Weight:11.14% Current SIM Weight: 11.48%

Energy Team Questions?

Transocean Report Current Price: $80.33 Target Price: $110 Upside: 36.9% Dividend Yield: No Dividend % SIM: 4.18% Recommendation: No Action

Transocean DCF and Valuation Terminal Discount Rate = 11% Terminal FCF Growth Rate = 3%

National Oilwell Varco Report Current Price: $43.66 Target Price: $40.34 Downside: 7.6% Dividend Yield: 40 Cents /.92% % SIM: 4.78% Recommendation: No Action

National Oilwell Varco DCF and Valuation Terminal Discount Rate = 11% Terminal FCF Growth Rate = 3%