UH BAUER COLLEGE OF BUSINESS: MARCH 30, 2006 PRESENTATION

Rowan Companies, Inc.John Buvens, General Counsel Ted Gobillot, Associate General Counsel

EmmaLindsayJoe

Overview of Rowan Companies, Inc.Emerging Trends in the Offshore Drilling IndustryHow is an offshore well drilled?Oilco/Drillco Relationship: Who provides what?Risks: What can happen?What is an indemnity agreement?How do the parties allocate risk?

Overview of Rowan Companies, Inc.Founded in 1923 by Arch and Charlie RowanTwo units: Drilling and ManufacturingTotal workforce: 4,500+ employeesHQ at Williams Tower (ex-Transco Tower)On NYSE and publicly-owned since 19672005: Revenue of over $1B; $4.5B market cap

DRILLING DIVISIONHQ in Houston; operations onshore in Texas, Louisiana, Mississippi and Oklahoma; offshore in the U.S. GOM, east coast of Canada, North Sea, Persian Gulf and Trinidad20 offshore rigs; 17 land rigsAccounts for 75% of RCI's revenue

Land Rig Locator MapLand Rig Locator MapTEXASLOUISIANAMISSLR-34LR-54LR-53LR-14LR-52LR-15LR-33LR-9, 29, 35LR-26, 30, 31, 51LR-18LR-419- Texas 7- Louisiana 1- Oklahoma 17 Land Rigs OperatingCurrently 100% UtilizedCurrent Average Well Depth: 15,980 ft.LR-12

MANUFACTURING DIVISIONAcquisitions: LeTourneau (1994), Ellis Williams (1999), OEM (2001)HQ in Longview, TX; manufacturing facilities in Vicksburg, MS and Houston, TXManufactures jack-up rigs, land rigs and rig component parts, equipment for the timber and mining industriesAccounts for 25% of RCIs revenues

LeTourneau Products

Worlds Largest Front-End Loader

3000 HP Mud PumpDrawworksRotary TableManufacturing Division

ROWANS RIG CONSTRUCTION PROGRAMLarge Fixed Capital InvestmentPurchase LeTourneauRestore Vicksburg, MS FacilityHire and Train WorkersRig Construction Cost: $180-$500 MillionOngoing Maintenance and Labor CostVolatile Revenue StreamDayrates Track Commodity PricesBoom-and-Bust BusinessGorilla V Experience

Worldwide Jack-up Newbuilds and Attrition 1950-2005Additions to the fleetAttritionSource: ODS-PetrodataAverage Age of Retired Rigs: 30 yearsNumber of Retired Rigs per year (20-year average): 6 rigsScheduled Construction / On Order200955 Rigs Under Construction2006 - 102007 202008 - 20 2009 - 5

Land Dayrate History 1998-2005$17,242Dayrates through March 27, 2006Current Average Dayrate $22,559

CONSTRUCTION OF THE HANK BOSWELL: DECEMBER 2004

March 2005

June 2005

August 2005

September 2005

October 2005

November 2005

December 2005

January 2006

February 2006

March 2006

Following Construction, Rig Walks into Mississippi River

Rig Travels Down Mississippi River

Rig Crosses Under Four Bridges En Route to U.S. GOM

Bob Palmer (2003) vs. Rowan-Texas (1973)

Under Tow To Location

Jacked Up on Open Location

Jacked up on Location and Cantilevered out over Platform

Heavy-Lift Rig Hauler

Rig Floats Onto Submerged Deck

Single-Rig Dry TowDouble-Rig Dry TowTransport of Rigs Overseas

Triple-Rig Dry Tow

Rowan Fleet Migrates to Saudi Arabia35,000 Tons12,300 miles60 days

Sharjah Roads

Jacked up in Halifax Harbor, Nova Scotia, Canada

Emerging Trends in the Offshore Drilling IndustryCurrent StatusGlobal Supply and DemandSaudi Arabia as swing producerDeclining Production in GOMThe MoratoriumThe Stakeholders in GOMExtending Life of GOMEvolving TechnologyDeep Shelf and Deep WaterRoyalty Relief by MMSEmergence of Liquified Natural GasLaw of the Sea TreatyFallout from Hurricanes Katrina and Rita

E. Canada: 100%C & S America: 82%US GOM: 82%Mexico: 100%West Africa: 100%North Sea: 100%Middle East: 98%SE Asia: 97%85202733221080231119140Worldwide Jack-up Supply / DemandWorldwide Utilization: 92%Source: ODS Petrodata0Indian Ocean: 100%250Total Number of Jack-up Rigs Worldwide: 390

Houston Chronicle: March 23, 2006

DEEP-WATER EXPLORATION, DRILLING FLOURISH IN THE GULF

NEW ORLEANS - Petroleum operators announced 10 new deep-water discoveries in the Gulf of Mexico in 2005 and the number of drilling rigs exploring in deep water has increased sevenfold in a year, a federal agency is reporting. Deep water is considered to be 1,000 feet or deeper. The deepest discovery reported last year was by BP in 9,576 feet of water.

"Last year continued to be a strong year for deep-water activity in the Gulf of Mexico," said Chris Oynes, the agency's Gulf of Mexico regional director. "There is intense interest in oil and gas potential in the deep water." In March, there were 42 rigs drilling or working on development wells in deep-water areas, including 10 rigs in 5,000 feet or more, the agency said. A year ago, there were six rigs in ultradeep water.

On March 15, petroleum exploration companies put $588.3 million in high bids for 405 offshore tracts off Louisiana, Mississippi and Alabama. The figure far exceeded last year's auction by the agency, when $342 million in high bids were accepted for 403 tracts that exploration firms are betting on to produce in the central Gulf of Mexico.

GlobalSantaFe Corp., the worlds second-largest offshore driller by market value, said Thursday it reached an agreement with an unidentified customer to provide a new deep-water rig that would generate about $1 billion in revenue over seven years.

Keppel Fels, a unit of Keppel Corp., has been contracted to build the rig at its Singapore shipyard at a cost of about $590 million, Houston-based GlobalSantaFe said. Delivery of the rig, to be named GSF Development Driller III, is expected in early 2009, the company said.

The new rig may generate an average of about $390,000 a day for GlobalSantaFe, based on the total revenue and duration of the agreement.Houston Chronicle: March 2, 2006

GLOBALSANTAFE WINS CONTRACT: DEEP-WATER RIG WILL COST $590 MILLION

Houston Chronicle: March 11, 2006LOST LANGUAGE DRAINS BILLIONS: MYSTERIOUS ERROR TO COST GOVERNMENT ENERGY ROYALTIESWASHINGTON How it happened or whos responsible is a mystery eight years after the fact. But what may have been a simple error or perhaps something more ominous has given a multimillion-dollar windfall to a group of oil and natural gas companies and could cost the government billions of dollars more in the years to come.The Interior Department disclosed this week that a provision was mysteriously deleted from hundreds of federal drilling leases in the late 1990s that would have required producers to pay royalties, once prices reached a certain level, on oil or gas taken from deep waters of the Gulf of Mexico. In 1995, Congress exempted deep-water oil from royalty payments to spur development. But a price threshold was included in leases issued in 1996 and 1997 and again in leases sold in each year since 2000 that reinstates the royalties if market prices reach a certain level.For some reason the language was inadvertently dropped from an addendum attached to more than 1,100 leases the Interior Departments Minerals Management Service issued for 1998 and 1999, Walter Cruickshank, the agencys deputy director, told a House Government Reform subcommittee Wednesday. He said officials have not been able to determine who made the change. It is clear that there is no record telling people to take the language out, he said, and it was widely known that the department wanted the price threshold restriction in any oil and gas leases as a matter of policy.In the late 1990s, when oil prices were well below the threshold, the issue may not have attracted attention. Rep. Darrell Issa, R-Calif., the subcommittee chairman, called the whole matter suspicious. This is a $7 billion word processing error, Issa told reporters. He said some of the leases issued during those two years could remain in effect for as long as 85 years, so the government will be unable to collect royalty payments from oil and gas taken from those leases because they lacked the threshold language. If prices remain high, lost royalties will be in the billions of dollars, he acknowledged.

Houston Chronicle: March 5, 2006

TRANSOCEAN HAS NEW DRILL SHIP IN THE WORKS

TRANSOCEAN, the world's largest offshore oil and natural gas driller, has been awarded contracts from Chevron Corp. that will lead to construction of a new deep-water rig and generate as much as $1.7 billion in revenue. The contracts include a new drillship that will cost an estimated $650 million to build and will be used by Chevron for five years, Houston-based Transocean said Wednesday in a prepared statement. The drillship will be Transocean's first new deep-water rig since 2001 and will be among the most expensive ever built. Chevron also extended agreements to use two other deep-water rigs. Transocean and other drillers have been reluctant to build new rigs without first having multiyear contracts in place for their use. With the most prized deep-water rigs in short supply and producers racing to capitalize on soaring energy prices, rents have climbed to unprecedented highs. The new drillship, to be named Discoverer Clear Leader, will be built at the Daewoo Shipbuilding and Marine Engineering Co. shipyard in South Korea, Transocean said. Construction is expected to take 30 months, and the contract with Chevron is scheduled to start in the second quarter of 2009. The rig may generate revenue of $493 million for Transocean during the first three years, or an average rate of about $450,000 a day, company spokesman Guy Cantwell said. Rates during the final two years are linked to oil prices and are expected to range from $400,000 to $500,000 a day, he said. The Discoverer Clear Leader will be capable of operating in waters as deep as 12,000 feet and will be able to drill wells as deep as 40,000 feet, the company said.

Less than 200mGreater than 1,000 m

10,00030,000LlanoCretaceous Shelf EdgeNSDEEPWATERFLEX TREND (Shelf Edge)SHELFJasonST172HickoryCongerPleistocenePlioceneMioceneMid. MioceneLow. MiocenePaleogeneMesozoic20,000SaltSaltBasement RockTahitiThunderHorseTypicalShelfSource: Newfield Exploration

How is an offshore well drilled?The Basic Rig Systems are:Power SystemHoisting SystemRotating SystemCirculating SystemWell Control System

Making a Drillstring Connection

Land Rig Substructure

Derrick

TYPES OF OFFSHORE RIGSDrilling from beach (1890s)Drilling from wharves (1910s)Platform rig and barge (1920s)Submersible barge rig (1940s)Jackup rig (1950s)Semi-submersible rig (1970s)Drillship (1980s)

Drilling from Wharf: Oil Rock City in Caspian Sea, Baku, Russia

Submersible Barge Rig

Jackup Drilling Rig

Semi-Submersible Drilling Rig

Drillship

Drillco Personnel

TOTAL NO.ON RIGCLASSIFICATIONAs requiredRig Manager1Day Toolpusher (on-site manager)1Night Toolpusher (on-site manager)1Mechanic1Electrician1Barge Engineer (a/k/a Rig Administrator)1Assistant Barge Engineer1Welder2Drillers2Assistant Drillers2Derrickmen2Enginemen2Crane Operators2Assistant Crane Operators/Deck Supervisors10Roughnecks8Roustabouts1 Medic38

Roughnecks

Men Working on Well

DrillerDerrickman

Lease rights and drilling permitsWell programTransportation of rig to Oilcos wellsiteCompany man aboard rig 24/7Mud Engineer aboard rig 24/7Specialized servicesAir and/or sea transportation for all personnel and equipmentFuelDrilling mudWell evaluation servicesProduction equipment (platforms, pipelines, compressors) OILCO PROVIDES:

THE EXCHANGE

Oilco pays Drillco a dayrate charge

Drillcos dayrate charges account for 40-60% of Oilcos total well costs

Oilco expects delivery of well in compliance with Oilcos well program and in a safe and timely manner

Oilco gets 83.3% of production

RisksWHAT BAD STUFF CAN HAPPEN?Boat accidentsCrane accidentsEquipment defects and malfunctionLightning strikesHurricanesPipeline strikesPlatform strikesPunchthroughsBlowoutsHelicopter accidentsSabotageNationalization/confiscationWar Risk/Terrorism

Lightning Strike

Hurricane Lili (October 2002)

Rowan-Houston following Hurricane Lili

Salvage Operation Re Rowan-Houston

Salvage Operation Re Rowan-Houston

Seminal Spindletop Blowout (1900)

Derrick Collapse

Land Rig Blowout

Offshore EgyptAugust 2004

Rig sinks and Platform is destroyed

New Risk: Icebergs and Ice Flows

Ivan, Katrina and RitaThree of the worst hurricanes to ever hit the U.S. Gulf of Mexico. Struck within a 13-month period, devastating the offshore oil and gas industry

IVAN SCORECARD (September 2004)Approximately 33,000 miles of pipeline, 4,000 platforms, 135 drilling rigs and 30,000 offshore workers in GOM.Approximately 10,000 miles of pipeline, 1,500 platforms and 40 drilling rigs in Ivans direct path.Total DamagePlatforms: 31 destroyed or damagedPipelines: hundreds of miles of pipelines buried, snapped and/or damaged due to mudslides; production shut-in for monthsDrilling Rigs: 6 damagedNo one injured or killed due to evacuations

Hurricane Ivan: September 2004

Hurricane Katrina 2005

Path of RitaPath of Katrina

Hurricane DamageRefinery Damage in Pascagoula, MS

Aviation Base in Venice, LAMarine facility in Fourchon, LA

Shell Mars PlatformBeforeAfter

Chevron Typhoon PlatformBeforeAfter

Diamond Ocean WarwickGSF Adriatic VII

GlobalSantaFe High Island III

NOBLE THERALD MARTIN OFF COAST LOUISIANARIG DRIFTED 125 MILES DRAGGING 6 ANCHORS BEFORE BEACHING ITSELF IN VERMILLION

BeforeAfterROWANS LOSSES

Rowan-New Orleans (capsized and found)Rowan-Halifax (capsized and found)Rowan-Odessa (capsized and found)Rowan-Fort Worth (capsized and not found)Rowan-Louisiana (beached and destroyed)

This 10-ton anchor was racked on the exterior of the hull 50 feet above the sea before the storm

Ex-President Clinton hard at work on a rescue mission

Hurricanes Katrina/Rita ScorecardPlatforms: 167 destroyed or damagedDrilling Rigs: 8 destroyed; 22 extensively damaged; 19 knocked off station and adriftPipelines and Refineries: extensive damageNo one injured or killed in offshore industryFallout: (1) tight rig supply and price increases (2) increase in oil and gas prices (3) government intervention (4) increase in insurance costs

Source: ODS - PetrodataKatrina/Rita Fallout: Dayrate Increases

Rig TypeAugust 2004August 2005November 2005Today250 Jack-up$30,000$60,000$100,000$130,000300 Jack-up$40,000$70,000$130,000$150,000350 Jack-up$45,000$75,000$140,000$160,0007500 Semi$80,000$200,000$300,000$400,000

Katrina/Rita Fallout: InsuranceBig Losses: Hurricane Katrina results in the largest insured loss in history. Hurricane Rita is the most devastating storm to hit the offshore drilling industry and particularly Rowan.

Higher Premiums: The losses due to Hurricanes Katrina and Rita has caused an increase of between 300% and 500% in insurance premiums.

Less Coverage: Insurers are requiring drillers to accept more risk in the form of higher deductibles and maximum aggregate windstorm coverages.

POTENTIAL DAMAGESInjury and death to Oilcos and Drillcos personnelDamage to Oilcos propertyDamage to Drillcos rigThird-party damage (beaches, fishermen, reefs, oysterbeds, adjacent pipelines and reservoirs)Loss or damage to the holeWell control costsPollution control costsReservoir loss or damageDebris removal

Indemnity Agreements

Following an accident, management has three questions:What happened?What does the contract say?Do we have insurance?

What is an indemnity agreement?American system of liability is fault-basedContract-based allocation vs. fault-based allocationIndemnity agreement is only as good as the financial resources of party who gives it and that partys insurerPrepare management for the possibility of a harsh resultIf used, the indemnifying party, its insurers and eventually the courts will closely scrutinize the indemnity agreementCarefully read, review and re-review indemnity languageKnow the law

WHY ALLOCATE RISK?Tailor risk to insurance coverage, but you should protect your coverage, loss-history and insurerAvoid insuring the same risk twicePossibility of acquiring insurance for an assumed but uninsured riskPreserve customer relationshipsAvoid company-breaking risksAvoid biased courts and unpredictable jury verdictsAvoid litigation expensesMarket conditions may dictate risk allocationTake advantage of unsuspecting partyAssume risks that you can control through operations and avoid risks that you cannot controlAllocation of risk should reflect value of contracted services

Risk Allocation in Offshore Drilling ContractsA.Injury and DeathIndustry Norm: knock-for-knockOilcos Indemnity: Oilco shall be responsible for and hold harmless and indemnify the Drillco Group from and against all claims, demands and causes of action of every kind and character on account of injury, illness or death of Oilcos employees, subcontractors or invitees.Drillcos Indemnity: Drillco shall be responsible for and hold harmless and indemnify the Oilco Group from and aginst all claims, demands and causes of aciton of every kind and character on account of injury, illness or death of Drillcos employees, subcontractors or invitees.Drillco assumes vast majority of personal injury risk because Drillco has more personnel on rig.

A.Injury and Death: Knock-for-knockB.Property DamageIndustry Norm: Qualified knock-for-knockOilcos Indemnity: Oilco shall be responsible for and hold harmless and indemnify the Drillco Group from and against damage to or loss of the property and equipment of Oilco, its parent, subsidiary and affiliated companies, its partners and co-venturers, and their respective subcontractors.Drillcos Indemnity: Drillco shall be responsible for and hold harmless and indemnify the Oilco Group from and against damage to or loss of the property and equipment of Drillco, its parent, subsidiary and affiliated companies, and their respective subcontractors; provided, however, that Oilco shall reimburse Drillco 75% of the repair or replacement cost for damage to or loss of any drillpipe, drill collars or other in-hole equipment when such equipment is being used in the hole below the rotary table.

A.Injury and Death: Knock-for-knockB.Property Damage: Qualified knock-for-knock

C.Third-party damageIndustry Norm: Not addressed in contract so liability is allocated on a fault basis

A.Injury and Death: Knock-for-knockB.Property Damage: Qualified knock-for-knockThird-party damage: Fault-based

Loss of HoleIndustry Norm: Oilco assumes risk with a fault-based redrilling discountIndemnity: In the event of loss or damage to the hole Oilco shall be responsible for and hold harmless and indemnify the Drillco Group from such damage to or loss of the hole; provided that in the event such loss or damage is caused by Drillcos gross negligence or willful misconduct, Drillco shall upon Oilcos request and as Oilcos exclusive remedy for such loss or damage, repair the damaged portion or redrill to the depth at which the loss or damage occurred at 85% of the dayrate.

A.Injury and Death: Knock-for-knockB.Property Damage: Qualified knock-for-knockThird-party damage: Fault-basedLoss of Hole: Oilco assumes

Well Control CostsIndustry Norm: Oilco assumes riskIndemnity: Oilco shall be responsible for and hold harmless and indemnify the Drillco Group for the cost of regaining control of any wild well.

A.Injury and Death: Knock-for-knockB.Property Damage: Qualified knock-for-knockThird-party damage: Fault-basedLoss of Hole: Oilco assumesWell Control Costs: Oilco assumes

Reservoir Loss or DamageIndustry Norm: Oilco assumes risk without qualificationIndemnity: Oilco shall be responsible for and hold harmless and indemnify the Drillco Group from and against all claims on account of injury to, destruction of, or loss or impairment of any property right in or to oil, gas or other mineral substance and for any loss or damage to any formation, strata or reservoir beneath the seabed.

A.Injury and Death: Knock-for-knockB.Property Damage: Qualified knock-for-knockC.Third-party damage: Fault-basedD.Loss of Hole: Oilco assumesE.Well Control Costs: Oilco assumesF.Reservoir Loss or Damage: Oilco assumes

G.PollutionIndustry Norm: Drillco assumes pollution emanating from rig, and Oilco assumes wellbore pollution with qualification.

Drillco's Indemnity: Drillco shall be responsible for and hold harmless and indemnify the Oilco Group for control and removal of pollution or contamination which originates above the surface of the water from spills of fuels, lubricants, motor oils, paints, solvents and garbage wholly in Contractor's possession and control and directly associated with Contractor's equipment and facilities.

Oilco's Indemnity: Oilco shall be responsible for and hold harmless and indemnify the Drillco Group for control and removal of all pollution or contamination other than that assumed by Drillco above, including all pollution or contamination resulting from fire, blowout, cratering, seepage or any other uncontrolled flow of oil, gas, water or other substance; provided, however, that in the event any such pollution or contamination is caused by the gross negligence or willful misconduct of Contractor, Contractor shall assume the first $1,000,000 of such pollution or contamination.

A.Injury and Death: Knock-for-knockB.Property Damage: Qualified knock-for-knockC.Third-party damage: Fault-basedD.Loss of Hole: Oilco assumesE.Well Control Costs: Oilco assumesF.Reservoir Loss or Damage: Oilco assumesPollution: Split risk

Debris RemovalIndustry Norm: Each party will pay the costs to raise and remove its own equipment.Oilcos Indemnity: Oilco shall at all times be responsible for and hold harmless and indemnify the Drillco Group for the cost of removal of debris that is the property or equipment of the Oilco Group.Drillcos Indemnity: Drillco shall at all times be responsible for and hold harmless and indemnify the Oilco Group for the cost of removal of debris that is the property or equipment of the Drillco Group, but only to the extent removal of such debris is required by governmental authority or impedes Oilcos ongoing operations.

**Note where all rigs are and who they are working for and how long.

-We have been 100% utilized for the past 16 months. We currently are operating 16 Land Rigs 9 in Texas and 7 in Louisiana.

-Our current average well depth is 15,900 ft.

-Our Current Average dayrate is $17,563 exceeding our highest average rate of 2001.