UH BAUER COLLEGE OF BUSINESS: MARCH 30, 2006 PRESENTATION Rowan Companies, Inc. John Buvens, General...

UH BAUER COLLEGE OF BUSINESS: MARCH 30, 2006 PRESENTATION

Rowan Companies, Inc.

John Buvens, General Counsel

Ted Gobillot, Associate General Counsel

UH BAUER COLLEGE OF BUSINESS: MARCH 30, 2006 PRESENTATION

Rowan Companies, Inc.

John Buvens, General Counsel

Ted Gobillot, Associate General Counsel

EmmaLindsay

Joe

I. Overview of Rowan Companies, Inc.

II. Emerging Trends in the Offshore Drilling Industry

III. How is an offshore well drilled?

IV. Oilco/Drillco Relationship: Who provides what?

V. Risks: What can happen?

VI. What is an indemnity agreement?

VII. How do the parties allocate risk?

I. Overview of Rowan Companies, Inc.

• Founded in 1923 by Arch and Charlie Rowan

• Two units: Drilling and Manufacturing

• Total workforce: 4,500+ employees

• HQ at Williams Tower (ex-Transco Tower)

• On NYSE and publicly-owned since 1967

• 2005: Revenue of over $1B; $4.5B market cap

DRILLING DIVISION

• HQ 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 Trinidad

• 20 offshore rigs; 17 land rigs

• Accounts for 75% of RCI's revenue

Land Rig Locator MapLand Rig Locator Map

TEXAS LOUISIANA

MISS

ROWAN

CO

MPANIES, INC

.

LR-34

LR-54

LR-53

LR-14

LR-52

LR-15

LR-33

LR-9, 29, 35

LR-26, 30, 31, 51

LR-18

LR-41 9- Texas 7- Louisiana 1- Oklahoma

17 Land Rigs OperatingCurrently 100% Utilized

Current Average Well Depth: 15,980 ft.

LR-12

MANUFACTURING DIVISION

• Acquisitions: LeTourneau (1994), Ellis Williams (1999), OEM (2001)

• HQ in Longview, TX; manufacturing facilities in Vicksburg, MS and Houston, TX

• Manufactures jack-up rigs, land rigs and rig component parts, equipment for the timber and mining industries

• Accounts for 25% of RCI’s revenues

LeTourneau Products

World’s Largest Front-End Loader

3000 HP Mud Pump3000 HP Mud Pump

DrawworksDrawworksRotary TableRotary Table

Manufacturing DivisionManufacturing Division

ROWAN’S RIG CONSTRUCTION PROGRAM

1. Large Fixed Capital Investment

• Purchase LeTourneau

• Restore Vicksburg, MS Facility

• Hire and Train Workers

• Rig Construction Cost: $180-$500 Million

• Ongoing Maintenance and Labor Cost

2. Volatile Revenue Stream

• Dayrates Track Commodity Prices

• Boom-and-Bust Business

3. Gorilla V Experience

0

10

20

30

40

50

60

70

80

90

Worldwide Jack-up Newbuilds and Attrition 1950-2005Worldwide Jack-up Newbuilds and Attrition 1950-2005

Additions to the fleet AttritionSource: ODS-Petrodata

Average Age of Retired Rigs:

30 years

Number of Retired Rigs per year (20-year average): 6 rigs

Average Age of Retired Rigs:

30 years

Number of Retired Rigs per year (20-year average): 6 rigs

Scheduled Construction / On Order

2009

55 Rigs Under Construction

2006 - 10

2007 – 20

2008 - 20

2009 - 5

55 Rigs Under Construction

2006 - 10

2007 – 20

2008 - 20

2009 - 5

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

$18,000

$20,000

$22,000

$24,000

$26,000

$28,000

$30,000

1998 1999 2000 2001 2002 2003 2004 2005 2006

Land Dayrate History 1998-2005Land Dayrate History 1998-2005

$17,242$17,242

ROWAN

CO

MPANIES, INC

.

Dayrates through March 27, 2006

Current 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 Tow Double-Rig Dry Tow

Transport of Rigs Overseas

Triple-Rig Dry Tow

Rowan Fleet Migrates to Saudi ArabiaRowan Fleet Migrates to Saudi Arabia• 35,000 Tons

• 12,300 miles

• 60 days

Sharjah RoadsSharjah Roads

Jacked up in Halifax Harbor, Nova Scotia, Canada

II. Emerging Trends in the Offshore Drilling Industry

A. Current Status

1. Global Supply and Demand

2. Saudi Arabia as swing producer

3. Declining Production in GOM

4. The Moratorium

5. The Stakeholders in GOM

B. Extending Life of GOM

1. Evolving Technology

2. Deep Shelf and Deep Water

3. Royalty Relief by MMS

C. Emergence of Liquified Natural Gas

D. Law of the Sea Treaty

E. Fallout from Hurricanes Katrina and Rita

9

9

E. Canada: 100%E. Canada: 100%

C & S America: 82%C & S America: 82%

US GOM: 82%US GOM: 82%

Mexico: 100%Mexico: 100%

West Africa: 100%West Africa: 100%

North Sea: 100%North Sea: 100%

Middle East: 98%Middle East: 98%

SE Asia: 97%SE Asia: 97%

Contracted

Not Contracted

85

2 0

27

3

32

210

80 2

311

19

14

0

Worldwide Jack-up Supply / DemandWorldwide Jack-up Supply / DemandWorldwide Utilization: 92%Worldwide Utilization: 92%

Source: ODS – Petrodata

0

Indian Ocean: 100%Indian Ocean: 100%

25 0

Total 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 world’s 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, 2006

LOST LANGUAGE DRAINS BILLIONS: MYSTERIOUS ERROR TO COST GOVERNMENT ENERGY ROYALTIES

WASHINGTON – How it happened or who’s 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 Department’s Minerals Management Service issued for 1998 and 1999, Walter Cruickshank, the agency’s 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 200m

Greater than 1,000 m

10,000’

30,000’

Llano

Cretaceous Shelf Edge

NS

DEEPWATER FLEX TREND (Shelf Edge) SHELF

JasonST172 HickoryConger

Pleistocene

Pliocene

Miocene

Mid. Miocene

Low. Miocene

Paleogene

Mesozoic

20,000’

Salt

Salt

Basement Rock

TahitiThunderHorse

Treasure Prospect JB Mtn.

TypicalShelf

Source: Newfield Exploration

III. How is an offshore well drilled?

The Basic Rig Systems are:

• Power System

• Hoisting System

• Rotating System

• Circulating System

• Well Control System

Making a Drillstring Connection

Land Rig Substructure

Derrick

TYPES OF OFFSHORE RIGS

• Drilling from beach (1890’s)

• Drilling from wharves (1910’s)

• Platform rig and barge (1920’s)

• Submersible barge rig (1940’s)

• Jackup rig (1950’s)

• Semi-submersible rig (1970’s)

• Drillship (1980’s)

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

Submersible Barge Rig

Jackup Drilling Rig

Semi-Submersible Drilling Rig

Drillship

• Rig and drillpipe

• Rig maintenance, repairs and certifications

• Rig crew aboard rig 24/7

• Catering and housekeeping staffs

• Medic

IV. Oilco/Drillco Relationship: Who Provides What?

Drillco Provides:

Drillco Personnel

TOTAL NO.

ON RIG CLASSIFICATION

As required Rig Manager

1 Day Toolpusher (on-site manager)

1 Night Toolpusher (on-site manager)

1 Mechanic

1 Electrician

1 Barge Engineer (a/k/a Rig Administrator)

1 Assistant Barge Engineer

1 Welder

2 Drillers

2 Assistant Drillers

2 Derrickmen

2 Enginemen

2 Crane Operators

2 Assistant Crane Operators/Deck Supervisors

10 Roughnecks

8 Roustabouts

1 Medic

38

Roughnecks

Men Working on Well

Driller Derrickman

• Lease rights and drilling permits• Well program• Transportation of rig to Oilco’s wellsite• “Company man” aboard rig 24/7• Mud Engineer aboard rig 24/7• Specialized services• Air and/or sea transportation for all personnel

and equipment• Fuel• Drilling mud• Well evaluation services• Production equipment (platforms, pipelines,

compressors)

OILCO PROVIDES:

THE EXCHANGE

• Oilco pays Drillco a dayrate charge

• Drillco’s dayrate charges account for 40-60% of Oilco’s total well costs

• Oilco expects delivery of well in compliance with Oilco’s well program and in a safe and timely manner

• Oilco gets 83.3% of production

V. Risks

WHAT BAD STUFF CAN HAPPEN?

• Boat accidents

• Crane accidents

• Equipment defects and malfunction

• Lightning strikes

• Hurricanes

• Pipeline strikes

• Platform strikes

• Punchthroughs

• Blowouts

• Helicopter accidents

• Sabotage

• Nationalization/confiscation

• War 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 Egypt

August 2004

Rig sinks and Platform is destroyed

New Risk: Icebergs and Ice Flows

Ivan, Katrina and RitaIvan, Katrina and Rita

Three 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

Three 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 Ivan’s direct path.

• Total Damage

1. Platforms: 31 destroyed or damaged

2. Pipelines: hundreds of miles of pipelines buried, snapped and/or damaged due to mudslides; production shut-in for months

3. Drilling Rigs: 6 damaged

4. No one injured or killed due to evacuations

Hurricane Ivan: September 2004

Hurricane Katrina 2005Hurricane Katrina 2005

Path of Rita Path of Katrina

Hurricane DamageHurricane Damage

Refinery Damage in Pascagoula, MS

Aviation Base in Venice, LA

Marine facility in Fourchon, LA

Shell Mars PlatformShell Mars Platform

BeforeBefore

AfterAfter

Chevron Typhoon Platform

Chevron Typhoon Platform

BeforeBefore

AfterAfter

Diamond Ocean WarwickDiamond Ocean Warwick

GSF Adriatic VIIGSF Adriatic VII

GlobalSantaFe High Island III

GlobalSantaFe High Island III

NOBLE THERALD MARTIN OFF COAST LOUISIANA

RIG DRIFTED 125 MILES DRAGGING 6 ANCHORS

BEFORE BEACHING ITSELF IN VERMILLION

BeforeBefore

AfterAfter

ROWAN’S 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 Scorecard

• Platforms: 167 destroyed or damaged

• Drilling Rigs: 8 destroyed; 22 extensively damaged; 19 knocked off station and adrift

• Pipelines and Refineries: extensive damage

• No one injured or killed in offshore industry

• Fallout: (1) tight rig supply and price increases

(2) increase in oil and gas prices

(3) government intervention

(4) increase in insurance costs

Source: ODS - Petrodata

Katrina/Rita Fallout: Dayrate Increases

Rig Type August 2004 August 2005

November 2005

Today

250’ Jack-up $30,000 $60,000 $100,000 $130,000

300’ Jack-up $40,000 $70,000 $130,000 $150,000

350’ Jack-up $45,000 $75,000 $140,000 $160,000

7500’ Semi $80,000 $200,000 $300,000 $400,000

Katrina/Rita Fallout: Insurance

• Big 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 DAMAGES

• Injury and death to Oilco’s and Drillco’s personnel

• Damage to Oilco’s property

• Damage to Drillco’s rig

• Third-party damage (beaches, fishermen, reefs, oysterbeds, adjacent pipelines and reservoirs)

• Loss or damage to the hole

• Well control costs

• Pollution control costs

• Reservoir loss or damage

• Debris removal

VI. 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-based

• Contract-based allocation vs. fault-based allocation

• Indemnity agreement is only as good as the financial resources of party who gives it and that party’s insurer

• Prepare management for the possibility of a harsh result

• If used, the indemnifying party, its insurers and eventually the courts will closely scrutinize the indemnity agreement

• Carefully read, review and re-review indemnity language

• Know the law

CASE #1 Oilco's company man is killed and his family files a lawsuit against Drillco. Oilco's Indemnity: Oilco shall be responsible for and hold harmless and

indemnify Drillco from and against all claims, demands, and causes of action of every kind and character arising in connection with this Drilling Contract asserted by Oilco's employees on account of illness, bodily injury or death, but only to the extent Oilco is negligent in causing such illness, bodily injury, or death.

Will Oilco indemnify Drillco?

ANSWER: No because no claim of negligence has been filed against Oilco and Oilco's indemnity is limited to covering claims alleging Oilco acted negligently.

ANSWER: No because the company man is a subcontractor hired by Oilco and not an employee and Oilco's indemnity is limited to covering claims asserted by Oilco's employees.

CASE #2 Oilco's company man is killed and his family files a lawsuit against Drillco. Oilco's Indemnity: Oilco shall be responsible for and hold harmless and

indemnify Drillco from and against all claims, demands, and causes of action of every kind and character arising in connection herewith in favor of Operator's employees on account of illness, bodily injury or death, but only to the extent Oilco is negligent or causes such illness, bodily injury, or death.

Will Oilco indemnify Drillco?

ANSWER: No because the lawsuit is a claim asserted by the family of Oilco's company man, and Oilco's indemnity is limited to covering claims asserted by Oilco's employees, subcontractors and invitees.

CASE #3 Oilco's company man is killed and his family files a lawsuit against Drillco. Oilco's Indemnity: Oilco shall be responsible for and hold harmless and

indemnify Drillco from and against all claims, demands, and causes of action of every kind and character arising in connection with this Drilling Contract asserted by Oilco's employees, subcontractors and invitees on account of illness, bodily injury or death, but only to the extent Oilco is negligent in causing such illness, bodily injury, or death.

Will Oilco indemnify Drillco?

ANSWER: Yes, but the family also files suit against Rigco, which is the manufacturer of the rig and the wholly-owned subsidiary of Drillco. Oilco must indemnify Drillco, but Oilco will not indemnify Rigco.

CASE #4 Oilco's company man is killed and his family files a lawsuit against Drillco. Oilco's Indemnity: Oilco shall be responsible for and hold harmless and

indemnify Drillco from and against all claims, demands, and causes of action of every kind and character arising in connection with this Drilling Contract asserted by Oilco's employees, subcontractors and invitees, as well as each of their respective beneficiaries, heirs, survivors and estates, on account of illness, bodily injury or death., but only to the extent Oilco is negligent in causing such illness, bodily injury, or death.

Will Oilco indemnify Drillco?

ANSWER: Yes.

CASE #5 Oilco's company man is killed and his family files a lawsuit against Drillco

and Rigco. Oilco's Indemnity: Oilco shall be responsible for and hold harmless and

indemnify Drillco, its parent, subsidiary and affiliated companies, and their respective officers, directors, subcontractors and employees ("Contractor Group") from and against all claims, demands, and causes of action of every kind and character arising in connection herewith asserted by Oilco's employees, subcontractors and invitees, as well as each of their respective beneficiaries, heirs, survivors and estates, on account of illness bodily injury or death., but only to the extent Oilco is negligent in causing such illness, bodily injury, or death.

WHY ALLOCATE RISK?

• Tailor risk to insurance coverage, but you should protect your coverage, loss-history and insurer

• Avoid insuring the same risk twice

• Possibility of acquiring insurance for an assumed but uninsured risk

• Preserve customer relationships

• Avoid company-breaking risks

• Avoid biased courts and unpredictable jury verdicts

• Avoid litigation expenses

• Market conditions may dictate risk allocation

• Take advantage of unsuspecting party

• Assume risks that you can control through operations and avoid risks that you cannot control

• Allocation of risk should reflect value of contracted services

VII. Risk Allocation in Offshore Drilling Contracts

A. Injury and Death

• Industry Norm: knock-for-knock

• Oilco’s 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 Oilco’s employees, subcontractors or invitees.

• Drillco’s 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 Drillco’s 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 Damage

• Industry Norm: Qualified knock-for-knock

• Oilco’s 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.

Drillco’s 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 damage

• Industry 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-knockC. Third-party damage: Fault-based

D. Loss of Hole

• Industry Norm: Oilco assumes risk with a fault-based redrilling discount

• Indemnity: 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 Drillco’s gross negligence or willful misconduct, Drillco shall upon Oilco’s request and as Oilco’s 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-knockC. Third-party damage: Fault-basedD. Loss of Hole: Oilco assumes

E. Well Control Costs

• Industry Norm: Oilco assumes risk

• Indemnity: 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-knockC. Third-party damage: Fault-basedD. Loss of Hole: Oilco assumesE. Well Control Costs: Oilco assumes

F. Reservoir Loss or Damage

• Industry Norm: Oilco assumes risk without qualification

• Indemnity: 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. Pollution

• Industry 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 assumesG. Pollution: Split risk

H. Debris Removal

• Industry Norm: Each party will pay the costs to raise and remove its own equipment.

• Oilco’s 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.

Drillco’s 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 Oilco’s ongoing operations.