1. 4 October 2015
Equity Research
Oilfield Services
Independence Contract Drilling (ICD)
Initiation report
Undervalued Strong B/S Growth Opportunity
• Industry overview: The US onshore drilling industry has been
hit hard recently with the decline in commodity prices. While
the total U.S. land rig count was at its peak in September 2014
of 1,876, that has since fallen to a five year low of 614. This
has tracked the fall in oil prices from a 52 week high of $85.67
to a 52 week low of $38.51. Prices have since risen to $45.37.
• ICD is a relatively small firm in the onshore drilling rig industry,
with 14 rigs. This is compared to larger operators such as
Helmerich & Payne, Precision Drilling, Nabors, and Patterson-
UTI, all of which have hundreds of rigs. While this does not
allow ICD to take advantage of some of the economies of
scale these larger companies can, it does allow them to be
more flexible and lets them respond quicker to changes in the
market.
• Industry outlook: While the rig count and commodity prices
are both at record lows, this is a cyclical industry. It is certainly
too soon to call the bottom to the market, but it is likely that
we will see rises in prices within the next year. Any rise in
commodity prices would see a rise in drilling by producers,
which would be beneficial to ICD.
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Portfolio Managers
Nick Spain
nspain@smu.edu
Kaplan Andrew
kandrew@smu.edu
Portfolio Analysts
Ryan Reese
rwreese@smu.edu
Andrew Swetnam
aswetnam@smu.edu
Tim Bogott
tbogott@smu.edu
Tyler Forcum
tforcum@smu.edu
Financial, valuation, and operational metrics
Price (4 October 15, USD) $5.12
52-Week Price Range $4.35 -$11.80
% of 52 Week High 43%
Market Cap 125.2M
12-Month Target Price: $9.35
Company Price 10/2/15 % of 52-Week High Market Cap # of Onshore Rigs
Independence Contract Drilling $5.12 43% $125M 14
Helmerich & Payne $49.28 53% $5,310M 348
Precision Drilling $3.95 39% $1,157M 236
Nabors Industries $9.71 45% $3,210M 488
Patterson- UTI $14.26 47% $2,099M 159
EBITDA EV/EBITDA EBITDA Growth Adj. EPS
Company 14A 15E 14A 15E 14A-15E 15E-16E 14A 15E
Independence Contract Drilling 15.5 23.7 9.05 7.34 53% -7% -0.33 -0.16
Helmerich & Payne 1,559 1,106 6.53 3.32 -29% -42% 6.09 3.05
Precision Drilling 800 497 5.09 6.18 -38% -2% 0.75 -0.23
Nabors Industries 1,746 1,140 10.46 5.71 -35% -17% 0.03 -0.17
Patterson- UTI 1,081 552 3.37 5.25 -49% -28% 1.46 -0.83
Mean 1,040 664 6.9 5.56 -20% -19% 1.6 0.332
Median 1,081 552 6.53 5.71 -35% -17% 0.75 -0.17

2. 4 October 2015Spindletop Energy Fund
• Company Background: Independence Contract Drilling is an integrated onshore
drilling services provider that completed its IPO in August 2014. ICD manufactures
and operates state of the art ShaleDriller rigs. These rigs are walking rigs that
facilitate pad drilling, with minimal time to move a rig from one location to
another. ICD owns and operates 14 drilling rigs. ICD primarily operates its rigs in
the Permian Basis, with ICD having an industry leading 87% utilization for 3Q15.
• Reputation for Quality: ICD is recognized throughout the industry for the quality
product and service they offer. ICD has a fleet wide uptime of 98%, and its rigs
have proven successful, with the longest lateral drilled of 14,000 ft. in the
Permian. This reputation for quality has led to some of the most respected E&P
producers choosing ICD for their drilling needs, including Devon, Apache, Pioneer,
Concho, & Parsley.
• Strong Balance Sheet: ICD has a very strong balance sheet, that should allow it to
get through this current down price cycle, and grow as rig counts rise with a
future price increase. ICD has Current Assets of $36.3M and Total Assets of
$289.5M. This is compared to Current Liabilities of $29.4M, Total Long Term Debt
of $22.5M and Total Liabilities of $52.9M. One issue common with struggling OFS
companies is a high level of debt, so ICD having so little debt puts them in a great
position to grow in the future.
• Solid Leadership & Company Initiatives: ICD has a great leadership team, headed
by CEO Byron Dunn, a veteran of the energy industry. Together, the leadership
team has undertaken initiatives such as suspending new rig building and keeping
debt at a manageable level.
• Analyst Recommendations: ICD has a consensus buy rating from the equity
research analysts that cover the stock. Out of 10 recommendations, 9 have a Buy
rating and 1 has a Hold rating. This gives us confidence in our own buy rating.
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Why Independence Contract Drilling
• Commodity Prices: As ICD is a drilling company, they have direct exposure to the
risks of a prolonged down commodity price cycle, or future declines in prices. If
prices continue to stay where they are for a long time, or go down further, it is
likely that E&P companies would further cut new drilling operations, which could
affect ICD.
Investment risks