Investor Presentation First Quarter 2017 KCA Deutag is a leading - - PowerPoint PPT Presentation

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KCA Deutag is a leading international drilling and engineering company working onshore and offshore with a focus on safety, quality and operational performance

First Quarter 2017

Investor Presentation

Disclaimer

1

The distribution of this presentation in certain jurisdictions may be restricted by law. Persons into whose possession this presentation comes are required to inform themselves about and to observe any such restrictions. This presentation contains forward-looking statements concerning KCA

• Deutag. These forward-looking statements are based on management’s current

expectations, estimates and projections. They are subject to a number of assumptions and involve known and unknown risks, uncertainties and other factors that may cause actual results and developments to differ materially from any future results and developments expressed or implied by such forward-looking

• statements. KCA Deutag has no obligation to periodically update or release any

revisions to the forward-looking statements contained in this presentation to reflect events or circumstances after the date of this presentation.

2

1

Q1 Key Highlights

2

Business Update

3

Business Unit Financials

4

Group Results

5

Summary

Agenda

Q1 and Full Year Key Highlights

KCA Deutag is a leading international drilling and engineering company working

• nshore and offshore with a focus on safety, quality and operational performance

1

Q1 2017 Group revenue of $269.1m (Q1 2016: $357.3m) and Q1 2017 EBITDA of $50.1m (Q1 2016: $71.2m) respectively

2

Increased tendering activity with a number of rig contracts and equipment

• rders secured

3

Contract backlog of $5.4bn (at 1 May 2017) across a blue chip customer base

4

Available liquidity of $257m at 31 March 2017

5

Successful closing of offering of $535 million 97/8% Senior Secured Notes due 2022

3

Market Overview

4 KCAD operates in low breakeven oil price environments International vs. North American drilling markets

International markets North America Commodity price

• Less dependency on commodity prices
• High dependency on commodity prices
• Gas heavy market with depressed/volatile Henry Hub

prices Volatility

• Low operating cost base
• Rig count largely inelastic to price downturns
• High operating cost base
• High sensitivity to price downturns

Supply growth drivers

• Supply critical to national economy and often driven by

NOCs

• Supply of less significance to government revenue

Contract duration

• Customers willing to ensure rig availability through long

term contracts

• Contract durations and terms more favourable to

customers

10 20 30 40 50 60 70 80

KCAD core markets

10 20 30 40 50 60 70 80 90 100

Cumulative Liquids Production in 2020 (MMbpd)

Current Brent price

Business update

5

Bentec Offshore services RDS

Integrated land drilling Offshore drilling services & design

• Long term stable

backlog continues to be maintained with some recent contract extensions

• Activity levels remain

lower in the North Sea and Angola

• CAT J and Hebron

contracts continue to ramp up activity

• A focus on continued cost

savings to preserve low level positive EBITDA

• Diversification in to non
• il and gas areas
• Tendering activity overall

continues to be low

• Strong activity in Oman

and Russia with continuing

• ngoing opportunities
• Utilisation in Nigeria,

Kurdistan and Algeria remains weaker

• Europe activity continues

to increase

• Tendering activity

continues to increase within the Bentec business

• 9 Top Drive orders

secured during Q1 2017 $181.7m / 69.5% of total¹ $(3.5)m / (1.3)% of total¹ $79.0m / 30.2% of total¹ $4.1m / 1.6% of total¹

Land drilling Bentec

6

Group margin performance

Houston Baku London

Bad Bentheim Tyumen Nizwa

St. Johns

Bergen Dubai

Land Drilling Offshore Services RDS offices Bentec Regional offices

KCAD operations are diversified across global markets

Aberdeen (HQ)

Map excludes work over land rigs, defined as being below 900HP. Map shows position at 1 May 2017.

PRESENCE IN KEY AREAS

129 58 53 43 18 30 60 90 120 150 Europe North Africa Middle East North Sea Russia

LTM Q1 2017 EBITDA split by region 7

8

Note: IADC stands for International Association of Drilling Contractors.

• Won both the "Best Safety Performance Platforms" and the "Chairman's Award for Best Safety Performance

for a Platform Drilling Unit" for our operations on the Scott at the International Association of Drilling Contractors, North Sea Chapter Annual Safety Awards

• In Sakhalin we have obtained the internationally recognised OHSAS 18001:2007 accreditation for our health

and safety management system following a successful DNV audit in February this year

• In addition, KCAD won on "The Best Drilling Contractor" award at the 5th Annual Russian Drilling Roundtable

(RDCR) which was held in April

Health, safety and environmental performance

KCAD TRIR at end of Q1 2017 was 0.261 injuries per 200,000 man hours worked IADC industry average 0.452 for 2016

9

Backlog Status

Backlog figures exclude revenue generated in the year to date.

Total contract backlog as at 1 February 2017 Contract backlog by BU as at 1 February 2017 Total contract backlog as at 1 May 2017 Contract backlog by BU as at 1 May 2017

10

Land fleet utilisation

Historical and forecast utilisation

Contract Platform Client Country Assets

end date status # Exxon Canada Hebron M ar-46 Under Construction 1 Statoil Norway CAT J (2) M ay-36 Under Construction 2 Exxon Angola Kizomba (2) Apr-27 Stacked 2 AIOC Azerbaijan Azeris, SD, DWG, Cop & Chirag Dec-24 Operating 7 Nexen UK Scott Feb-23 Operating 1 Statoil Norway Oseberg's (4) & Gulfaks (3) Oct-22 Operating / Stacked 6/1 Statoil Norway Pipe pool management Oct-22 Active mgmt. contract Statoil Norway Kvitebjorn Oct-22 Operating 1 CNR UK Ninian's (3) Tiffany Nov-21 Operating / Stacked 1 /3 SEIC Russia LA, PA & PB M ay-21 Operating 3 Total UK Alwyn Dec-20 Stacked 1 Total UK Dunbar Dec-20 Stacked 1 Exxon Norway Ringhorne Dec-1 7 Stacked 1 COP UK Britannia Jul-1 7 Stacked 1 Taqa UK Cormorant A & N, Tern, Eider & Harding Jul-1 7 Stacked 5 Enquest UK Thistle & Heather Apr-1 7 Operating / Stacked 1 /1 2017 2018 2019

11

Robust platform services contract backlog @ 1 May

Contracts have been extended or renewed since last call

12

• The land business although slightly down on the prior quarter and year has delivered

strong financial results in tough market conditions

• Activity levels remain robust in Russia and Oman
• Ongoing weaker market conditions in Nigeria, Kurdistan and Algeria due to softer

utilisation

• Significant increase in tendering activities
• Utilisation for the quarter of 60%, an increase on the prior quarter

Financial Performance to 31 March 2017

Land Drilling

Q1 2017 Q4 2016 Q1 2016 Q1 2017 Q1 2016 Result Result Result YTD YTD $m $m $m $m $m Revenue 122.2 133.6 150.3 122.2 150.3 EBITDA (post support allocation) 43.0 46.7 47.8 43.0 47.8 Margin 35.2% 35.0% 31.8% 35.2% 31.8%

Bentec

13

• EBITDA has improved slightly compared to Q4 2016, but has lower revenue, improvement

reflects the cost savings made during 2016

• Improved activity during Q1 with a marked increase in tender activity
• Increase in After Sales and 9 Top Drive orders secured in Q1
• Successfully awarded first order for customer in North American market

Financial Performance to 31 March 2017

Q1 2017 Q4 2016 Q1 2016 Q1 2017 Q1 2016 Result Result Result YTD YTD $m $m $m $m $m Revenue 15.6 16.5 29.7 15.6 29.7 EBITDA (post support allocation) 0.3 (2.0) 2.9 0.3 2.9 Margin 1.7%

• 12.2%

9.7% 1.7% 9.7%

Offshore Services

14

Financial Performance to 31 March 2017

• Reduction in revenue and EBITDA compared to Q4 2016, primarily due to lower activity

levels in Norway

• Cat J and Hebron projects ramping up and to commence operations in 2017

Q1 2017 Q4 2016 Q1 2016 Q1 2017 Q1 2016 Result Result Result YTD YTD $m $m $m $m $m Platform Services Revenue 119.0 131.0 144.6 119.0 144.6 EBITDA (post support allocation) 11.3 19.2 19.8 11.3 19.8 Margin 9.5% 14.6% 13.7% 9.5% 13.7% MODUs Revenue 0.0 0.0 12.9 0.0 12.9 EBITDA (post support allocation) (0.0) (0.2) 4.1 (0.0) 4.1 Margin n/a 0.0% 31.8% n/a 31.8% Offshore Services Revenue 119.0 131.0 157.5 119.0 157.5 EBITDA (post support allocation) 11.3 19.0 23.9 11.3 23.9 Margin 9.5% 14.5% 15.2% 9.5% 15.2%

RDS

15

Financial Performance to 31 March 2017

• Few opportunities in greenfield however brownfield activity continues
• We continue to manage costs in line with project activity
• Good progress in respect of diversification into non core activities

Q1 2017 Q4 2016 Q1 2016 Q1 2017 Q1 2016 Result Result Result YTD YTD $m $m $m $m $m Revenue 14.2 14.4 24.4 14.2 24.4 EBITDA (post support allocation) 0.6 (0.3) 1.6 0.6 1.6 Margin 4.0%

• 2.4%

6.5% 4.0% 6.5%

Group Results

Financial Performance to 31 March 2017

16

Revenue and EBITDA ($m) Q1 2017 $m Q4 2016 $m Q1 2016 $m 2017 YTD $m 2016 YTD $m Revenue from business units 271.0 295.7 362.1 271.0 362.1 Eliminations (1.9) (8.0) (4.8) (1.9) (4.8) Total third party revenue 269.1 287.7 357.3 269.1 357.3 EBITDA from business units 55.2 63.4 76.2 55.2 76.2 Eliminations 0.0 0.2 (0.2) 0.0 (0.2) Corporate costs/other (4.8) (4.6) (4.8) (4.8) (4.8) Exchange (0.3) 1.1 0.0 (0.3) 0.0 Total EBITDA 50.1 60.1 71.2 50.1 71.2

Cash flow and working capital

Financial Performance to 31 March 2017

17

Working Capital2

9

Free Cash Flow

Q1 2017 Q4 2016 Q1 2016 2017 YTD 2016 YTD $'m $'m $'m $'m $'m Cash generated from operations 21.4 87.1 82.0 21.4 82.0 Tax paid (8.5) (6.4) (12.3) (8.5) (12.3) Cash flow from operating activities 12.9 80.7 69.7 12.9 69.7 Capital expenditure (6.8) (15.1) (64.0) (6.8) (64.0) Proceeds from sale of Fixed Assets 0.2 1.0 52.6 0.2 52.6 Interest received 5.4 5.4 5.4 5.4 5.4 Other 0.0 0.0 (0.3) 0.0 (0.3) Cash flow from investing activities (1.2) (8.7) (6.3) (1.2) (6.3) Interest paid1 (14.9) (50.5) (14.4) (14.9) (14.4) Foreign exchange (2.6) 10.0 2.5 (2.6) 2.5 Dividend paid to minority shareholders (0.3) 0.0 0.0 (0.3) 0.0 Acquisition of non-controlling interests 0.0 0.0 0.0 0.0 0.0 Net Cash flow before debt drawdown/(repayment) (6.1) 31.5 51.5 (6.1) 51.5 Drawdown/(repayment) of debt and debt issuance costs (6.6) (8.1) 74.7 (6.6) 74.7 Net cash flow (12.7) 23.4 126.2 (12.7) 126.2

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Capital structure

Net leverage as at 31 March 2017

Utilisation 31st March 2017 Coupon Maturity Facility Rating3 Recovery Rating3 Net Leverage1 Revolver ($250m)2 0.1 L+400 May-19 Caa1/CCC+ 3/3 0.00x Senior Secured Term Loan 361.7 L(100)+525 May-20 Caa1/CCC+ 3/3 1.50x HSBC Oman Term Loan 60.0 L+400 Dec-20 0.25x Total Bank Debt 421.8 1.74x UK Finance Senior Secured Notes 375.0 7.250% May-21 Caa1/CCC+ 3/3 1.55x Globe Luxembourg Senior Secured Notes 500.0 9.625% May-18 Caa1/CCC+ 3/3 2.07x Total Institutional Debt 1,296.8 5.36x Finance lease & other debt 5.5

• Aug-18
• 0.02x

Gross Debt 1,302.3 5.38x Cash 149.3 0.62x Net Debt 1,153.0 4.77x

19

Capital structure pro forma

Net leverage as at 31 March 2017

Pro Forma Utilisation 31st March 2017 Coupon Maturity Facility Rating4 Recovery Rating3 Net Leverage1 Revolver ($275m)2 0.1 L+400 Mar-22 Caa1/CCC+ 3/3 0.00x Senior Secured Term Loan 361.7 L(100)+575 May-20 Caa1/CCC+ 3/3 1.50x HSBC Oman Term Loan 60.0 L+400 Dec-20 0.25x Total Bank Debt 421.8 1.74x UK Finance Senior Secured Notes 375.0 7.250% May-21 Caa1/CCC+ 3/3 1.55x UK Finance Senior Secured Notes 535.0 9.875% Apr-22 Caa1/CCC+ 3/3 2.21x Total Institutional Debt 1,331.8 5.51x Finance lease & other debt 5.5

• Aug-18
• 0.02x

Gross Debt 1,337.3 5.53x Cash 149.3 0.62x Net Debt 1,188.0 4.91x

HSBC 12 TLB 4 VTB Debt 3 HSBC 16 TLB 4 VTB Debt 3 HSBC 16 TLB 4 Revolver 25

Closing remarks

20

• Strong liquidity position at $257 million
• Q1 2017 EBITDA of $50 million delivered in challenging market conditions
• Increase in tendering activity across several regions providing positive outlook for 2017
• Successful closing of new bond providing ongoing secure financial footing
• Backlog position of $5.4 billion across a blue chip company base
• Strong HSE and operational performance recognised by customers

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Q & A

investor.relations@kcadeutag.com