Investor Presentation Third Quarter 2014 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

Third Quarter 2014

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

• bserve 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

Agenda

1

Key Highlights

2

Commercial Developments

3

Business Overview

4

Group Results

5

Summary

Q3 Key highlights

KCA Deutag is a leading international drilling and engineering company working onshore and

• ffshore with a focus on safety, quality and operational performance

1

Group revenue and EBITDA of $520.0m (Q3 2013: $537.7m) and $73.5m (Q3 2013: $73.7m) respectively, driving improved YTD EBITDA of $243.3m (YTD EBITDA Q3 2013: $192.5m)

2

LTM EBITDA of $352m, a 30% year over year improvement

3

Major contract win for our land business

4

Contract backlog of $8.8bn (as at 1 October 2014) across a blue chip customer base

5

Significant year-on-year reduction in Net debt/LTM EBITDA leverage – from 4.75x at Q3 2013 to 3.6x by Q3 2014

3

Integrated Land Drilling Offshore Drilling Services & Design

$191m LTM EBITDA (54% of total)¹ $159m LTM EBITDA (46% of total)¹

Land Drilling Bentec Platform Services Rig Design Services (RDS)

• Leading international

premium drilling rig owner and operator

• Design and manufacture of

high-end premium land rigs and components

• Leading global platform service
• perator outside North America
• Rig design engineering from

concept to commission

• Operations: Russia, Africa,

Middle East, Europe and SE Asia

• Facilities: Germany, Russia,

Oman

• Operations: UK North Sea,

Norway, Azerbaijan, Russia, SE Asia and Africa

• Offices: Aberdeen, Baku,

Bergen, Houston, London

Market-leading international drilling & engineering company

4 Design & Engineering Design & Manufacture Own & Operate Own & Operate Manage Manage

• Rigs: High end fleet of

53 drilling rigs, 4 workover rigs

• 94% of new rigs since

2007 have been built by Bentec

• Facilities: Capacity for

12-16 rigs and 50 top drives p.a.

• Staff: c.3,100 managing

drilling operations on 40 platforms

• Approx. 60% of

platforms designed or refurbished by RDS

• Staff: c.780 engineers

and support staff

¹ LTM EBITDA pre-exceptional items, excluding MODUs and after reallocation of support costs previously shown as central overheads. EBITDA by segment for 2013 has been re-presented to reallocate support costs which were previously shown as central overheads (such as HR, Supply Chain and IT costs) to the operational business segments. 2014 figures are presented on the same basis.

5

Lukoil T-506: the perfect spud

• Contract awarded for one new build, 320T 1,500HP

cluster-slider rig to operate on the Yuzhno-Lyzhskoe field within the Komi Republic of Russia

• This rig was secured on a 3 year USD day rate

contract with 2x1 year extensions

• The contract was received at the end of 2013 and

the rig was built in Bentec’s Tyumen facility in Russia with some key components provided from Germany

• The build was completed on budget by the end of

August and it was mobilised to location during September

• The Land Drilling team successfully spudded the rig
• n location on 1 October 2014: the first of a 10 day

window allowed by our contract

The success of this project demonstrates the excellent integration between the Bentec and Land Drilling businesses driving successful and timely delivery to our client

Houston

Ben Loyal jack-up rig

Baku London

Stavanger Bad Bentheim Tyumen Nizwa Ben Rinnes jack-up rig

St. Johns

Bergen Dubai

Land Drilling Platform Services RDS offices MODUs Bentec Regional offices

Continued strong market position and balanced portfolio of assets across highly attractive international markets

Aberdeen (HQ)

adjustments and excluding central overheads. Map excludes work over land rigs, defined as being below 900HP.

PRESENCE IN KEY AREAS

North Sea /Norway 26 Plat. Europe & Caspian 8 Rigs Caspian 7 Plat. Russia 16 Rigs Middle East 14 Rigs Angola 3 Plat. Africa 14 Rigs Russia Sakhalin 3 Plat. Brunei 1 Rig Myanmar 1 Plat.

126 55 50 40 15 30 60 90 120 150 Europe North Africa Middle East North Sea Russia

Years

LTM Q3 2014 EBITDA split by region 6

Europe 24% Russia 21% Africa 18% Caspian 13% Middle East 10% Far East 7% Other 7%

1,500 3,000 4,500 3% CAGR 2006-18 $0 $20 $40 $60 $80 $100

Breakeven Oil Price (US$/bbl)

14% 21% 62% Total Wells Deviated Wells Top Drives KCAD target market

KCAD well positioned to benefit from current sector trends

7 KCAD relevance Themes

Source: Douglas Westwood, April 2014 ¹ Majority of conventional and shallow water projects are commercial below $50/bbl.

Focused on production drilling with attractive economics Strong international land drilling environment Increased drilling complexity driving demand and margins

• KCAD operates in drilling environments with low

breakeven oil prices

• Operating in regions with oil revenue critical to

government budgets

• Operating production platforms where the

majority of capex has already been invested (opex focus)

• Rig counts steadily increased over the last 2

years

• No exposure to US market, where rig count

levels are much more volatile

• High specification equipment can drill vertical

and longer wells, supporting project economics by improving the recovery

• Increased reservoir and drilling complexity is

driving the demand for high specification rigs, including top drive equipment

Supporting data

Forecast Growth 2014-2018 KCAD core markets

28% decline 2008-09

International Rig Count (Y-o-Y) North America Rig Count (Y-o-Y)

1,500 3,000 4,500 6,000 6% CAGR 2006-18 1% decline 2008-09

0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 TRIR per 200,000 man hours

Total recordable incident rate improvement

TRIR (average)

8

Health, safety and environmental performance

KCAD TRIR at end of Q3 2014 was 0.401 injuries per 200,000 man hours worked IADC industry average 0.812 for 2013

IADC figures are annual and are not released until after year end, therefore no 2014 information is available. Note: IADC stands for International Association of Drilling Contractors.

• Sustained progress made on improving TRIR performance
• The Group reaches 0.40 TRIR for the first time

9

T-47: 7+ years without Lost Time Incident

• On 15th January 2014, the crews of Rig

T-47 in Kazakhstan reached the key milestone of 7 years without a Lost Time

• Incident. This milestone has continued

through the year to this quarter end

• This achievement is all the more

impressive when taking into consideration the difficult climatic extremes (-35oC in winter and +45oC in summer).

• Lost Time Incidents can result in penalties

and non-payment of day rate which in turn lower our returns on projects

• Low incident rates are a key criteria that

we are measured against when tendering for new work, so continued low health and safety scores are vital to the success of

• ur business

Significant New Contracts – RDS, Premier Oil’s Sea Lion development

10

Contract nature

Contract to carry out front-end engineering design (FEED) contract by AMEC for Premier Oil’s Sea Lion development in the North Falklands Basin.

Contract length & timeframes

The FEED work is part of AMEC’s overall FEED contract for the Sea Lion development and follows a concept study which was executed by an RDS team in Houston. The contract, which is expected to be carried out over the next 12 months, will see RDS deliver the design of drilling rig modules for a Tension Leg Platform (TLP), 200km north of the Falkland Islands.

Customer

AMEC, on behalf of Premier Oil “The Sea Lion field will be the first major development of oil and gas reserves in the Falklands. Due to its remote location, we need to ensure that we deliver a rig that is reliable, efficient and can be easily maintained and supported to deliver safe, effective operations. RDS and KCA Deutag have a lot of experience in designing and operating rigs in remote locations and this is a great opportunity to put that experience to good use in a new region. We look forward to continuing to work closely with Premier Oil and AMEC as we move the Sea Lion development forward.” Simon Drew, President of RDS

Significant New Contracts – BP Khazzan

11

Contract nature

Construction and operation of an additional two new build fast moving land rigs in Oman, to supplement the previous three rig award by the same client. The rigs will mainly be manufactured in Germany and assembled in Oman using Bentec’s Nizwa facility. The contract terms will provide equivalent economics to those of the first three rigs.

Contract length

5yrs + 2x1yr options.

Customer

BP Khazzan “KCA Deutag has been operating in Oman since 1964 and has a long track record of successful operations in the Middle

• East. BP Khazzan is one of our most significant contract wins to date and we are extremely proud to play a very important

role in the project.” Andy Hendry, President of Land Drilling

Disposal of the Barges

12

Nature of divestment Divestment of the entire issued share capital of KCA Deutag Tender Barges Pte Limited (“Barges Business”) to a single buyer. The buyer will take ownership of the Barges Business operated from Kuala Lumpur including two KCA Deutag self-erecting tender barges; the Glen Affric and the Glen Tanar, and their associated equipment. Earlier this year, KCA Deutag sold the Glen Esk on an asset only basis to Energean. “The sale of the Barges Business is an important step for KCA Deutag as we focus our activities on the core businesses within our portfolio.” Norrie McKay, Chief Executive Officer of KCA Deutag

13

Healthy backlog providing high level earnings visibility for the future

Total contract backlog as at 1 August 2014 Contract backlog by BU as at 1 August 2014

$1,975m $269m $6,250m $109m $298m Land Drilling Bentec Platforms RDS MODUs $762 $1,115 $2,223 $4,099 $6 $120 $4,675 $4,801 2,000 4,000 6,000 8,000 10,000 2014 2015 2016 and thereafter Total backlog $m Contract Option $768m $1,235m $6,898m $8,900m NB: Backlog figures exclude revenue generated in the year to date.

Total contract backlog as at 1 October 2014 Contract backlog by BU as at 1 October 2014

$2,080m $203m $6,176m $104m $281m Land Drilling Bentec Platforms RDS MODUs $483 $1,140 $2,346 $3,969 $4 $121 $4,750 $4,875 2,000 4,000 6,000 8,000 10,000 2014 2015 2016 and thereafter Total backlog $m Contract Option $487m $1,261m $7,096m $8,844m

Q3 2014 Q31 2013 Variance 2014 YTD 20131 YTD Variance $m $m $m % $m $m $m % Revenue 156.1 180.1 (24.0) (13.3)% 513.0 499.0 14.0 2.8% EBITDA pre support costs allocation1 40.1 44.8 (4.7) (10.5)% 127.0 114.2 12.8 11.2% Support costs allocation (3.1) (2.9) (0.2) 7.4% (8.7) (7.9) (0.8) 10.1% EBITDA post support costs allocation1 37.0 41.9 (4.9) (11.7)% 118.3 106.3 12.0 11.3% Margin % 23.7% 23.3% 23.1% 21.3%

14

• EBITDA growth of 11% YTD compared to the same period last year, however the business

unit saw a reduction in activity levels and EBITDA compared to both Q2, 2014 and Q3,

• 2013. This was mainly driven by performance in Africa which has been negatively

impacted by lower levels of utilisation

• Russia have continued to generate good levels of EBITDA with earnings relatively

consistent compared with both Q2, 2014 and Q3, 2013 due to continued good utilisation levels

• Pakistan saw a significant improvement in performance, as a rig redeployed from Libya

had a full quarter of operations

• Utilisation softened in the quarter to 74% down from 80% in the prior quarter

Financial Performance to 30 September 2014

Land Drilling

• verheads (such as HR, Supply Chain and IT costs) to the operational business segments. 2014 figures are presented on the

same basis.

Q3 2014 Q31 2013 Variance 2014 YTD 20131 YTD Variance $m $m $m % $m $m $m % Revenue 101.3 49.2 52.1 105.9% 191.3 167.9 23.4 13.9% EBITDA pre support costs allocation1 13.5 4.9 8.6 175.5% 21.2 17.5 3.7 21.1% Support costs allocation (0.7) (0.8) 0.1(14.8)% (2.1) (2.2) 0.1 (5.9)% EBITDA post support costs allocation1 12.8 4.1 8.7 212.2% 19.1 15.3 3.8 25.1% Margin % 12.7% 8.3% 10.0% 9.1%

Bentec

15

• Bentec delivered significantly stronger results in the third quarter than both Q2, 2014 and

Q3, 2013, showing 25% YTD EBITDA growth compared with 2013

• With the construction of a number of new rigs reaching an advanced stage of completion

in Q3 we were to recognise significantly more revenue and EBITDA than the prior year

• The rig for the Land Drilling contract with Lukoil was delivered during Q3 and the first

deliveries under the seven rig contract for Enafor will start in November

• The third quarter also saw an increased contribution from component sales which largely

drove the increase in margins

Financial Performance to 30 September 2014

• verheads (such as HR, Supply Chain and IT costs) to the operational business segments. 2014 figures are presented on the

same basis.

Platform Services

16

Financial Performance to 30 September 2014

• verheads (such as HR, Supply Chain and IT costs) to the operational business segments. 2014 figures are presented on the

same basis.

Q3 2014 Q31 2013 Variance 2014 YTD 20131 YTD Variance $m $m $m % $m $m $m %

Revenue

200.8 184.1 16.7 9.1% 597.6 539.1 58.5 10.9%

EBITDA

pre support costs allocation1

25.7 22.5 3.2 14.2% 76.5 62.1 14.4 23.2%

Support costs allocation

(2.2) (2.1) (0.1) 5.0% (6.1) (5.6) (0.5) 9.6%

EBITDA

post support costs allocation1

23.5 20.4 3.1 15.2% 70.4 56.5 13.9 24.5%

Margin %

11.7% 11.1% 11.8% 10.5%

• Our Platforms business unit continued to deliver strong earnings in Q3, 2014 with

performance largely in line with Q2, 2014 but showing improvement from Q3, 2013

• This year on year improvement reflects the award of previously announced new contracts

in Angola, the Far East and Canada as well as good execution of existing contracts and delivery of services to our customers

RDS

17

• []

Financial Performance to 30 September 2014

• Our RDS business unit had lower revenues and EBITDA than both Q2, 2014 and Q3, 2013

largely as a result of lower activity on greenfield projects. YTD EBITDA growth remains positive at 9%

• Compared to Q3, 2013 there has been a significant reduction in activity on the Hebron

project in Canada with the detailed design phase now nearing completion.

• Activity is increasing on our new project for Premier Oil’s Sea Lion development in the

North Falklands basin with this work expected to be carried out over the next twelve months

• verheads (such as HR, Supply Chain and IT costs) to the operational business segments. 2014 figures are presented on the

same basis.

Q3 2014 Q31 2013 Variance 2014 YTD 20131 YTD Variance $m $m $m % $m $m $m %

Revenue

73.1 92.7 (19.6) (21.1)% 251.9 259.1 (7.2) (2.8)%

EBITDA

pre support costs allocation1

9.6 13.3 (3.7) (27.8)% 42.3 38.9 3.4 8.7%

Support costs allocation

(0.7) (0.8) 0.1 (9.4)% (2.1) (2.0) (0.1) 2.9%

EBITDA

post support costs allocation1

8.9 12.5 (3.6) (28.9)% 40.2 36.9 3.3 9.1%

Margin %

12.2% 13.5% 16.0% 14.2%

MODUs

18

• The MODU business unit had a reduction in EBITDA compared with both Q2, 2014 and

Q3, 2013

• This was largely due to the performance of the three self-erect tender barges all of which

were off contract by the end of Q3, 2014

• During the quarter we were able to complete the sale of the Glen Esk barge, and in

October completed the sale of the Glen Tanar and Glen Affric barges

• EBITDA in Q3 for the two jack ups was circa $6m (pre support cost allocation)

Financial Performance to 30 September 2014

(such as HR, Supply Chain and IT costs) to the operational business segments. 2014 figures are presented on the same basis.

Q3 2014 Q31 2013 Variance 2014 YTD 2013 YTD Variance $m $m $m % $m $m $m %

Revenue

28.6 36.4 (7.8) (21.5)% 104.9 115.2 (10.3) (8.9)%

EBITDA

pre support costs allocation1

1.6 3.8 (2.2) (58.0)% 19.6 1.6 18.0 N/M

Support costs allocation

(0.6) (0.6) (0.0) 1.0% (1.6) (1.5) (0.1) 8.8%

EBITDA

post support costs allocation2

1.0 3.2 (2.2) (68.1)% 18.0 0.1 17.9 N\M

Margin %

3.6% 8.9% 17.2% 0.1%

Group Results

Financial Performance to 30 September 2014

19

Revenue and EBITDA ($m) Q3 2014 Q3 2013 2014 YTD 2013 YTD Revenue from business units 560 542 1,659 1,580 Consolidation adjustments (40) (4) (84) (20) Total revenue 520 538 1,575 1,560 EBITDA from business units 83 82 266 216 Corporate costs/other (9) (8) (23) (23) Total EBITDA 74 74 243 193

Cash Flow and Working Capital

Financial Performance to 30 September 2014

20

Working Capital

9 (60)

*Deltas denote working capital movements from Q2 2014 and Q2 2013 respectively.

Free Cash Flow

9

• Cash flow from operating activities was strengthened due to

improvements in working capital partially offset by higher cash taxes

• Capital expenditure was slightly increased on Q2 2014 as the Group

continues to invest in the land drilling fleet once secure contracts have been won

• Decrease in working capital in Q3 2014 compared to Q2 2014 due

to:

• Reduced inventory and work in progress at Bentec

associated with component sales, together with the write down of some inventory in Libya

• Continued focus on collections and impact of activity
• Timing of vendor payments
• Q3 2013 working capital was negatively impacted by certain overdue

accounts mostly collected in Q4 2013 Q3 2014 Q3 2013 2014 YTD 2013 YTD Cash flow from operating activities

55.7 1.8 179.5 (10.8)

Capital expenditure

(65.8) (28.2) (148.4) (101.1)

Proceeds from sale of Fixed Assets

8.8 2.9 12.5 54.1

Net interest

(7.1) (5.3) (60.9) (51.6)

Other

2.9 (2.2) 1.3 (0.6)

Cash flow from investing activities

(61.2) (32.8) (195.5) (99.2)

Equity injection

0.0 0.0 0.0 59.0

Foreign exchange1

(8.4) (4.5) (14.3) (2.0)

Net Cash flow before debt drawdown/(repayment)

(13.9) (35.5) (30.3) (53.0)

Drawdown/(repayment) of debt and debt issuance costs

0.7 (11.7) (81.7) 19.1

Net cash flow

(13.2) (47.2) (112.0) (33.9)

8 (60) (70) (60) (50) (40) (30) (20) (10) 10 20 Q3 2014 Delta* Q3 2013 Delta* Cash impact of Delta ($m)

21

Disciplined Growth

2014 2015 2016 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Rig 1 Rig 2 Rig 3 Rig 4 Rig 5 Rig 6 Rig 7 Rig 8 Rig Client Country Cost ($m) Contract length Rig 1 BP Khazzan Oman c.34 5yrs + 2x1yr options Rig 2 BP Khazzan Oman c.34 5yrs + 2x1yr options Rig 3 BP Khazzan Oman c.34 5yrs + 2x1yr options Rig 4 Lukoil Russia c.27 3yrs + 2x1yr options Rig 5 Shell Brunei Brunei c.35 3yrs + 3x1yr options Rig 6 Bashneft Russia c.27 3yrs Rig 7 BP Khazzan Oman c.34 5yrs + 2x1yr options Rig 8 BP Khazzan Oman c.34 5yrs + 2x1yr options

New build land rigs schedule New build contracts

Significant uplift in EBITDA from eight new rig contracts is anticipated

Pre-award Under construction Operational

• Growth capex to target strict return criteria, with robust

investment appraisal process implemented

• Active pursuit of long-term contracts with blue chip clients
• Focus on countries with existing operations, allowing the Group

to benefit from operational synergies

• Targeting up front contributions from clients in order to optimise

cash flow profile of new projects

• EBITDA profile of projects provides excellent scope for further

deleveraging

352 c.420 c.65-75

50 100 150 200 250 300 350 400 450 Pro forma Q3 LTM EBITDA EBITDA from new rigs Pro forma with new rigs

EBITDA $M

1

22

Capital Structure

Net leverage as at 30 September 2014

Amount Utilised Coupon Maturity Facility Rating1 Recovery Rating Net Leverage2 Revolver ($250m)3 45.7 L+400 May-19 B3/B 3/3 0.13x Senior Secured Term Loan 374.1 L(100)+525 May-20 B3/B 3/3 1.07x Total Bank Debt 419.8 1.20x UK Finance Senior Secured Notes 375.0 7.250% May-21 B3/B 3/3 1.07x Globe Luxembourg Senior Secured Notes 500.0 9.625% May-18 B3/B 3/3 1.42x Total Institutional Debt 875.0 2.49x Finance lease & other debt 19.0

• Aug-18
• 0.05x

Gross Debt 1,313.8 3.73x Cash 40.9 0.12x Net Debt 1,272.9 3.61x

1,296 1,230 1,169 1,265 1,273 273 304 325 350 352 4.7x 4.0x 3.6x 3.6x 3.6x 0.00x 0.50x 1.00x 1.50x 2.00x 2.50x 3.00x 3.50x 4.00x 4.50x 5.00x 200 400 600 800 1,000 1,200 1,400 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014

Net Debt/LTM EBITDA Net Debt & LTM EBITDA $m

Net Debt/LTM EBITDA evolution

Net Debt LTM EBITDA Net Debt/EBITDA

Closing remarks

23

• Excellent performance in the YTD 2014 provides a robust platform for 2015
• Continued delivery of important contract wins
• Huge backlog of $8.8bn underpins future earnings
• Geopolitical environment has steadied; Kurdistan is operational and Libyan exit is almost

complete

• Actions continue to optimise the group portfolio and increase business efficiency
• Growth opportunities are only being pursued where they provide robust capex returns driving

increased cash generation based upon long term contracts

• All of this is underpinned by a stable and experienced management team focused on further

delivery of results

24

Q & A

investor.relations@kcadeutag.com