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

Investor Presentation

KCA Deutag is a leading international drilling and engineering company working

• nshore and offshore

with a focus on safety, quality and operational performance

Second Quarter 2017

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.

Disclaimer

1

Agenda

2

1

Q2 Key Highlights

2

Business Update

3

Business Unit Financials

4

Group Results

5

Summary

Q2 Key Highlights

3

KCA Deutag is a leading international drilling and engineering company working

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

1

Q2 2017 Group revenue of $287.5m (Q2 2016: $323.7m) and Q2 2017 EBITDA of $50.9m (Q2 2016: $75.2m) respectively

2

Steady tendering activity for Land and Bentec, with increased activity on the new Cat J and Hebron contracts for Offshore

3

Contract backlog of $5.2bn (at 1 August 2017) across a blue chip customer base

4

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

5

Available liquidity of $226m at 30 June 2017

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

15 32 41 42 42 43 48 55 56

10 20 30 40 50 60 70 80

Source Rystad Energy (May-16)

KCAD core markets

10 20 30 40 50 60 70 80 90 100

Onshore Middle East Shelf Russia Onshore Row Onshore Deepwater Extra Heavy Oil Ultra Deepwater North American Shale

Cumulative Liquids Production in 2020 (MMbpd)

Oil Sands

Current Brent price

Business update

5

corporate costs of $19.6m)

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

• Difficult conditions

continue in Norway

• CAT J and Hebron

contracts continue to ramp up activity

• Workload remains weak

with very limited new project activity

• Brownfield work remains

relatively steady

• Developing diversification
• pportunities into non-oil

and gas sectors

• Strong activity in Oman

and Russia with continuing

• ngoing opportunities
• Utilisation in Nigeria,

Kurdistan and Algeria remains weaker

• Europe activity continues

to show signs of recovery

• Several component
• rders received securing

reasonable workload for remainder of 2017

• After Sales remains

steady with stable outlook $177.0m / 74.7% of total¹ $(3.7)m / (1.6)% of total¹ $61.9m / 26.1% of total¹ $2.0m / 0.8% of total¹

Land drilling Bentec

Group margin performance

6

KCAD operations are diversified across global markets

7

Houston Baku London

Bad Bentheim Tyumen Nizwa

St. Johns

Bergen Dubai

Land Drilling Offshore Services RDS offices Bentec Regional offices

Aberdeen (HQ)

PRESENCE IN KEY AREAS

North Sea /Norway 21 Plat. Europe & Caspian 8 Rigs Caspian 7 Plat. Russia 16 Rigs Middle East 17 Rigs Angola 2 Plat. Africa 11 Rigs Russia Sakhalin 3 Plat. Brunei 1 Rig

129 58 53 43 18

30 60 90 120 150

Europe North Africa Middle East North Sea Russia

Years

LTM Q2 2017 EBITDA split by region

Canada 1 Plat.

Map excludes 1 workover land rig in Nigeria, defined as being below 900HP Map shows position at 1 August 2017

Health, safety and environmental performance

8

• Sustaining low TRIR levels in a range which are the best in the company’s history
• In Russia the T-321 was awarded the HSE Excellence Award by our client
• All KCA Deutag and RDS onshore operations in the UK have successfully achieved re-certification to the new

environmental ISO 14001:2015 standard

Note: IADC stands for International Association of Drilling Contractors

IADC industry average 0.452 for 2016 KCAD TRIR at end of Q2 2017 was 0.231 injuries per 200,000 man hours worked

Backlog Status

9

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

Backlog figures exclude revenue generated in the year to date

Land fleet utilisation

10

Historical and forecast utilisation

Contract Platform Client Country Assets

end date status # Exxon Canada Hebron Mar-46 Operating 1 Statoil Norway CAT J (2) May-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 May-21 Operating 3 Total UK Alwyn Dec-20 Stacked 1 Total UK Dunbar Dec-20 Stacked 1 Enquest UK Thistle & Heather May-20 Operating / Stacked 1/1 Exxon Norway Ringhorne Dec-17 Stacked 1 COP UK Britannia Oct-17 Stacked 1 2017 2018 2019

Robust platform services contract backlog @ 1 August

11

Contracts have been extended or renewed since last call

Land Drilling

Financial Performance to 30 June 2017

12

• The land business although down on the prior year has delivered strong financial results in

tough market conditions with EBITDA in line with the prior quarter

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

utilisation

• Reasonable level of tendering activity in several markets
• Utilisation for the quarter of 61%, a slight increase on the prior quarter

Q2 2017 Q1 2017 Q2 2016 Q2 2017 Q2 2016 Result Result Result YTD YTD $m $m $m $m $m Revenue 128.0 122.2 150.6 250.1 300.9 EBITDA (post support allocation) 43.5 43.0 48.3 86.6 96.0 Margin 34.0% 35.2% 32.0% 34.6% 31.9%

Bentec

Financial Performance to 30 June 2017

13

• EBITDA has decreased slightly compared to the prior quarter
• After Sales remains steady with a stable outlook
• Continued active tendering market, particularly for components

Q2 2017 Q1 2017 Q2 2016 Q2 2017 Q2 2016 Result Result Result YTD YTD $m $m $m $m $m Revenue 16.5 15.6 16.8 32.1 46.5 EBITDA (post support allocation) 0.2 0.3 0.5 0.5 3.4 Margin 1.5% 1.7% 3.0% 1.6% 7.3%

Offshore Services

Financial Performance to 30 June 2017

14

• Higher revenue and EBITDA compared to Q1 2017, primarily due to strong performance in

Azerbaijan and Sakhalin

• Conditions in Norway continue to prove challenging
• Cat J and Hebron projects continue to ramp up and are scheduled to commence
• perations in H2 2017

Q2 2017 Q1 2017 Q2 2016 Q2 2017 Q2 2016 Result Result Result YTD YTD $m $m $m $m $m Platform Services Revenue 132.0 119.0 127.4 251.0 272.0 EBITDA (post support allocation) 12.9 11.3 18.4 24.2 38.2 Margin 9.8% 9.5% 14.4% 9.6% 14.0% MODUs Revenue 0.0 0.0 15.6 0.0 28.5 EBITDA (post support allocation) (0.0) (0.0) 11.6 (0.0) 15.7 Margin n/a 0.0% 73.8% n/a 54.9% Offshore Services Revenue 132.0 119.0 143.0 251.0 300.5 EBITDA (post support allocation) 12.9 11.3 29.9 24.2 53.8 Margin 9.8% 9.5% 20.9% 9.6% 17.9%

RDS

Financial Performance to 30 June 2017

15

• Few opportunities in greenfield however brownfield activity continues to be steady
• Continued progress in respect of diversification into non-oil and gas activities

Q2 2017 Q1 2017 Q2 2016 Q2 2017 Q2 2016 Result Result Result YTD YTD $m $m $m $m $m Revenue 14.3 14.2 19.5 28.5 43.9 EBITDA (post support allocation) (0.1) 0.6 2.0 0.5 3.6 Margin

• 0.4%

4.0% 10.3% 1.8% 8.2%

Group Results

Financial Performance to 30 June 2017

16

Revenue and EBITDA ($m) Q2 2017 $m Q1 2017 $m Q2 2016 $m 2017 YTD $m 2016 YTD $m Revenue from business units 290.9 271.0 330.2 562.0 692.3 Eliminations (3.4) (1.9) (6.5) (5.4) (11.3) Total third party revenue 287.5 269.1 323.7 556.6 681.0 EBITDA from business units 56.6 55.2 80.7 111.8 156.9 Eliminations 0.0 0.0 (0.1) 0.0 (0.3) Corporate costs/other (4.8) (4.8) (4.5) (9.6) (9.3) Exchange (0.8) (0.3) (0.9) (1.1) (0.9) Total EBITDA 50.9 50.1 75.2 101.0 146.4

Cash flow and working capital

Financial Performance to 30 June 2017

17

9

Working Capital2

9

Free Cash Flow

Q2 2017 Q1 2017 Q2 2016 2017 YTD 2016 YTD $'m $'m $'m $'m $'m Cash generated from operations 16.0 21.4 57.8 37.4 139.9 Tax paid (11.2) (8.5) (10.6) (19.7) (22.9) Cash flow from operating activities 4.8 12.9 47.2 17.7 117.0 Capital expenditure (35.0) (6.8) (11.2) (41.8) (75.3) Proceeds from sale of Fixed Assets 0.1 0.2 7.2 0.3 59.8 Interest received 6.2 5.4 5.2 11.6 10.6 Other 0.0 0.0 0.7 0.0 0.4 Cash flow from investing activities (28.7) (1.2) 1.9 (29.9) (4.5) Interest paid (50.0) (14.9) (49.2) (64.9) (63.6) Foreign exchange1 (4.6) (2.6) 8.6 (7.2) 11.1 Dividend paid to minority shareholders 0.0 (0.3) 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) (78.5) (6.1) 8.5 (84.6) 60.0 Drawdown/(repayment) of debt and debt redemption/issuance costs 2.8 (6.6) (7.2) (3.8) 67.5 Net cash flow (75.7) (12.7) 1.3 (88.4) 127.5

Capital Structure

Net leverage as at 30 June 2017

18

9

Utilisation 30th June 2017 Coupon Maturity Facility Rating3 Recovery Rating3 Net Leverage1 Revolver ($275m)2 2.0 L+400 Mar-22 Caa1/CCC+ 3/3 0.00x Senior Secured Term Loan 360.6 L(100)+575 May-20 Caa1/CCC+ 3/3 1.49x HSBC Oman Term Loan 56.0 L+400 Dec-20 0.23x Total Bank Debt 418.6 1.73x 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 1,328.6 5.49x Finance lease & other debt 4.4

• Aug-18
• 0.02x

Gross Debt 1,333.0 5.50x Cash 75.5 0.31x Net Debt 1,257.5 5.19x

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9

Closing Remarks

• Strong liquidity position at $226 million
• Q2 2017 EBITDA of $51 million delivered in challenging market conditions
• Tendering activity across several regions although market still very competitive
• Successful closing of new bond providing ongoing secure financial footing
• Backlog position of $5.2 billion across a blue chip company base
• Strong HSE and operational performance sustaining low group incident rate

20

Q & A

investor.relations@kcadeutag.com