DNB Group: Oil-related portfolio update by Berit L. Henriksen Global head of Energy New York, 27 February 2015 1
DNB Markets’: Long Term Oil Price Forecast Stabilising at $65/bbl for 2015 and $80/bbl for 2016, $90/bbl long term Historical Historical Spot Brent History & FWD looking Nominal $/b Real (2015) $/b 2001 24.4 32.2 160 2002 25.0 32.4 2003 28.8 36.5 2004 38.3 47.2 140 2005 54.5 65.0 2006 65.1 75.3 120 2007 72.4 81.3 2008 97.3 105.2 2009 61.7 67.0 100 2010 79.5 84.9 $/b 2011 111.3 115.2 80 2012 111.7 113.3 2013 108.7 108.7 60 2014 99.5 99.5 Forecast Forecast Nominal $/b Real (2015) $/b 40 Q1-15 55 55 Q2-15 63 63 20 Q3-15 69 69 Q4-15 74 74 2015 65 65 0 2016 80 79 1995 1998 2001 2004 2007 2010 2013 2016 2019 2017 84 81 88 84 FWD (nominal) Forecast nominal 2018 90 84 2019 Historical Forecast real (2014 USD) 90 82 2020 Source: Reuters, DNB Markets 2 Forecast by DNB Markets. (The forecast is for the average of the rolling 1st month ICE Brent future contract)
Credit strategy for the DNB Group • We are a long term relationship oriented bank • Focus on quality of management • We have a low-risk portfolio strategy • We finance corporate risk based on debt service ability (cash flow), not assets alone • Exposure to non-investment grade companies is secured and followed up by covenants • We finance industry sectors where we have institutional industry sector competence, and we have been in the oil related industries since oil was discovered on the Norwegian Continental Shelf 3
DNB has a well diversified oil-related portfolio - 8% of total Group EaD to oil related portfolios Total DNB Group loan exposures Total oil-related portfolios EaD of NOK 1909n as of 31 Dec 14 EaD of NOK161bn as of 31 Dec 14 (FX adj NOK144bn) In per cent of total In per cent of NOK 161bn Other Seismic Oilfieldservices 0.7% 2.4% Large cap oilfield services co LBO-portfolio Refining & petchem 11.5% 4.9% 6.0% Other corporate Midstream incl LNG Other Offshore 10.3% 43% 1.5% Oil & Gas Subsea construction 2.6% Upstream / 3.9% integrated large- FPSO/FSO caps and NOCs (IG) 2.8% Offshore Rig 17.2% 10.5% 2.8% OSV Upstream mid-caps Oilfield services 15.7% (sub IG) 1.8% 3.7% Exploration RBL and other Financing Facilities structured E&P 2.5% 6.1% Other Oil & Gas Households 1.6% 48% EaD: Exposure at Default, IG: Investment Grade, NOCs: National Oil Companies, RBL: Reserved Based Lending, E&P: Exploration & Production, F(P)SO: Floating (Production) Storage Offloading, LBO: Leverage Buyout, OSV: Offshore Supply Vessel, LNG: Liquid Natural Gas 4
Oil & Gas, Offshore and Oilfield Services – An overview Oilfield DNB Group as of 31 Dec 2014 Oil & Gas Offshore Services Total portfolio, EaD, NOK billion 74 53 33 Total portfolio, drawn amount, NOK billion 31 31 11 Average grade* 3.5 4.9 4.7 Expected loss 0.07% 0.19% 0.15% Number of client groups 85 63 75 Number of employees in sector 24 23 17 No. of clients in grade 8-10 (PD > 3%) 3 4 2 EaD of clients in grade 8-10, NOK billion 0.2 0.3 0.3 10 largest client groups in % of total segment 36% 42% 51% 20 largest client groups in % of total segment 56% 64% 74% 5 * DNB’s risk grade system: 1 represents the lowest risk and 10 the highest risk. EaD: Exposure at default, PD: Probability of default
Proactively handling the uncertainty & market turbulence • Monitoring of our portfolio is given top priority in the current situation with oil price turbulence • We have reviewed our oil, gas, offshore and oilfield service portfolios • We actively manage our credits/clients • Those who are performing, but not in accordance with their business plans require additional attention, and are placed on (the so-called) «Watch-list», it’s our early warning tool! • Watch-listed companies are reviewed quarterly, as a minimum • We allocate additional expertise and resources to clients and sub-portfolios with higher risk • We are continuously evaluating which clients to put on “Watch - list”, and what actions to be taken 6
No negative migration by year-end 2014 - 65% of portfolio is low risk and 33% is medium risk DNB’s oil -related portfolio split by sub-segment in exposure (EaD) and by risk grade NOK 161bn (FX adj. NOK 144bn) as of 31 Dec 2014 (and NOK 144bn as of 30 Sep 2014) 120 NOK billion Oilfield Services Offshore Oil & Gas 100 23 19 80 18 17 60 10 8 40 29 33 64 54 20 0.61 0.30 0.20 0.30 14 1.47 10 0.31 1.17 0.00 0 0.20 0.20 0.00 0.00 Sep-14 Dec-14 Sep-14 Dec-14 Sep-14 Dec-14 Sep-14 Dec-14 Grade 1-4 "Low risk" Grade 5-7 "Medium" Grade 8-10 "High" Grade 11-12 "Doubtful & NPL" EaD: Exposure at Default, PD: Probability of default. Risk grade system, please see back up slide for details. 7 DNB's risk classification system, where 1 represents the lowest risk and 10 the highest risk.
Outstanding loans to oil, offshore and oil service are 46% of EaD - Large part of remaining exposure is guarantees and revolving facilities to IG DNB’s oil -related portfolio: Drawn loans split by sub-segment and risk grade, total exposure by risk grade (EaD) NOK 74bn (FX adj. NOK 65bn) and exposure (EaD) NOK 161bn (FX adj. NOK 144bn) as of 31 Dec 2014 120 Oilfield Services (34% drawn loans) NOK billion 105 Offshore (59% drawn loans) 100 Oil & Gas (42% drawn loans) 91 Exposure (EaD) 80 60 53 51 40 4 7 9 6 4 0.81 2.28 0.20 1.47 6 20 21 19 0.20 25 0.47 0.20 0.19 19 0.31 1.45 0.00 1.17 0.14 0.20 0.00 0.00 6 6 0 Sep-14 Dec-14 Sep-14 Dec-14 Sep-14 Dec-14 Sep-14 Dec-14 Grade 1-4 "Low risk" Grade 5-7 "Medium" Grade 8-10 "High" Grade 11-12 "Doubtful & NPL" EaD: Exposure at Default, PD: Probability of default. Risk grade system, please see back up slide for details. DNB's risk classification system, where 8 1 represents the lowest risk and 10 the highest risk. Doubtful & NPL = Non performing loans, IG = investment grade companies
Highly profitable portfolio - within DNB’s Oil & Gas, Offshore and Oilfield Service sectors DNB’s oil -related portfolios - profit before impairments and tax for financial years 2011 till 2014 NOK billion 2.00 1.86 1.86 1.52 2011 2012 2013 2014 9 * Oil, offshore and oilfield services units are all part of the business unit Large Corporate & International in DNB.
Historical low impairments in absolute levels - Oil & Gas, Offshore and Oilfield Services sectors NOK million 2000 1800 1600 1400 1200 1000 800 600 400 200 159 126 155 132 108 18 6 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 10
Oil & Gas - It‘s a well diversified portfolio – robust to oil price movements, 60% of lending to investment grade • Large IG E&P/ integrated and national oil companies: Oil & Gas exposure - NOK74bn (3.9% of total Group EaD) In general large, diversified companies with robust balance sheets and ample liquidity that can sustain a significant drop in oil price. NOK bn and per cent of NOK74bn • Midstream incl. LNG: Mainly companies with infrastructure (pipelines, terminals, etc.) assets. EFFs 58% of EaD is IG. Limited sensitivity to commodity price movements. Refining & 3.2 pet.chem 4% • Exploration & Production (E&P) mid-caps: 11.0 Typically more robust than RBL. 15% Large IG E&P / • Reserved based lending (RBL) : Integrated oil Bank debt is based on certain assumptions (reserves/ production co's and RBL and volumes, commodity prices, capex, etc). Well structured, i.e. “very early” NOCs other 23.9 covenants and collateral-based. Semi-annual re-determinations of structured 32% borrowing base and revision of price decks used for lending purposes. E&P 8.4 • Refining & Petrochemical: 11% Cyclical, but primarily margin based business. 51% of EaD is IG. E&P Less sensitive to commodity price movements. Midstream midcaps incl LNG 4.0 • Exploration financing facilities (EFFs): 23.9 6% Secured financing of tax refund (related to exploration) from 32% the Norwegian State. No direct oil-price risk. RBL: Reserve Based Lending, IG: Investment grade, E&P: Exploration & Production, NOC: National Oil Companies, EFF: Exploration financing facilities. LNG: Liquid Natural Gas. All figures as of 31 Dec 2014. FX NOK/USD as of 31 Dec 2014: 7.39 and as of 30 Sept 2014: 6.43, hence FX adjusted volume per 11 31 Dec 2014 was NOK67bn, if we used 30 Sept 2014 FX rates by 31 Dec 2014.
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