1 Barclays CEO Energy Conference Carl Trowell – CEO & President 9 September 2015
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Barclays CEO Energy ConferenceCarl Trowell – CEO & President
9 September 2015
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Forward-Looking Statements
Statements contained in this presentation that are not historical facts are forward-looking statements within themeaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.Forward-looking statements include words or phrases such as “anticipate,” “believe,” “estimate,” “expect,” “intend,”“plan,” “project,” “could,” “may,” “might,” “should,” “will” and similar words and specifically include statementsinvolving expected financial performance, day rates and backlog, estimated rig availability; rig commitments;contract duration, status, terms and other contract commitments; new rig commitments and construction; scheduleddelivery dates for rigs; the timing of delivery, mobilization, contract commencement, relocation or other movement ofrigs; benefits derived from expense management actions; estimated capital expenditures; rig stacking costs; andgeneral market, business and industry conditions, trends and outlook. Such statements are subject to numerousrisks, uncertainties and assumptions that may cause actual results to vary materially from those indicated, includingcommodity price fluctuations, customer demand, new rig supply, downtime and other risks associated with offshorerig operations, relocations, severe weather or hurricanes; changes in worldwide rig supply and demand, competitionand technology; future levels of offshore drilling activity; governmental action, civil unrest and political and economicuncertainties; terrorism, piracy and military action; risks inherent to shipyard rig construction, repair, maintenance orenhancement; possible cancellation, suspension or termination of drilling contracts as a result of mechanicaldifficulties, performance, customer finances, the decline or the perceived risk of a further decline in oil and/ornatural gas prices, or other reasons, including terminations for convenience (without cause); the outcome oflitigation, legal proceedings, investigations or other claims or contract disputes; governmental regulatory, legislativeand permitting requirements affecting drilling operations; our ability to attract and retain skilled personnel oncommercially reasonable terms; environmental or other liabilities, risks or losses; debt restrictions that may limit ourliquidity and flexibility; our ability to realize the expected benefits from our redomestication and actual contractcommencement dates; cybersecurity risks and threats; and the occurrence or threat of epidemic or pandemicdiseases or any governmental response to such occurrence or threat In addition to the numerous factors describedabove, you should also carefully read and consider “Item 1A. Risk Factors” in Part I and “Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations” in Part II of our most recent annualreport on Form 10-K, as updated in our subsequent quarterly reports on Form 10-Q, which are available on theSEC’s website at www.sec.gov or on the Investor Relations section of our website at www.enscoplc.com. Eachforward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation topublicly update or revise any forward-looking statements, except as required by law.
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Agenda
• Current Market Conditions
• Proactive Steps to Address Downturn
• Outlook for Offshore Drilling– efficiency & cost improvements– attrition of older rigs
• Maintain and Widen Leadership Position– #1 in customer satisfaction– best in innovation– most efficient/cost-effective driller
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Current Market Conditions
Source: IHS Upstream
$0
$10
$20
$30
$40
$50
$60
$ billions
Global exploration spend of 18 largest E&Ps
$29
$41
$58
• Substantial reduction in E&P capex
• Unprecedented decline in exploration spending
• Lower rig utilization & day rates
• Expect 2016 capex to be lower YoY
• The significant pullback in spending will affect supply in the future
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• Drillers– cutting costs & stacking/retiring rigs– deferring rig deliveries– speculators canceling rig orders
• Service companies– strategic combinations to invest in technological innovations and process
improvements that increase efficiencies and drive out costs• Customers
– reducing capex– deferring projects– early terminations/concessions for existing rig contracts– re-engineering to increase efficiencies/reduce costs– testing economics for future programs based on lower costs and
streamlined project management
Market Response
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• Capital Management
• Fleet Restructuring
• Expense Management
• Operational Excellence & Safety– innovation– process improvements
Taking Decisive Steps To Be
Resilient Through The
Downturn
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• Accessed the debt markets– $1.25 billion offering in 3Q14– $1.10 billion offering in 1Q15 to refinance 2016 maturities
• Increased revolver to $2.25 billion and extended to 2019
• Reduced quarterly dividend to improve capital management flexibility
• Deferred ENSCO DS-10 delivery to 1Q17, delaying ~$300 million in capex
Proactive Capital Management
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Debt Maturity Profile
$500
$900
$1,500
$625 $700
$2,250
$0
$300
$600
$900
$1,200
$1,500
$1,800
$2,100
$2,400
$2,700
$3,000
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2027 2040
$150$300
2044
Increased Revolving Credit Facility to $2.25B; extended to 2019
$ millions
$1,025
No debt maturitiesuntil 2Q19
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Credit Ratings
ESV DO NE RDC RIG SDRL
BBB+ BBB+
BBB- BBB-
BB+
NotRated
Investment Grade
Source: Bloomberg composite credit ratings as of August 2015; cash, short-term investments and contracted revenue backlog as of 30 June 2015
• $1.3 billion of cash and short-term investments• $7.4 billion of contracted revenue backlog
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Declining Capital Expenditures
2H15 2016 2017 2018
600450
350
100
2580
100
170150
150
New rig construction Rig enhancements Minor upgrades and improvements
$ millions$800
$645*$580*
*Note: Preliminary estimates for rig enhancement and minor upgrade and improvements for 2016, 2017 and 2018; final capex estimates to be determined upon completion of annual budget process and subject to change based on rig contracting; year-to-date capital expenditures through 30 June 2015: $682 million of new rig construction, $115 million of rig enhancements and $117 million of minor upgrades and improvements
$150*
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Fleet Restructuring: Newbuild Deliveries
2012.75 2013.75 2014.75 2015.75 2016.75 2017.75 2018.75 2019.75
ENSCO DS-7
ENSCO 120
ENSCO 121
ENSCO 122
ENSCO 110
ENSCO DS-8
ENSCO DS-9
ENSCO 123
ENSCO 140
ENSCO 141
ENSCO DS-10
Drillships Premium jackups
2013 2016 20172014 2015 20202018 2019
5 yrs with Total5 yrs with Total
2 yrs on operating rate*2 yrs on operating rate*
2 yrs w/ Wintershall2 yrs w/ Wintershall
2 yrs with NAM2 yrs with NAM
2+ yrs with Nexen2+ yrs with Nexen
4 yrs with Total4 yrs with Total
Delivered & Contracted
Under Construction & Uncontracted
Delivered and On Operating Rate
3 yrs with NDC3 yrs with NDC
*Note: Customer has terminated contract for its convenience. Per terms of contract for early termination, customer is required to make monthly payments for two years equal to the operating day rate of approximately $550,000, which may be partially defrayed should Ensco re-contract the rig within the next two years and/or mitigate certain costs during this time period while the rig is idle and without a contract.
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• 2014 floater upgrades benefitting 2015 results– ENSCO 5004– ENSCO 5006
• Mooring upgrade for ENSCO 8503 contracted to Stone Energy
Upgrades to Existing Floaters
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• 20 rigs sold since 2010 generating ~$675 million in proceeds– 6 rigs sold in the past 12 months
• 4 jackups sold for more than $200 million in proceeds during 3Q14, reducing exposure to Mexico jackup market
• 2 floaters >30 years of age sold for scrap value
• 6 rigs currently held for sale– 4 floaters– 2 jackups
Fleet Restructuring:Divestitures
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• February 2015– 9% unit labor cost decrease for offshore workers– 15% reduction of onshore positions
• $27 million in annualized savings– full run-rate savings beginning 2Q15
• August 2015– +6 ppt improvement in offshore unit labor cost savings to 15% compared to 2014
levels; full run-rate savings beginning 1Q16– 14% incremental reduction of onshore positions
• $30 million additional annualized savings; full run-rate beginning 4Q15• consolidated business unit reporting structure from five to three, centralizing certain
functions and rationalizing office space
Expense Management Actions
15% reduction in offshore unit labor costs+
$57 million annual savings in onshore support costs
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• Stacking rigs without near-term contracting opportunities reduces daily operating expenses
• Up-front costs to preserve cold stacked rigs– $1 million for jackups– $5 million for semis
• 8500 Series semis cold stacking process includes:– dehumidification– prevention of hull corrosion– key equipment preservation
Proactive Rig Stacking
Avg Daily Operating Expenses
Warm Stack
Cold Stack
Drillship $40kper day
<$10kper day
(ENSCO DS-1 & DS-2)
Semi $32kper day
<$10kper day
Jackup $20kper day
<$5kper day
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Improved Expense Outlook
2Q15A 3Q15E 4Q15E
Contract Drilling Expense
$503 million $450 – $455 million
Prior estimate ~ $463 million
$435 – $440 million
Expense cuts more than offset a 7%
projected increase in rig operating days
v. 3Q15 (4Q15 includes
scheduled start of ENSCO DS-8 in mid-November)
Note: 3Q15 estimates exclude severance costs of approximately $5 million in contract drilling expense
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• Proprietary asset management system– improve operational
performance by increasing uptime
– reducing maintenance costs
– lower lifetime equipment costs
• Leverages standardization
Innovation During the Downturn
Ensco Asset Management System
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Excellent Safety Performance
0.0
0.2
0.4
0.6
0.8
1.0
1.2
2008 2009 2010 2011 2012 2013 2014 YTD2015
Ensco Industry
Total RecordableIncident Rate
Note: 2015 TRIR for industry is as of 1Q15.
• Leading-edge safety management systems
• Enhancing process safety to drive further improvements
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Net Income Margin
ESV SDRL NE RIG DO RDC
31%
26% 25%
19%16% 16%
Source: Thomson One; sum of trailing eight quarters of net income divided by sum of trailing eight quarters of revenue. Thomson One's data is based on aggregation of information collected from industry equity research analysts, and may not be based on GAAP reported financial data; excludes Seadrill’s $440 million gain on disposal of West Auriga to Seadrill Partners in 1Q14
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High Levels of Customer Satisfaction
Rated #1• Total Satisfaction
• Health, Safety & Environment
• Technology
• Special Applications
• Deepwater Drilling
• Shelf Wells
• Non-Vertical Wells
• Harsh Environment Wells
• North Sea
• Latin America & Mexico
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Key Points to Remember
1. Deepwater production is 7% of global supply
2. Offshore reserves are a critical part of major E&P portfolios
3. Excessive costs/inefficiencies crept into sector during the $100+ oil environment
4. Industry is proactively responding to commodity price pressures
5. Breakeven commodity prices for offshore programs are declining
6. Unprecedented decline in E&P exploration spending will create pent up demand and a future snapback in spending
Outlook for Offshore E&P
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• Shell has stated that deepwater is a key driver of growth– “Our growth priorities follow two strategic themes: integrated
gas and deepwater. These will provide our medium-term growth and we expect them to become core engines in the future.”
• Shell’s recent acquisition of BG aligns with the company’s priorities in deepwater, particularly in Brazil– “Brazil is an absolutely outstanding upstream province … [and] at
this moment is the most exciting part of the industry.”– “The potential is absolutely gigantic – there is much more to
come.”
Importance of Deepwater
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Other major E&Ps have made similar comments YTD regarding the importance of deepwater projects to future growth
– BP: “In order to deliver long-term growth, we will continue to maintain a disciplined investment approach into three distinctive classes of assets: deepwater, gas value chains and giant fields. We will continue to maintain a balanced portfolio of opportunities.”
– Chevron: “New supply will increasingly come from more complex and remote sources with higher full-cycle development costs [including] arctic, deepwater, heavy, sour and the like.”
– Total: “A new direction is being taken to carry out deep offshore operations in even deeper waters … and at greater distances for multi-phase production transport … which is fully in line with the ambitious goals of [the company’s] exploration and production [business] and supports major technology-intensive assets such as Libra in Brazil.”
Importance of Deepwater
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• BP Mad Dog: Phase 2– Cost estimates reduced to less than $10 billion from previous
estimate of $22 billion– Project re-engineering through standardization and scope
optimization, coupled with industry deflation, resulted in significantly less capital required to develop approximately 90% of resources
• Shell Appomattox– 20% reduction in project costs from supply chain savings, design
improvements, etc.
• Total Block 32– Capital expenditure estimate reduced by $4 billion to $16 billion– Optimized project design and contracting strategy
• Statoil– “Standardization is the new innovation.”
Customers Re-Engineering Projects
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Recent strategic combinations/alliances among service companies to drive greater efficiencies and lower the breakeven commodity prices for projects:
• Schlumberger/Cameron – strategic innovation, efficiencies and cost reductions in deepwater projects; driving down breakeven commodity price levels
• GE Oil & Gas/McDermott – improve design/planning of offshore oil and gas field developments
• OneSubsea/Subsea 7 – enhance project delivery, improve recovery and optimize the cost and efficiency of deepwater subsea developments
• FMC Technologies/Technip – overhaul subsea field operations to drive efficiencies
• Baker Hughes/Aker Solutions – develop technology for production solutions that will boost output, increase recovery rates and reduce costs for subsea fields
• Schlumberger/OneSubsea/Helix – optimize the cost and efficiency of subsea well intervention systems
Service Sector Response
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Rig Years Contracted 2015 2016 2017+ Total
Global Fleet 93 86 106 285
Ensco 12 8 10 30
2015 YTD Contract Activity
Source: IHS-ODS Petrodata
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• Shallow water well programs have lower breakeven commodity price points on average than deepwater projects– less complex drilling requirements, shallower water depths and greater
access to existing infrastructure
• More diverse customer base; shallow water demand a function of customer- and region-specific factors– increased rig demand in the Middle East from NOCs– leases requiring continued drilling in areas like North Sea and West
Africa have stabilized demand as exploration capex has been reduced– well intervention now more economic in lower day rate environment– U.S. Gulf of Mexico and Asia Pacific markets are challenged due to
capex reductions and uncontracted newbuild supply, respectively
• Drillers with established operational and safety track records have an advantage in contracting rigs– zero newbuilds being built by speculators have been contracted
Jackup Market Dynamics
28Source: IHS-ODS Petrodata as of August 2015; competitive marketed floaters and jackups (independent leg cantilever rigs); ‘contracted’ includes rigs currently under contract or with a future contract
Global Marketed Rig Fleet
Newbuilds
Floaters JackupsContracted 214 316Idle/Other 56 77Total 270 393
% Contracted 79% 80%
Under Construction 52 105
On Order / Planned 19 9
Total 71 114% Contracted 52% 7%
ActiveFleet
29 / 41% by SETE Brasil
66 / 58% by Speculators
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Attrition of Older Floaters
• 88% attrition for rigs >35 years of age– 23 rigs >35 years of age
scrapped (26 uncontracted as of June 2014)
• 67% attrition for rigs 30-34 years of age– 10 rigs 30-34 years of age
scrapped (15 uncontracted rigs as of June 2014)
• 7 rigs <30 years of age scrapped (5 rigs <20 yrs old)
~100 floaters could be retired by year-end 2017 if attritioncontinues at similar rates observed over the past 12 months
Scrapped to Date40 floaters scrapped
since 3Q14
Currently Idle25 – 30 floaters that are
idle without follow-on work could be retired
Expiring Contracts35 – 40 floaters with
contracts expiring before YE17 without follow-on work could be retired
• 19 rigs >35 years of agex 88% attrition rate~17 scrap candidates
• 15 rigs 30-34 years of agex 67% attrition rate~10 scrap candidates
• Floater utilization would improve to 80% from 73% if ~27 rigs were scrapped
Source: IHS-ODS Petrodata as of August 2015; ‘retired’ includes scrapped rigs, announced scrapping and rigs converted to non-drilling units
• 27 rigs >35 years of agex 88% attrition rate~24 scrap candidates
• 21 rigs 30-34 years of agex 67% attrition rate~14 scrap candidates
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Newbuild Floater Order Book
Source: IHS-ODS Petrodata as of August 2015; marketed competitive floaters
71 Total
7Uncontracted,
On Order
9Contracted
36% 17%
17SETE Brasil,
Under Construction
26Uncontracted,
Under Construction
13%
10%
12SETE Brasil,
On Order
24%
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Attrition of Older Jackups
• 4 competitive jackups retired
• Between 1Q09 and 2Q14, another 13 competitive jackups were retired with an average age of 30 years
100+ jackups could be retired as expiring contracts and survey costs lead to the removal of older rigs from drilling supply
Retired to Date4 competitive
jackups retiredsince 3Q14
Currently Idle60 competitive
jackups >30 years of age idle
Expiring Contracts90 jackups >30 years of
age have contracts expiring before YE17 without follow-on work
• 14 competitive jackups >30 years old have been idle for at least one year
• 18 competitive jackups >30 years old have been idle for six to 12 months
• 28 competitive jackups >30 years old have been idle up to six months
• Jackup utilization would improve to 77% from 67% if ~60 rigs were retiredSource: IHS-ODS Petrodata as of August 2015; competitive
jackups are independent leg cantilever rigs, ‘retired’ includes scrapped rigs, announced scrapping and rigs converted to non-drilling units
• ~50% of these rigs are estimated to require a major survey for recertification within one year of contract expiration
• These surveys could require significant capital investment to meet classification requirements that may prompt more rig retirements
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Newbuild Jackup Order Book
Source: IHS-ODS Petrodata as of August 2015; marketed competitive jackups (independent leg cantilever rigs)
114 Total
60Uncontracted, Speculators
37Uncontracted, Established
Drillers
8Contracted, Established
Drillers
32%
7%
53%
9On Order,
All Uncontracted
8%
Zero rigs being built by speculators
have been contracted
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• We have taken proactive capital management, fleet restructuring and expense management decisions
• Our liquidity and balance sheet position gives us resilience and options
• We will invest in innovation and engineering to grow our leadership position for the future
• The offshore drilling industry will be reconfigured by this downturn - newer entrants and companies with weaker balance sheets will struggle
Summary
In a very challenged market our liquidity and balance sheet provide resilience
and options
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