Goldman Sachs Global Energy Conferences1.q4cdn.com/651804090/files/presentations/2016/01_2016... · 2016-01-05 · Goldman Sachs Global Energy Conference January 2016. 2 ... the decline

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Goldman Sachs Global Energy Conference

January 2016

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Forward-Looking Statements

Statements contained in this presentation that are not historical facts are forward-looking statements within the

meaning 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 statements

involving 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; scheduled

delivery dates for rigs; the timing of delivery, mobilization, contract commencement, relocation or other movement of

rigs; benefits derived from expense management actions; estimated capital expenditures; rig stacking costs; and

general market, business and industry conditions, trends and outlook. Such statements are subject to numerous

risks, uncertainties and assumptions that may cause actual results to vary materially from those indicated, including

commodity price fluctuations, customer demand, new rig supply, downtime and other risks associated with offshore

rig operations, relocations, severe weather or hurricanes; changes in worldwide rig supply and demand, competition

and technology; future levels of offshore drilling activity; governmental action, civil unrest and political and economic

uncertainties; terrorism, piracy and military action; risks inherent to shipyard rig construction, repair, maintenance or

enhancement; possible cancellation, suspension or termination of drilling contracts as a result of mechanical

difficulties, performance, customer finances, the decline or the perceived risk of a further decline in oil and/or

natural gas prices, or other reasons, including terminations for convenience (without cause); the outcome of

litigation, legal proceedings, investigations or other claims or contract disputes; governmental regulatory, legislative

and permitting requirements affecting drilling operations; our ability to attract and retain skilled personnel on

commercially reasonable terms; environmental or other liabilities, risks or losses; debt restrictions that may limit our

liquidity and flexibility; our ability to realize the expected benefits from our redomestication and actual contract

commencement dates; cybersecurity risks and threats; and the occurrence or threat of epidemic or pandemic

diseases or any governmental response to such occurrence or threat. In addition to the numerous factors

described above, you should also carefully read and consider “Item 1A. Risk Factors” in Part I and “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of our most

recent annual report on Form 10-K, as updated in our subsequent quarterly reports on Form 10-Q, which are

available on the SEC’s website at www.sec.gov or on the Investor Relations section of our website at

www.enscoplc.com. Each forward-looking statement speaks only as of the date of the particular statement, and we

undertake no obligation to publicly update or revise any forward-looking statements, except as required by law.

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3Q15 Highlights

• Record operational utilization

– 99.8% for jackups

– 95.4% for floaters

• ENSCO DS-8 delivered; commences initial contract in mid-

November

• Expense savings targets increased

• ENSCO 8505 contracted in U.S. Gulf

• ENSCO 71 & ENSCO 72 awarded new multi-year contracts in

North Sea

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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

– innovation

– 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 year over year

• 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

maturities

until 2Q19

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Credit Ratings

ESV DO NE RDC RIG ATW PACD ORIG SDRL

BBB BBBBBB- BBB-

BB

BB-

CCC+

CC+ Not Rated

Investment

Grade

Source: Bloomberg composite credit ratings as of December 2015; cash, short-term investments and contracted revenue backlog as of 30

September 2015

• $1.1 billion of cash and short-term investments

• $6.6 billion of contracted revenue backlog

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Declining Capital Expenditures

4Q15 2016 2017 2018

120

475

32530

25

50

50

55

120

55

55

New rig construction Rig enhancements Minor upgrades and improvements

$ millions

$205

$620*

$430*

*Note: Preliminary estimates 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; new rig construction represents contractual commitments plus anticipate capex associated with rig construction;

2016 rig enhancements capex is specific to a mooring upgrade for an additional ENSCO 8500 Series rig, while 2017 and 2018 rig enhancements are

estimates and not earmarked for any specific projects at this time; capex for minor upgrades and improvements are based on the currently active fleet;

year-to-date capital expenditures through 30 September 2015 totaled $1,146 million: $1,132 million of new rig construction, $145 million of rig

enhancements and $169 million of minor upgrades and improvements.

$105*

Updated Outlook as of 11 November 2015

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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 Total

2 yrs on operating rate*

2 yrs w/ Wintershall

2 yrs with NAM

2+ yrs with Nexen

4 yrs with Total

Delivered &

Contracted

Under

Construction &

Uncontracted

Delivered and On

Operating Rate

3 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

• ENSCO 8503 mooring

upgrade complete and back

on contract with Stone Energy

• ENSCO 8505 expected to

complete mooring upgrade in

4Q15 before contract with

Marubeni

• 3rd ENSCO 8500 Series

floater to receive mooring

upgrade during 2016

Upgrades to Existing Floaters

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• 20 rigs sold since 2010 generating ~$675 million in

proceeds

– 6 rigs sold since September 2014

• 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

• 7 rigs currently held for sale

– 1 jackup in continuing operations

– 4 floaters in discontinued operations

– 2 jackups in discontinued operations

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$40k

per day

<$10k

per day(ENSCO DS-1

& DS-2)

Semi$32k

per day

<$10k

per day

Jackup$20k

per day

<$5k

per day

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Improved Expense Outlook

2Q15A 3Q15A 4Q15E

$503 million $434 million

Prior estimate

$450 - 455 million

$415 – $420 million

Prior estimate

$435 - 440 million

Expense reductions more

than offset a projected

increase in rig operating

days v. 3Q15

Contract Drilling Expense

Updated Outlook as of 11 November 2015

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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

Total Recordable

Incident Rate

• Leading-edge safety

management systems

• Enhancing process

safety to drive further

improvements

0.0

0.2

0.4

0.6

0.8

1.0

1.2

2008 2009 2010 2011 2012 2013 2014 YTD2015

Ensco Industry

Ensco statistics are Year To Date through September 30. The IADC industry statistics are as of Q2 2015.

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Net Income Margin

Largest Offshore Drillers

ESV SDRL NE RIG RDC DO

30%

25%

22%

19%17% 16%

Source: FactSet; sum of trailing eight quarters of net income divided by sum of trailing eight quarters of revenue. FactSet's data is based on

aggregation of information collected from industry equity research analysts and may not be based on GAAP reported financial data; Ensco,

Seadrill, Noble and Transocean adjusted for extraordinary items such as gains and losses on asset disposals, legal settlements and early

termination and arbitration fees.

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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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• 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 December 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 Jackups

Contracted 208 288

Idle/Other 58 100

Total 266 388

% Contracted 78% 74%

Under Construction 51 111

On Order / Planned 17 4

Total 68 115

% Contracted 50% 7%

ActiveFleet

29 / 43% by SETE Brasil

69 / 60% by Speculators

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Attrition of Older Floaters

• 88% attrition for rigs >35

years of age historically

– 25 rigs >35 years of age

scrapped

• 67% attrition for rigs 30-34

years of age historically

– 12 rigs 30-34 years of age

scrapped

• 7 rigs <30 years of age

scrapped (5 rigs <20 yrs old)

~100 floaters could be retired by year-end 2017 if attrition

continues at similar rates observed over the past 12 months

Scrapped to Date

44 floaters scrapped

since 3Q14

Currently Idle

~30 floaters that are idle

without follow-on work

could be retired

Expiring Contracts

~45 floaters with

contracts expiring before

YE17 without follow-on

work could be retired

• 21 rigs >35 years of age

x 88% attrition rate

~18 scrap candidates

• 15 rigs 30-34 years of age

x 67% attrition rate

~10 scrap candidates

• Floater utilization would

improve to 80% from 72%

if ~30 rigs were scrapped

Source: IHS-ODS Petrodata as of December 2015; ‘retired’ includes scrapped rigs, announced scrapping and rigs converted to non-drilling units;

utilization figures include non-marketed units

• 34 rigs >35 years of age

x 88% attrition rate

~30 scrap candidates

• 19 rigs 30-34 years of age

x 67% attrition rate

~13 scrap candidates

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Newbuild Floater Order Book

Source: IHS-ODS Petrodata as of December 2015; marketed competitive floaters

68 Total

5

Uncontracted,

On Order

6

Contracted

41%

18%

17

SETE Brasil,

Under

Construction

28

Uncontracted,

Under

Construction

9%

7%

12

SETE Brasil,

On Order

25%

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Attrition of Older Jackups

• 6 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 Date

6 competitive

jackups retired

since 3Q14

Currently Idle

72 competitive

jackups >30 years of

age idle

Expiring Contracts

84 jackups >30 years of

age have contracts

expiring before YE17

without follow-on work

• 20 competitive jackups

>30 years old have been

idle for at least one year

• 21 competitive jackups

>30 years old have been

idle for six to 12 months

• 31 competitive jackups

>30 years old have been

idle up to six months

• Jackup utilization would

improve to 84% from 72%

if ~70 rigs were retiredSource: IHS-ODS Petrodata as of December 2015; competitive

jackups are independent leg cantilever rigs, ‘retired’ includes

scrapped rigs, announced scrapping and rigs converted to non-

drilling units; utilization figures include non-marketed 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 December 2015; marketed competitive jackups (independent leg cantilever rigs)

115 Total

66

Uncontracted,

Speculators

37

Uncontracted,

Established

Drillers

8

Contracted,

Established

Drillers

32%

7%

57%

4

On Order,

All Uncontracted

4%

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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