Investor Presentation April 2018
Investor Presentation April 2018
Important information
2
This presentation and any appendices hereto (the “Presentation”) has been produced by Odfjell Drilling Ltd (“Odfjell Drilling” or the “Company” and, together with its subsidiaries, the "Group") solely for
use at presentations to investors held in connection with the contemplated offering of new common shares in the Company (the "Private Placement"), as further discussed herein and as described in a
term sheet (the "Term Sheet") and an agreement governing applications to participate in the Private Placement (the "Application Agreement" and collectively with this Presentation and the Term Sheet,
the "Private Placement Materials").
ABG Sundal Collier ASA, ABN Amro, Danske Bank Markets, Norwegian branch of Danske Bank A/S, DNB Markets, a part of DNB Bank ASA, Nordea Bank AB (publ), filial i Norge, Pareto Securities AS
and SpareBank 1 Markets AS have been appointed as joint managers and bookrunners for the Private Placement (the “Managers”).
This Presentation is strictly confidential and may not be reproduced or redistributed, in whole or in part, to any other person. No representation or warranty (express or implied) is made as to, and no
reliance should be placed on, any information, including projections, estimates, targets and opinions, contained herein, and no liability whatsoever is accepted as to any errors, omissions or
misstatements contained herein, and, accordingly, neither the Company nor the Managers nor any of their parent or subsidiary undertakings nor advisors nor any such person’s officers or employees
accepts any liability whatsoever arising directly or indirectly from the use of this Presentation.
This Presentation includes certain forward-looking statements relating to the business, financial performance and results of the Group and/or the industry in which it operates. Forward-looking
statements relate to future circumstances and results and other statements that are not historical facts, sometimes identified by the words “believes”, “expects”, “predicts”, “intends”, “projects”, “plans”,
“estimates”, “aims”, “foresees”, “anticipates”, “targets”, and similar expressions. The forward-looking statements contained in this Presentation, including assumptions, opinions and views of the
Company or cited from third party sources, are solely opinions and forecasts which are subject to material risks, uncertainties and other factors that may cause actual events to differ materially from any
anticipated development. Neither the Company nor the Managers nor any of their parent or subsidiary undertakings nor advisors nor any such person’s officers or employees provide any assurance that
the assumptions underlying such forward-looking statements are free from errors, nor do any of them accept any responsibility for the future accuracy of the opinions expressed in this Presentation or
the actual occurrence of the forecasted developments. The Company assumes no obligation, except as required by law, to update any forward-looking statements or to conform these forward-looking
statements to its actual results.
This Presentation contains information obtained from third parties. Such information has been accurately reproduced and, as far as the Company is aware and able to ascertain from the information
published by that third party, no facts have been omitted that would render the reproduced information inaccurate or misleading. By receiving this Presentation you acknowledge that you will be solely
responsible for your own assessment of the market and the market position of the Group and that you will conduct your own analysis and are solely responsible for forming your own opinion of the
potential future performance of the Group‘s business. In making an investment decision, investors must rely on their own examination of the Company and the Group, including the merits and risks
involved.
AN INVESTMENT IN THE COMPANY INVOLVES SIGNIFICANT RISK AND SEVERAL FACTORS COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE
COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS THAT MAY BE EXPRESSED OR IMPLIED BY STATEMENTS AND
INFORMATION IN THIS PRESENTATION. A NON-EXHAUSTIVE OVERVIEW OF RELEVANT RISK FACTORS THAT SHOULD BE TAKEN INTO ACCOUNT WHEN CONSIDERING AN INVESTMENT
IN THE SHARES ISSUED BY THE COMPANY IS INCLUDED IN THIS PRESENTATION. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALISE, OR SHOULD
UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED IN THIS PRESENTATION. THE COMPANY DOES NOT INTEND,
AND DOES NOT ASSUME ANY OBLIGATION, TO UPDATE OR CORRECT THE INFORMATION INCLUDED IN THIS PRESENTATION.
The contents of this Presentation are not to be construed as legal, business, investment or tax advice. Each recipient should consult its own legal, business, investment or tax adviser as to legal,
business, investment or tax advice. By attending or receiving this Presentation you acknowledge that (i) you will be solely responsible for your own assessment of the market and the market position of
the Group and that you will conduct your own analysis and be solely responsible for forming your own view of the potential future performance of the Group’s business, (ii) if you are a U.S. person, you
are a QIB (as defined below), and (iii) if you are a non-U.S. person, you are a Qualified Investor or a Relevant Person (as defined below).
This Presentation has not been approved, reviewed or registered by or with any public authority or stock exchange. This Presentation is not a prospectus within the meaning of the EU Prospective
Directive (Directive 2003/71/EC), as amended (the "Prospectus Directive") and does not contain the same level of information as a prospectus. The new shares contemplated to be offered in the Private
Placement will be offered on the basis of the Private Placement Materials and publicly available information only, and no prospectus will have been approved or published in connection with the Private
Placement at the time of any application for or purchase of shares. The prospectus contemplated to be prepared in relation to the listing of the new shares on the Oslo Stock Exchange and a
contemplated subsequent offering of new common hares in the Company will contain more extensive information about the Group and its operations than the Private Placement Materials, and the
recipient will not have the benefit of the information contained in any such prospectus in making any application for new shares in the Private Placement.
Important information (cont'd)
3
This Presentation does not constitute an offer to sell, or a solicitation of an offer to buy, any securities in any jurisdiction or to any person in which or to whom it is unlawful to make such an offer or
solicitation. The distribution of this Presentation and the offering, subscription, purchase or sale of securities issued by the Company are in certain jurisdictions restricted by law. Persons into whose
possession this Presentation may come are required by the Company and the Managers to inform themselves about, and to comply with, all applicable laws and regulations in force in any jurisdiction in
or from which it invests in the securities issued by the Company or receives or possesses this Presentation and must obtain any consent, approval or permission required under the laws and regulations
in force in such jurisdiction. The Company shall not have any responsibility or liability whatsoever for these obligations. In particular, neither this Presentation nor any copy of it may be taken or
transmitted or distributed, directly or indirectly, into the United States, Canada, Australia or Japan.
This Presentation is strictly confidential and is being distributed in the United Kingdom solely to, and directed solely at, “Qualified Investors” who (i) have professional experience, knowledge and
expertise in matters relating to investments falling within Article 19(1) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 of the United Kingdom, as amended, (ii) are high
net-worth entities and other persons falling within Article 49(1) of the Financial Promotion Order or (iii) are persons to whom an invitation or inducement to engage in investment activity (within the
meaning of section 21 of the Financial Services and Markets Act 2000 of the United Kingdom, as amended (the “FSMA”)) in connection with the issue or sale of any securities may otherwise lawfully be
communicated or caused to be communicated (all such persons together being referred to as “Relevant Persons”). This Presentation is directed only at Relevant Persons and must not be acted on or
relied on by persons who are not Relevant Persons. Any investment or investment activity to which this Presentation relates is available only to Relevant Persons and will be engaged in only with
Relevant Persons. This Presentation does not constitute a prospectus for the purposes of Section 85(1) of the FSMA. Accordingly, this Presentation has not been approved as a prospectus by the UK
Financial Conduct Authority (the “FCA”) under Section 87A of the FSMA and has not been filed with the FCA pursuant to the UK Prospectus Rules nor has it been approved by a person authorized
pursuant to Section 31 of the FSMA. Neither this Presentation nor any part of it may be reproduced, distributed, passed on, or the contents otherwise divulged, directly or indirectly, to any person who is
not a Relevant Person without the prior written consent of the Managers or the Company.
IN RELATION TO THE UNITED STATES AND U.S. PERSONS, THIS PRESENTATION IS STRICTLY CONFIDENTIAL AND IS BEING FURNISHED SOLELY IN RELIANCE ON APPLICABLE
EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”). ACCORDINGLY, NEITHER THIS
PRESENTATION NOR ANY PART OR COPY OF IT MAY BE TAKEN OR TRANSMITTED INTO THE UNITED STATES, OR DISTRIBUTED, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES
OR TO ANY “U.S. PERSON” (AS THAT TERM IS DEFINED IN THE U.S. SECURITIES ACT) EXCEPT IN RELIANCE ON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF UNITED STATES SECURITIES LAWS.
THE SHARES ISSUED BY THE COMPANY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OR WITH ANY SECURITIES REGULATORY AUTHORITY OF
ANY STATE OR OTHER JURISDICTION IN THE UNITED STATES AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES, ABSENT REGISTRATION OR UNDER AN EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT. ACCORDINGLY, ANY OFFER OR SALE OF SHARES WILL ONLY BE
MADE (I) WITHIN THE UNITED STATES, OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS, TO QUALIFIED INSTITUTIONAL BUYERS (“QIBs”) WITHIN THE MEANING OF, AND
AS DEFINED IN, RULE 144A UNDER THE U.S. SECURITIES ACT AND (II) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER
THE U.S. SECURITIES ACT. ANY PURCHASER OF SHARES IN THE UNITED STATES, OR TO OR FOR THE ACCOUNT OF U.S. PERSONS, WILL BE DEEMED TO HAVE MADE CERTAIN
REPRESENTATIONS AND ACKNOWLEDGEMENTS, INCLUDING WITHOUT LIMITATION THAT SUCH PURCHASER IS A QIB.
This Presentation is made on 19 April 2018. There may have been changes in matters that affect the Company subsequent to the date of this Presentation. Neither the delivery of this Presentation nor
any further discussions of the Company with any of the recipients shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since such date.
The Company does not intend, and does not assume any obligation, to update or correct any information included in this Presentation.
Each of the Managers is acting only for the Company and will not be responsible to anyone other than the Company for providing the protections afforded to clients of such Manager. The Managers
and/or their employees may hold shares, options or other securities of the Company and may, as principal or agent, buy or sell such securities. The Managers may have other financial interests in
transactions involving these securities.
This Presentation is subject to Norwegian law and any dispute arising in respect of this Presentation is subject to the exclusive jurisdiction of Norwegian courts with Bergen district court (Nw: Bergen
tingrett) as legal venue.
Summary of risk factors
4
This is a brief summary only. For further discussion about the risks facing the Group, please see pages 36 to 38. An investment in the Company's shares should be considered as a high-risk
investment. An investment in the shares is only suitable for you if you have sufficient knowledge, sophistication and experience in financial and business matters to be capable of evaluating the merits
and risks of an investment decision relating to the shares, and if you are able to bear the economic risk, and to withstand a complete loss of your investment. All references to the "Group" shall in the
following be understood as a reference to Odfjell Drilling, together with its consolidated subsidiaries.
• Industry risks
- The Group's business is affected by a number of market conditions
- Changes in laws and regulations may affect the Group and its operations
- The Group may be exposed to environmental liability
- The Group may fail to comply with applicable laws and regulations
- The Group's business is exposed to numerous operating hazards
- The Group's insurance coverage may prove insufficient
- The Group's operations in various jurisdictions is exposed to inherent risks
- The Group is exposed to poor conditions on physical infrastructure and logistics systems in
some areas
- Certain jurisdictions in which the Group operates have inherent risks related to fraud, bribery
and corruption
- The Group may operate in jurisdictions that are subject to sanction regimes
• Group risks
- Backlog may not be ultimately realized
- Contracts may be subject to early termination
- Future business performance depends on ability to renew and extend existing contracts and
win new contracts
- The Group is exposed to unforeseen or unanticipated risks when bidding on or managing
contracts
• Operational risks
- Client concentration risk
- Operating and maintenance costs fluctuate in proportion to changes in operating revenues
- Newbuild projects are subject to risks
- Maintaining and repairing drilling units may lead to increased costs and loss of income
- The Group is exposed to disruptions of deliveries from suppliers
- The Group is exposed to the risk of sub-standard performance by third party subcontractors
- The quality of drilling units, spare parts and equipment purchased by the Group may be
inadequate
- The Group's strategies may be unsuccessfully implemented and there can be no assurance
that the Group will be able to secure favourable growth opportunities (or such opportunities at
all) for the proceeds from the Private Placement
- The Group is exposed to the risk of loss of key personnel
- The Group is exposed to the risk of labour interruptions
- Labour costs and related operating costs could increase
- Damage to the Group's reputation and business relationships may occur
- The Group is reliant on certain IT systems
- The Group may be unable to keep pace with changes in technological developments
- HSSE policies may not be sufficiently implemented or adhered to
• Risks related to laws, regulation and litigation
- Litigation may have a material adverse effect on the Group
- Technology disputes could impact operations
- Changes in tax laws could result in a higher tax expense or effective tax rate
• Financing and market risks
- Additional capital may be required to execute the Group's growth strategy (including the
financing of Ex. Stena MidMax, if applicable) and there can be no assurance that such financing
is secured
- Debt arrangements and the Company's other contractual commitments could limit the Group's
liquidity and flexibility to inter alia pay dividends
- Non-compliance with financial covenants could result in acceleration of repayment
- The Group is exposed to interest rate fluctuations
- The Group is exposed to exchange rate fluctuations
• Risks related to Group structure
- The Company is a holding company and depends on cash flow from subsidiaries
- The Group may fail to integrate acquired businesses or assets
- Divestments may subject the Company to risks and liabilities
- The Group is exposed to the risk of decrease of market value of acquired assets
• Risks related to the shares in the Company
- The market value may fluctuate significantly
- Odfjell Partners Ltd. has significant voting power
- Future sales of shares may affect the market price
- Future issuance of shares may affect the market price
- Exchange rate fluctuations may affect the value of the shares and dividends paid
- Investors may not be able to vote for shares held in nominee accounts
- Transfer of shares is restricted under securities laws of the US and other jurisdictions
- The Company may be unwilling or unable to pay dividends in the future
- Limited free float may have a negative impact on liquidity and market price
- Shareholders may be diluted if not participating in subsequent offerings
- Any future issuance of preference shares and/or warrants may dilute the common shares of the
Company significantly and limit the Company’s liquidity and flexibility to inter alia pay dividends
• Risks related to the Group's incorporation in Bermuda
- It may be difficult to enforce judgments obtained in the US
- The Company has anti-takeover provisions in its bye-laws
- Various conditions may cause an adverse tax effect if the
Company pays dividends
Transaction summary
5
Offering details Timetable and key considerations
• Application period: 19 April 2018 at 16:30 CET / 12:30pm EST – 20 April 2018 at 08:00 CET / 2:00am EST
– Application period may be closed or extended at any time
– Notification of allocation: 20 April 2018, before opening of the OSE
– Delivery versus payment (DVP): 24 April 2018, subject to satisfaction of the condition (see the term sheet)
– First day of trading: 20 April 2018
• Minimum application: NOK equivalent of EUR 100,000
• Documentation: Investor presentation, term sheet, application agreement and the stock exchange announcement
• Use of proceeds: Net proceeds will be used to (i) finance the Company's growth ambitions and (ii) for general corporate purposes. One growth opportunity is the possible purchase of the “Ex. Stena MidMax Rig", a Moss CS60E semi-submersible drilling rig construction (the "Unit") to be constructed at Samsung Heavy Industries Co., Ltd. (the "Yard"); no decision has been made to purchase the Unit, the Company may select other alternatives to realise its growth ambitions and completion of the Private Placement is not conditional upon the purchase of the Unit2
• The completion of the private placement is conditional upon:
– all necessary corporate resolutions
– payment being received for the allocated Offer Shares
• The Odfjell Drilling shares are listed on the Oslo Stock Exchange under the ticker code “ODL”
• Private Placement of new common shares in the Company (the “Offer Shares”) raising gross proceeds of up to approximately USD 200 million
– Equivalent to gross proceeds of up to approximately NOK 1.56 billion1
• The Private Placement is directed towards:
– Non-U.S. investors in reliance with Regulation S under the U.S. Securities Act of 1933, as amended; and
– U.S. 144A (QIB’s as defined by Rule 144A)
• Offer price: To be determined through an accelerated bookbuilding process
• Target markets: Non-professional, professional and eligible counterparties
• Negative target market: An investment in the Offer Shares is not compatible with investors looking for full capital protection or full repayment of the amount invested or having no risk tolerance, or investors requiring a fully guaranteed income or fully predictable return profile
• Allocation criteria: (i) ownership in the Company, (ii) timeliness of the application, (iii) price leadership, (iv) relative order size, (v) sector knowledge, (vi) perceived investor quality and (vii) investment horizon
• Joint Lead Managers: ABG Sundal Collier, ABN Amro, Danske Bank, DNB Markets, Nordea, Pareto, Sparebank1 Markets
1) USD/NOK exchange rate of 7.80 2) There can be no assurance that the Company decides to use its option to acquire the Unit; the decision will inter alia depend on whether sufficient comfort for the ability to secure employment of the Unit can be obtained before the deadline to declare the option. Such comfort is currently not secured and the option lapses on 30 April 2018 (unless it is extended)
Investment highlights
6
Growing high spec & harsh environment
fleet
The harsh environment
specialist
Attractive opportunities within reach
Market recovery is happening
• Target to acquire high spec & harsh environment rigs significantly below construction cost
• Strategy to grow drilling fleet from 4 to 6 - 10 rigs over the next few years
• Perfectly positioned to secure employment prior to potentially acquiring new rigs
• Preferred by the oil companies
• Excellent drilling efficiency
• Sold out on near-term rig capacity
• Multiple single assets available in the second-hand market
• Secured an option to acquire Ex. Stena MidMax at an attractive price
• Increased activity in the harsh environment market
• More wells sanctioned in Norway than in the prior upcycle
• Modern rigs are being preferred by the oil companies
Solid balance sheet
• Net debt/EBITDA below 4x
• Strong contract backlog will enable continued deleveraging
• Attractive bank financing of the fleet
Introduction to Odfjell Drilling
7
• Modern fleet of UDW1 and HE2 drilling units
• Extensive drilling experience
• Provision of integrated management services for drilling units
• Casing and tubular running services
• Drill tool and tubular rental
• Well intervention services
• Services in approximately 20 countries from 10+ bases in Europe and Middle East
• One of the leading contractors in the North Sea platform drilling market
• Drilling engineering services
• Established competence for the latest generation technology
Mobile Offshore Drilling Units Drilling & Technology Well Services
1) Ultra Deep-Water 2) Harsh Environment 3) Shaded area represent share of loss from JV (DSM Ltd) of USD 269 million
1000
1500
2000
0
150
300
450
2013 2014 2015 2016 2017
USD million USD million EBITDA (LHS) NIBD (RHS)
20153
Deepsea Atlantic2
Field: Johan Sverdrup
8
Preferred by the oil companies.. ..due to excellent drilling efficiency
Won 54% of all 6G work in Norway last 3 years Drilled around 50% faster than expected on
ongoing field developments
Source: DNB Markets, IHS Petrodata 1) Contracts awarded for 6G semis on the NCS 2) Initially 6 production wells and 7 injection wells in 36 months; delivered 8 production wells, 9 injection wells and 6 appraisal wells, total of 23 wells, in 21 months.
57
141
209
401
1,411
2,617
0 1,000 2,000 3,000
Rig days
North Atlantic Drilling
Transocean
Island Offshore
COSL
Odfjell Drilling
Saipem
Backlog days added last three years1
The harsh environment specialist
0
500
1,000
1,500
Act days per progam
488 days
1,095 days
-55% Days
Est days per progam
Deepsea Stavanger
Field: Maria
0
200
400
600
800
Est days per progam
584 days
Act days per progam
Days
300 days
-49%
Contract Option
9 1) Rates may include mix of currencies and fluctuate based on exchange rates 2) Statoil has awarded a conditional Letter of Intent for a drilling contract for Deepsea Atlantic for 6 firm wells with an estimated total duration of 18 months, scheduled to commence in early first quarter 2019; the contract contains the option to continue operations for Statoil after the firm period, and such options shall be based on market pricing
Sold out on near-term rig capacity
Signed LOI
Location /operatorDayrate
(USDk/day)1 Contract status
Deepsea
Stavanger
Norway
Wintershall/
Aker BP/Total/Aker BP
305/250/305/
279*
Deepsea Bergen
Norway
Statoil/Faroe/Wellesley
/OMV
328/120/135-200
Drilling unit
Deepsea Atlantic2 Norway
Statoil295/296*
Deepsea AberdeenUK
BP Exploration431
2021 2022 2023 20242017 2018 2019 2020
Alliance agreement with Aker BP, subject to call-off
Contract contains the option to continue operations for Statoil after the firm period
*Plus potential performance bonus
511 435
328 277
18
38
26
715
528
473
355
992
-
200
400
600
800
1,000
2018 2019 2020 After
Firm Options
Total revenue backlog per year1,2,3
1) Estimates at 31 December 2017; revenue from frame agreements and call-off contracts in Well Services and revenue from Technology and MODU Management is not included in the backlog
2) Recent LOI award to Deepsea Atlantic from Statoil is included in firm backlog estimate 3) Non-priced options not included in backlog estimate
Earnings visibility through USD 2.3 billion order backlog
USD million
Firm contracts USD 1.5 billion
Priced options USD 0.8 billion
Total backlog USD 2.3 billion
10
0
50
100
150
200
250
300
350
Noble Odfjell Drilling2
Transocean Seadrill Rowan Ensco Diamond
Robust capital structure
Remaining NIBD & newbuild capex
NPV of EBITDA backlog USD million
Source: DNB Markets, Bloomberg 1) Fully invested net debt (including newbuild capex) per UDW equivalent rig 2) Not taking into account the possible acquisition of Ex. Stena MidMax
NIBD1 per UDW equivalent adjusted for backlog NIBD / EBITDA YE 2017
8.7x
6.9x 6.8x
3.9x3.1x 2.8x
2.4x
8.0
6.0
4.0
2.0
0.0
10.0
Rowan Diamond Trans- ocean
Odfjell Drilling2
Noble Ensco Seadrill
11
Odfjell Drilling’s strong contract backlog will enable continued deleveraging as opposed to many of its peers
Strategy
12
Continue to develop a strong service provider within Well Services, Platform Drilling and Technology 3
• Expansion into new geographical markets • Diversified income stream across geography, service offering and onshore/offshore activities • Considering strategic options to visualize underlying values
Grow drilling fleet from 4 to 6-10 units over the next few years 2
• High specification and harsh environment floaters • Focus on fleet standardization • No speculative growth – comfort on ability to secure employment must be in place before adding rig capacity
Maintaining position as a leading harsh environment offshore driller 1
• Excellent long-term client relationships • Superior and robust operational performance • Continue to build on strategic alliances
Contract portfolio consisting of medium- to long-term contracts 5
• Ensuring financial visibility and flexibility
4
• Strict cost control through standardization, synergies and digitalization • Closer collaboration with reputable Oil companies (e.g. Aker BP alliance)
Continued emphasis on efficient operations
Potential growth opportunities in harsh environment
• Secured an option to acquire Ex. Stena MidMax
– Option lapses on 30 April 2018
• In dialogue with yards to obtain pricing of potential newbuilds
• Single assets in the second-hand market
• Other harsh environment capable rigs currently at yards
13
4 SDRL/NADL
COSL
1
1
1
1
2
3
Awilco newbuild
Ex. Stena MidMax
NODL
Ex West Rigel
Scarabeo 8
Island Innovator
1
3
ODL 3
RIG/SONG
6
North Sea Rigs
Delivered
Source: Pareto Securities, DNB Markets, IHS Petrodata
Newbuilds
Modern HE fleet (6G and 6G light) Several growth opportunities
Confident on securing additional work with a larger fleet
Option to acquire the Ex. Stena MidMax
14
One of the world’s most sophisticated semis
Key specifications1:
Design: Moss CS 60E
Construction yard: Samsung Heavy Industries
Classification: DNV Drill(N)
Rig water depth (m): 2,000 (riser for 500 meters)
Drilling depth (m): 10,750
DP system: Kongsberg DP3
Mooring system: Rolls-Royce winches, 10x2000m chain
Variable deck load (mt) 7,000
Accommodation (p): 150 (single cabin)
Derrick: NOV 64m tall with 16x16.9m base 1,250st@elevator
Drawworks: NOV AHDD 1400, 2x6900HP
Mud pumps: 4xNOV 14P-220, 7,500psi
Top Drive: NOV TDX-1250
BOP (psi): 15,000 (1xCameron 18-3/4” 5 ram)
Winterization: Fully winterized - NCS compliant (incl. Barents)
Built for superior operational efficiency and safety
1) As per purchase option
Modified design a result of Odfjell Drilling’s unique experience and expertise creating a truly
extraordinary drilling machine
✓ Purpose built for harsh environment including arctic areas
State of the art drilling system ✓
Efficient equipment & material handling arrangements ✓
Large unobstructed deck-space ✓
Large payload & bulk capacities ✓
Advanced compensation system for reduced wait on weather in harsh environments ✓
675
740 742
800 838
Uses of funds USD
million
Yard price (purchase option)1 505
Est. upgrades, spare parts and project supervision
45
Total project costs ex. Yard 550
Other 51
Working capital 17
Total uses 618
Sources of funds USD
million
Common equity 170
Preferred equity (see separate description) 75
Secured bank debt (estimate) 325
Seller’s credit (SHI) 48
Total sources 618
Attractive option price for Ex. Stena MidMax
15
Signed LOI and anticipated financing Purchase price below peers when adjusting for backlog
NODL price - West Mira
Historical project
cost Bollsta
Transocean’s acquisition of Songa (YE19)
Avg. all-in build
cost – 6G HE
semis2
All-in build cost - Stena
Midmax
Historical project
cost Mira
Riegel NODL price - Bollsta Dolphin
Additional capex Steel price Total project cost
Rig cost at +33% discount to building cost
Source: DNB Markets, IHS Petrodata, Companies 1) At signing: USD 225.75 million, at delivery: USD 231.25 million + seller credit: USD 48.25 million 2)15 NCS compliant semis built after 2008 (excl. Rigs built in China and Awilco Drilling newbuild)
ODL price -
HE semi
USD million
More wells to be sanctioned in Norway than in prior upcycle
16 Source: NPD, Pareto Securities Equity Research 1) Plan for development and operation
# of wells sanctioned under PDO1’s by rig type
1713
45
33
3
3
10
7
9
7
3
7
0
20
40
60
Wells sanctioned p.a.
23
# of PDO’s p.a. Wells sanctioned p.a.
59
# of PDO’s p.a.
PDO by delivery year
Wells sanctioned p.a.
58
# of PDO’s p.a.
Jackup Fixed inst. Semi PDO’s
2009-12 2013-16 2017-18
Modern rigs are taking over
17
Utilization for semis on NCS and UKCS Preference for modern rigs
Working floaters in Norway
Source: DNB Markets, IHS Petrodata and Company
0
10
20
30
40
50
60
70
80
90
100
2006 2008 2010 2012 2014 2016 2018
Modern 6G Standard
0
2
4
6
8
10
12
14
16
18
20
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Modern 6G Standard
Pct # of rigs
Older floaters Modern floaters
Supply balance looks healthy for modern rigs
18
Increased preference for modern equipment will lead to scrapping of older floaters
If history repeats itself, more newbuilds will be needed in the HS/HE market
Peak demand
Average demand
Current demand
Source: DNB Markets, Pareto Securities and IHS Petrodata
# of rigs
0
10
20
30
40
50
60
70
10-20yr 20-30yr
54
4
4
20
+30yr Total fleet 6G light
9
6G
17
Contracted / warm Cold stacked Newbuilds
19
0
6
12
18
24
30
36
42
48
54
Songa Trym
Borgland Dolphin
Polar Pioneer
West Venture
Scarabeo 5
Bredford Dolphin
Sedco 711
WilHunter West Navigator
Months stacked
Songa Dee
West Alpha
Sedco 714
Stena Don
Byford Dolphin
Songa Delta
# months stacked 2 years 1 year
Stacked floaters NCS and UK (Months)
Source: Company data, Nordea Markets
Stacked floaters have been inactive on average 24 months
12 of 15 stacked floaters are older than 28 years
Investment highligts
20
Market recovery is happening
Solid balance sheet
The harsh environment specialist
Growing high spec & harsh environment fleet
5 1
2
3
Attractive opportunities within reach
4
P&L - (USD million) Q4 17 Q4 16 FY 17 FY 16
Operating revenue 171 149 662 657
Other gains/losses 1 0 11 1
Personnel expenses -66 -38 -261 -233
Other operating expenses -39 -32 -139 -141
EBITDA 67 78 274 285
Depreciation -40 -127 -161 -251
Operating profit (EBIT) 27 -48 112 34
Share of profit (loss) from other joint ventures -0 0 -1 1
Net financial items -15 -21 -74 -74
Profit/(loss) before tax 11 -69 37 -39
Income taxes 3 -6 -1 -25
Profit/(loss) for the period 14 -75 35 -64
Group summary financials
Condensed consolidated income statement
21 1) Audited numbers
1 1
Summary statement of financial position
Group statement of financial position
• Group’s gross interest bearing debt was USD 1,234 million (net of capitalized financing fees) at 31 December 2017.
• USD 166 million in cash and cash equivalents at 31 December 2017.
• Equity-ratio of 36% at 31 December 2017.
Assets (USDm) 31.12.17 31.12.16
Deferred tax asset 4 2
Intangible assets 33 33
Property, plant and equipment 1 782 1 913
Financial fixed assets 1 9
Total non-current assets 1 819 1 957
Trade receivables 137 111
Other current assets 15 14
Cash and cash equivalents 166 182
Total current assets 319 307
Total assets 2 138 2 264
Equity and liabilities (USDm) 31.12.17 31.12.16
Total paid-in capital 329 329
Other equity 438 393
Total equity 767 722
Borrowings 1 076 1 208
Post-employment benefits 18 18
Deferred tax liability - -
Other non-current liabilities 5 2
Total non-current liabilities 1 100 1 227
Borrowings 157 204
Trade payables 35 17
Other current liabilities 79 93
Total current liabilities 272 314
Total liabilities 1 371 1 542
Total equity and liabilities 2 138 2 264
22 1) Audited numbers
1 1 1 1 (USD million) (USD million)
Appendix
23
A truly extraordinary drilling machine
24
Ex. Stena MidMax
Moss CS-60 West Mira Bollsta Dolphin
West Rigel
Owner Samsung Awilco Drilling Northern Drilling
Northern Drilling
Unknown
Built 20191 20211 20191 20191 20181
Yards Samsung Heavy
Industries Keppel FELS
Hyundai Heavy Industries
Hyundai Heavy Industries
Jurong Shipyard Pte
Design Moss Maritime
CS-60 E Moss Maritime CS-60 ECO MW
Moss Maritime CS-60Mk
Moss Maritime CS-60Mk
Moss Maritime CS-60Mk
Drilling equipment
Single + enhanced offline
Single + offline Single + offline Single + offline Single + offline
Static hook load 2.5 MM lbs 2.0 MM lbs 2.3 MM lbs 2.5 MM lbs 2.0 MM lbs
Heave compensation system
Active digital positioning with
redundancy Active/Passive Active/Passive Active/Passive Active/Passive
Water depth capacity
6,562 feet 4,920 feet 10,000 feet 10,000 feet 10,000 feet
Accommodation 150 single 140 single 150 single 140 single 150 single
Variable deck load
7,000t 5,000t 7,100t 7,500t 7,500t
Thruster capacity
6 x 5.5 MW 4 x 3.6MW 8 x 4.2 MW /
80 tonn 8 x 4.8 MW
8 x 4.2 MW / 80 tonn
Dynamic positioning
Yes No Yes Yes Yes
Winterized Fully Basic Fully Fully Fully
Ex. Stena MidMax option
Source: Company 1) Expected 2) Often required in sensitive and/or crowded areas with multiple installations
20+ improvements to existing yard contract
✓
Enhanced offline handling capabilities will enable considerable efficiency gains
✓
Unique compensation method reducing waiting on weather and downhole well problems
✓
Ample deck space and deck load capacity enabling efficient production drilling campaigns
✓
Increased flexibility and redundancy with DP in addition to mooring2
✓
• Received indications, in the form of term sheets subject to final agreements, from leading Nordic banks for a term loan facility
Key terms:
• Facility: Senior secured term loan
• Borrower: SPV [TBD]
• Guarantor: Odfjell Drilling Ltd.
• Amount: USD 325 million
• Profile: 9.5 years
• Tenor: 5 years
• Interest: LIBOR + 375/350 bps
• Security: Standard for this type of facility, including a 1st lien pledge over the rig
• Financial covenants: In line with other facilities
• Draw-down: Subject to 4 years firm drilling contracts for the rig
• Main terms for preferred equity with warrants discussed with Akastor AS or affiliate2
Key terms:
• Instrument: Perpetual preferred equity
• Issuer: Odfjell Drilling Ltd.
• Amount: USD 75 million
• Tenor: Perpetual
• Amortization: None
• Commitment fee: USD 5.75 million
• Dividend: 5% cash + 5% PIK per annum
• Call price: 125% year 2, 120% year 3, 115% year 4, 110% year 5, 105% year 6, 100% thereafter
• Cash dividend step-up: 8.0% p.a. from year 7 and an additional 1.0% step-up per year until a maximum cash dividend of 10.0% p.a.
• Warrants: Number of warrants to give 20% IRR from preferred dividend and warrant structure only when ODL shareholders have achieved 20% IRR from issue price3
• Other: Certain rights and covenants4 in favour of Akastor AS or affiliate
Bank debt1 Preferred equity
25
• LOI with Samsung Heavy Industries
Key terms:
• Facility: Sellers credit
• Borrower: Odfjell Rig V Ltd
• Guarantor: Odfjell Drilling Limited or other acceptable collateral
• Amount: USD 48.25 million
• Repayment: Bullet
• Tenor: 5 years
• Interest: LIBOR + 200 bps
Sellers credit
A potential acquisition of Ex. Stena Midmax has the following intended financing structure
1) Current status: USD 265 million of USD 325 million credit committee approved. 2 additional banks are in the credit process, taking the total amount to USD 325 million 2) The preferred equity and warrants are part of the agreement with Akastor AS or affiliate to acquire the option from Akastor AS or affiliate to purchase Ex. Stena MidMax 3) 6 equal tranches. 1 warrant tranche exercisable p.a. during year 1-6 subject to share price appreciation of 20.0% p.a. above issue price (with catch-up effect). After year 6 warrants that has not been exercised in previous years gives rights to subscription of shares in ODL depending on the share price in year 6. 4) The draft agreements (subject to final negotiations) contain several covenants, including but not limited to an obligation not to pay dividends or other distributions exceeding 50% of the net profit from the preceding year (unless a similar portion of the preference capital is repaid prior to the distribution), and in any case not pay dividends or make distributions after year 6. Also the draft agreement includes a change of control covenant pertaining to restructurings with the effect that Odfjell Partner's shareholding falls below 25%. In the event of a breach of the covenants, the Company will in some instances be required to repay the entire preference capital with a premium not exceeding 15% and the warrants will become immediately exercisable. The draft agreements also contain certain other events of default and an obligation to repay USD 10 million of the preference capital per rig sold, if the Company sells any of its rigs (except Deepsea Bergen).
0
10
20
30
40
50
60
70
80
90
Number of tenders and pre-tenders in the North Sea
0
10
20
30
40
50
60
70
Total duration of tenders and pre-tenders in the North Sea
26
Increased tendering and pre-tender activity Increased duration of tenders and pre-tenders1
Currently, the number of identified oil companies out with a firm pre-tender or tender for a rig is 16, up from the bottom of five in early 2014, demonstrating diversified activity in the North Sea
Source: DNB Markets 1) Duration in rig years
North Sea is the high activity area for offshore drilling
Increased market activity
27
Floater fixtures in the North Sea increasing With scope for increased exploration drilling
5 57
57
5 46 7
11 10
13
16 16 162
2
46 7
6 5
55
10
13
1614
Q1-18
30
Q4-17
32
Q3-17
29
Q2-17
23
Q1-17
15
Q4-16
16
Q3-16
12
Q2-16
12
Q1-16
11
Q4-15
11
Q3-15
11
Q2-15
7
Q1-15
9
Q4-14
6
1
Q3-14
6
1
12m rolling # fixtures
UK Norway
Source: IHS-Petrodata and Nordea Markets, UK Oil and Gas Authority
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Norway UK
Norway and UK: Development drilling as a % of total wells drilled
5+5 year alliance agreement with Aker BP
28
Developing an integrated drilling solution with the use of turnkey services
Drilling and well alliance
• Odfjell Drilling to provide drilling services and drill the well
• Halliburton to provide well construction activities
• Total duration of 5 years plus 5 optional years
Odfjell Drilling to drill all wells suitable for semis for Aker BP
• Aker BP has committed to use Odfjell Drilling to drill all production and exploration wells suitable for semi-submersibles
– Subject to rig availability and that the alliance model is approved in the respective licenses
Aker BP is committed to increase productivity, quality, flow- and time efficiency
• The alliances will plan and execute sanctioned production and exploration drilling activities
• Use digitalization as a key enabler to further increase efficiency in drilling operations
• Enhanced value to Aker BP through
– Improved operational performance
– Better project execution through integrated planning between Aker BP and Halliburton
– Lower drilling costs
New service model increasingly demanded by most offshore E&P companies
Creating a truly unique operation
Well Services - Pricing pressure offset by cost efficiency measures
Key service offerings
Tubular Running Services Drill Tool Rental Services Well Intervention Services
Conventional and remote-operated casing running tools
Remote-operated and conventional power tongs
Casing / tubing running and recovery
Drill tools (drill pipe, drill collars and tubing)
Tubular handling equipment Stablisers, subs and valves Downhole tools
Wellbore clean-up tools and services Casing exits Fishing services Well abandonment Slot recoveries
Odfjell Well Services in numbers
400+ Employees
Services from
10+ bases
Operation in
20+ countries
29
Customer Platforms Contract status
Heidrun & Grane3 (NO)
Johan Sverdrup (NO)
Mariner (UK)
Bressay (UK)
Brage (NO)
4 UK platforms1
5 UK platforms2
Magnus (UK)
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
A leading platform drilling operator in the North Sea
30
Clair Ridge
Andrew
Bruce
Clair
Operations on multiple platforms in Norway and UK Platform Drilling
• Provider of integrated drilling and maintenance services for fixed and floating drilling units
• First platform contract with Mobil on Statfjord B in 1978
• Strong platform for sale of add-on services from Technology and Well Services
• Focus on use of modern equipment and advanced technology
• Firm contract backlog of ~USD 300 million as of YE17, with value of priced optional periods of ~USD 800 million
Harding
Cormorant Alpha
North Cormorant
Eider
Tern Alpha
Brage Magnus Grane
Heidrun
Johan Sverdrup
Mariner
Bressay
Source: Company 1) Clair, Andrew, Bruce, Clair Ridge 2) Harding, Eider, Tern Alpha, Cormorant A, North Cormorant 3) Grane contract ending Oct-18, Heidrun contract continues with 4 year + 3x2 year options
Contract Option
Condensed P&L - (USD million) Q4 17 Q4 16 FY 17 FY 16
Operating revenue 118 108 481 438
EBITDA 58 69 244 226
Depreciation and impairments -33 -118 -132 -216
EBIT 25 -49 111 10
Book value rigs 1 699 1 806 1 699 1 806
EBITDA-margin 49,4 % 63,7 % 50,7 % 51,7 %
EBIT-margin 21,0 % -45,8 % 23,2 % 2,3 %
Share of group revenue1
66,4 % 70,6 % 70,4 % 64,5 %
Share of group EBITDA1
82,8 % 83,6 % 83,9 % 84,0 %
Share of group EBIT1
82,5 % 112,4 % 86,3 % 59,9 %
1) Before group eliminations and corporate overheads
MODU Key financials
Segment reporting - MODU financials
Figures above do not include pro-rata 40% of Deep Sea Metro.
118 108
481 438
Q4 17 Q4 16 FY 17 FY 16
Revenues
58 69
244 226
Q4 17 Q4 16 FY 17 FY 16
EBITDA
31 1) Audited numbers
1 1
(USD million)
(USD million)
Condensed P&L - (USD million) Q4 17 Q4 16 FY 17 FY 16
Operating revenue 32 21 105 131
EBITDA 3 3 15 -0
Depreciation and impairments -0 -0 -1 -4
EBIT 3 3 14 -4
EBITDA-margin 11 % 14,3 % 14,2 % 0,0 %
EBIT-margin 10 % 12,5 % 13,4 % -3,1 %
Share of group revenue1
18 % 13,8 % 15,4 % 19,3 %
Share of group EBITDA1
5 % 3,7 % 5,2 % 0,0 %
Share of group EBIT1
11 % -6,0 % 10,9 % -24,2 %
1) Before group eliminations and corporate overheads
Drilling & Technology Key financials
Segment reporting - Drilling & Technology financials
32 21
105
131
Q4 17 Q4 16 FY 17 FY 16
Revenues
3 3
15
0
Q4 17 Q4 16 FY 17 FY 16
EBITDA
32 1) Audited numbers
1 1
(USD million)
(USD million)
Condensed P&L - (USD million) Q4 17 Q4 16 FY 17 FY 16
Operating revenue 27 24 97 110
EBITDA 9 11 32 43
Depreciation and impairments -7 -8 -28 -32
EBIT 2 3 4 11
Book value of equipment 82 105 82 105
Cost price for equipment in use 380 375 380 375
EBITDA-margin 31,6 % 43,9 % 32,6 % 39,2 %
EBIT-margin 7,4 % 11,8 % 3,8 % 9,8 %
Share of group revenue1
15,3 % 15,6 % 14,2 % 16,2 %
Share of group EBITDA1
12,2 % 12,8 % 10,9 % 16,0 %
Share of group EBIT1
6,7 % -6,4 % 2,8 % 64,3 %
1) Before group eliminations and corporate overheads
Well Services Key financials
Segment reporting - Well Services financials
27 24
97
110
Q4 17 Q4 16 FY 17 FY 16
Revenues
9 11
32
43
Q4 17 Q4 16 FY 17 FY 16
EBITDA
33 1) Audited numbers
1 1
(USD million)
(USD million)
(USD million) Q4 17 Q4 16 FY 17 FY 16
Operating revenue -6 -4 -21 -22
EBITDA -3 -4 -17 15
EBIT -3 -4 -17 17
EBIT for reportable segments 30 -44 129 17
Corporate / eliminations -4 -4 -19 -15
Share of profit from DSM Ltd Group - - - 0
Accounting differences 0 0 2 32
Group EBIT 27 -48 112 34
Share of profit from other joint ventures - 0 -1 1
Net financial items -15 -21 -74 -74
Group profit before tax 11 -69 37 -39
Group – Eliminations & Reconciliation
Group - Eliminations & Reconciliation
34 1) Audited numbers
1 1
Cash Flow - (USDm) Q4 17 Q4 16 FY 17 FY 16
Profit before income tax 11 -69 37 -39
Cash from operations 70 78 245 241
Interest paid -17 -14 -65 -59
Income tax paid -0 -3 -15 16
Net cash from operations 53 61 166 199
Net cash used in investing activities -2 -5 -1 -22
Net cash from financing activities -61 -56 -184 -194
Net change in cash and cash equivalents -10 -0 -19 -17
Cash and cash equivalents at period end 166 182 166 182
Summary statement of cash flow
Group statement of cash flow
35 1) Audited numbers
1 1
Risk factors (1/3)
36
An investment in the Company should be considered as a high-risk investment. A number of risk factors may adversely affect the Group. The risks listed below are not the only ones facing the Group.
Additional risks not presently known to the Company or which the Company currently deems immaterial may also adversely affect the Group. If any of the risks facing the Group should actually occur,
individually or together with other circumstances, the business, financial position, operating results and cash flows of the Group, and the transactions described herein, could be materially and adversely
affected, which may cause a decline in the value of the shares that could result in a loss of all or part of any investment in the shares. Prospective investors should carefully consider the risks involved in
an investment in the Company, including, but not limited to, those discussed below. Prospective investors should consult their own legal, tax and financial advisors as to all of these risks and an
investment in the Company. The order in which the risks are presented below is not intended to provide an indication of the likelihood of their occurrence nor of their severity or significance. These risks
should also be considered in connection with the “Important Information” on pages 2 and 3.
Risks relating to the industry in which the Group operates
Market conditions
• The Group's business, results of operations and financial condition depend on the level of exploration, development and production activity in the oil and gas industry, which is significantly affected
by, among other things, volatile oil and gas prices
• An over-supply of drilling units or rental equipment may lead to a reduction in day rates for the MODU segment and prices for the Well Services segment, which may materially impact the Group's
results of operations
• It may have a material adverse effect on the Group's ability to market its services if its competitors introduce new products or services with features, performance, prices or other characteristics
similar to, or better than, the Group's products and services or expand into service areas where the Group operates
Legal, regulatory and environmental risks
• Existing laws or a change of laws and regulations relating to the oil and gas industry could hinder or delay the Group's operations, increase the Group's operating costs, reduce demand for its
services and/or restrict the Group's ability to provide its services or operate its drilling units
• The Group may be subject to contractual environmental liability and liability under environmental laws and regulations, which could have a material adverse effect on the Group's business, results of
operations and financial condition
• The laws and regulations concerning import activity, export recordkeeping and reporting, export control and economic sanctions are complex and constantly changing, and a failure to comply with
these complex laws and regulations could adversely affect the Group's operations
Operational and country risks
• The Group's business involves numerous operating hazards and if a significant accident or other event occurs it could materially adversely affect the Group's results of operations, cash flows and
financial condition
• No assurance can be made that the Group has, or will be able to maintain in the future, adequate insurance or indemnity against certain risks, and there is no assurance that such insurance or
indemnification agreements will adequately protect the Group if a significant accident or other event occurs
• The Group's business segments operate in various jurisdictions, thereby exposing the Group to risks inherent in international operations and subjecting the Group to compliance with the laws and
regulations of the jurisdictions in which it operates
• Physical infrastructure and logistics systems, such as roads, air transport facilities and lines of communication, in certain areas of the world may be under-developed and may not have been
adequately funded and maintained, which may have an effect on the efficiency and safety of the Group's operations in these regions and may increase the costs of doing business
• Doing business in international developing markets brings with it inherent risks associated with enforcement of obligations, fraud, bribery and corruption and it may not be possible for the Group to
detect or prevent every instance of fraud, bribery and corruption in every jurisdiction in which its employees, agents, sub-contractors or joint venture partners are located
• The Group has conducted and may in the future conduct business in certain jurisdictions that are subject to US trade embargoes and sanctions by the US Office of Foreign Assets Control, including
countries which have been designated by the US government as state sponsors of terrorism, and may conduct business in jurisdictions that are subject to analogous Norwegian and European
Union sanctions
Risk factors (2/3)
37
Risks relating to the industry in which the Group operates
• Backlog does not provide a precise indication of the time period over which the Group is contractually entitled to receive such revenues and there is no assurance that such revenue will be actually
realised in the timeframes anticipated or at all
• The Group's clients may have the right to terminate their contracts without cause in compliance with applicable notice periods and, under certain circumstances, the Group's contracts may permit a
client to terminate its contract early without the payment of any termination fee, as a result of non-performance, delay, quality of deliverables or force majeure events
• The Group's future business performance depends on its ability to renew and extend existing contracts, and to win new contracts
• Unforeseen or unanticipated risks, costs or timing when bidding on or managing contracts could adversely affect the Group's business, results of operations and financial condition
Risks relating to operations
• The Group's results of operations and cash flows, and in particular the MODU segment and the Platform Drilling business area, could be materially adversely affected if any of its major clients fail to
compensate the Group, terminates their contracts, fail to renew existing contracts, fail to exercise options, or refuse to award new contracts to the Group and the Group is unable to enter into
contracts with new clients at comparable day rates
• The Group's operating and maintenance costs will not necessarily fluctuate in proportion to changes in operating revenues
• All future newbuild construction projects will be subject to risks of delay, quality issues, damage to personnel, equipment and environment, or cost overruns inherent in any large construction project
due to numerous factors which could cause delays or cost overruns and have a material adverse effect on the Group's business, results of operation, cash flows and financial condition
• The Group must maintain and repair its drilling units, including maintaining the classification of the drilling units, which may lead to increased costs and loss of income
• Disruptions of deliveries by the Group's suppliers could increase operating costs, decrease revenues and adversely impact the Group's operations. In addition, consolidation of suppliers may limit
the Group's ability to obtain supplies and services when needed at an acceptable cost or at all
• The Group relies on third parties, including subcontractors, to complete some parts of its projects and may be adversely affected by the sub-standard performance or non-performance of those third
party subcontractors
• The Group's purchase of existing drilling units, spare parts and equipment carries risks associated with the quality of such assets
• The Group may not be able to successfully implement its strategies and any failures, material delays or unexpected costs related to the implementation of the Group's strategies could have a
material adverse effect on its business, financial condition, cash flow and results of operations. There can be no assurance that the Group will be able to secure favourable growth opportunities (or
such opportunities at all) for the proceeds from the Private Placement
• Loss of key personnel or the failure to obtain or retain highly skilled personnel could materially adversely affect the Group's operations
• Labour interruptions could have a material adverse effect on the Group's operations
• The Group's labour costs and related operating costs could increase as a result of a number of factors, such as high growth within the industry which may increase the cost of qualified personnel
and equipment
• Any circumstances that publicly damage the Group's goodwill, injur the Group's reputation or damage the Group's business relationships may lead to a broader adverse effect on its business and
prospects than solely the monetary liability arising directly from the damaging events by way of loss of business, goodwill, clients, joint venture partners and employees.
• The Group relies on information technology systems to communicate with its drilling units and conduct its business, and disruption, failure or security breaches of these systems could adversely
affect its business and results of operations
• The market for the Group's services is affected by significant technological developments and the Group may not be able to keep pace with a significant step change in technological development
• Policies, procedures and systems to safeguard employee health, safety and security may not be adequate or sufficiently implemented or adhered to
Risks relating to laws, regulation and litigation
• The Group may be subject to litigation that could have a material adverse effect on the Group's business, results of operations, cash flow and financial condition
• Technology disputes involving the Group, the Group's suppliers or sub-suppliers could impact the Group's operations
• The Group is exposed to risk due to its use of certain trademarks such as the "Odfjell" name
• A change in tax laws of any country in which the Group operates from time to time, or complex tax laws associated with international operations which the Group may undertake from time to time,
could result in a higher tax expense or a higher effective tax rate on the Group's earnings
Risk factors (3/3)
38
• A loss of a major tax dispute or a successful tax challenge to the Group's operating structure or to the Group's tax payments, among other things, could result in a higher tax rate on the Group's
earnings, which could have a material adverse effect on the Group's earnings and cash flows
Risks related to financing and market risk
• In order to execute the Group's growth strategy, the Group may require additional capital in the future, which may not be available (including the financing of Ex. Stena MidMax, if applicable) and
there can be no assurance that such financing is secured
• The Group's existing or future debt arrangements as well as the preference shares and warrants instruments of Akastor AS or affiliate if the Group should decide to proceed with the acquisition of
Ex. Stena MidMax, could limit the Group's liquidity and flexibility in obtaining additional financing, in pursuing other business opportunities or the Company's ability to declare dividends to its
shareholders
• If the Group is unable to comply with the restrictions and the financial covenants in the agreements governing its indebtedness, there could be a default under the terms of these agreements, which
could result in an acceleration of repayment of funds that have been borrowed
• The Group is exposed to interest rate risk, primarily in relation to its long-term borrowings issued at floating interest rates, and interest rate fluctuations could affect the Group's cash flow and
financial condition
• The Group has currency exposure to both transaction risk and translation risk and fluctuations in exchange rates and non-convertibility of expenses could result in financial losses for the Group
Risks related to Group structure
• The Group currently conducts its operations through, and most of the Group's assets are owned by, the Group's subsidiaries and the Company is therefore dependent upon cash flow from
subsidiaries to meet its obligations and in order to pay dividends to its shareholders
• The Group's financial condition may be materially adversely affected if the Group fails to successfully integrate acquired assets or businesses, or is unable to obtain financing for acquisitions on
acceptable terms
• The Group has provided certain representations, warranties and indemnities in connection with the businesses it has sold and may, as a result, be subject to the risk of liability for breach of
representations and warranties and/or indemnity obligations in favour of the respective buyers
• The market value of the drilling units and rental equipment and/or those the Group may acquire in the future may decrease, which could cause the Group to incur losses due to impairment of book
values or if it decides to sell assets
Risks relating to the shares
• The market value of the shares may fluctuate significantly, which could cause investors to lose a significant part of their investment
• Odfjell Partners Ltd. has significant voting power and the ability to influence matters requiring shareholder approval
• Future sales, or the possibility for future sales, of substantial numbers of shares may affect the shares' market price
• Future issuances of shares or other securities may dilute the holdings of shareholders and could materially affect the price of the shares
• Exchange rate fluctuations could adversely affect the value of the shares and any dividends paid on the shares for an investor whose principal currency is not NOK
• Investors may not be able to exercise their voting rights for shares registered in a nominee account
• The transfer of shares is subject to restrictions under the securities laws of the United States and other jurisdictions
• Pursuant to the Company's dividend policy, dividends are only expected to be paid if certain conditions are fulfilled and the Company may be unwilling or unable to pay any dividends in the future
• Prior to the Private Placement, approximately 71.5% of the issued and outstanding share capital is held by Odfjell Partners Ltd., which may have a negative impact on the liquidity of the shares and
result in a low trading volume of the shares, which again could have an adverse effect on the then prevailing market price for the shares
• Eligible shareholders who do not participate in the Private Placement or the subsequent offering may experience significant dilution in their direct or indirect shareholding in the Company and there
can be no assurance that shareholders participating will maintain their relative ownership in the Company
• Any default under the Company's preference shares and warrant agreements if issued may have a material adverse effect on the Group
Risks related to the Company's incorporation in Bermuda
• Investors in the United States may have difficulty enforcing any judgment obtained in the United States against the Company or its directors or executive officers
• The Company's Bye-Laws contain provisions that could make it more difficult for a third party to acquire the Company without the consent of the Board of Directors
• Various conditions may cause an adverse tax effect for the shareholder if the Company pays dividends
For more information see: www.odfjelldrilling.com