Offshore Drilling March 2015 - MTS Houston Drilling Hensel... · 1 38th Annual Marine Offshore Industry Outlook Conference Offshore Drilling March 2015

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38th Annual Marine Offshore

Industry Outlook Conference

Offshore Drilling

March 2015

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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 regarding expected financial performance and return of capital, effective tax rate, day rates and

backlog; the timing of delivery, mobilization, contract commencement, relocation or other movement of rigs; 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 or suspension 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; 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, which is 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.

Forward-Looking Statements

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Market Environment

• Sharp drop in commodity prices accelerated beginning late fourth quarter 2014

• New lows/increased volatility for oil prices during customers’ budget season

• Capital expenditures reduced in 2015 as customers re-evaluate programs in

light of lower commodity prices

• Customers shortening contracts where permitted and requesting concessions

• Uncontracted newbuilds and customer sublets creating additional supply

• Aging of current global fleet leading to more retirements and stacking,

especially as rigs approach 30/35 year surveys

• Some newbuilds being cancelled and others being delayed

Confidential

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Current Market

Newbuilds

Floaters Jackups

Contracted 238 338

Uncontracted 28 33

Stacked Marketed Rigs 20 38

Total 286 409

% Contracted 83% 83%

Under Construction 58 101

On Order / Planned 25 17

Total 83 118

Contracted 55% 8%

Uncontracted 45% 92%

Active Fleet

Source: IHS-ODS Petrodata as of February 2015; competitive marketed floaters and jackups; jackups are independent leg cantilever rigs Confidential

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Newbuild Order Book

Jackups Floaters

Source: IHS-ODS Petrodata as of February 2015; marketed competitive jackups & floaters

Confidential

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Newbuild Deferrals and Cancellations

Atwood

• Delivery dates for 2 drillships with 2015 expected deliveries delayed by six

months each

Transocean

• Delivery dates for 5 jackups with 2016 and 2017 expected deliveries delayed

by ten months on average

Vantage

• Delivery of at least one drillship delayed from 2015 to 2016

Other

• Reports suggest up to 12 floaters under construction for SETE Brasil program

may be cancelled

• 6 jackups ordered by non-established drillers were cancelled in 2H14 Confidential

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Increase in Rig Retirements

and Cold Stacking

18

5 1 2

10

3

0

5

10

15

20

25

30

1Q14 2Q14 3Q14 4Q14 YTD15

Retired Cold Stacked

Floaters

Source: IHS-ODS Petrodata; includes announced retirements

2 1 1 1

1 4

6 7

0

2

4

6

8

10

12

1Q14 2Q14 3Q14 4Q14 YTD15

Retired Cold Stacked

Jackups

Confidential

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• US Regulatory Reform – Tightened standards for well design, blowout preventers, safety certification,

emergency response and worker training

– New rule under review with the White House Office of Management and Budget

with a focus on BOP requirements, including incorporation of industry standards

and revising existing regulations

• Idle Iron Policy – Requires companies to dismantle and responsibly dispose of infrastructure after

they plug non-producing wells in the Gulf of Mexico for environmental and safety

reasons

• Mexico’s Energy Reform – Ends 75 years of state monopoly in the local oil & gas sector.

– Introduces three new contract types to existing service contracts:

• Profit-sharing contracts

• Production-sharing contracts

• Licenses

– IOCs and Independents, in addition to deep water, are now looking into shallow

water and shelf sales

Regulatory Problems & Trends

Confidential

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• Problems

– Equipment reliability & QA/QC

– Limited number of primary equipment vendors

• Development & Trends

– Higher capacities/specifications

– Ultra high spec 6th/7th generation drillships (2.5M hook load, 2 BOPs, etc)

– MPD & RGH in certain areas

– 20K BOPs & Rigs

– Complex subsea development components and infrastructure

– Downhole completion technology in deepwater

Technological Problems,

Development & Trends

Confidential

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The 2014 - 2015 Price Collapse - A Perfect Storm

US Shale Revolution

Growth from the Frontier: Canada,

Brazil, GOM

OPEC Inaction

Emerging economies slowdown

Subsidy Reform

Chinese Demand Growth

Slowdown

Fuel Switching, Efficiency,

Carbon

Decreasing Disruptions -

Libya Supply

+2.3 mmb/d

Demand

+600 mb/d

At its core, the 2014 price collapse was the culmination of an unsustainable trend

in fundamentals at $100+/b

Structural Drivers

Tipping

point

Source: IHS Energy

Global liquids demand vs Non-OPEC supply including OPEC NGLs

Confidential

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Average Day Rate and

Marketed Utilization Decline

Source: ODS Petrodata – RigPoint

80%

85%

90%

95%

100%

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

Drillships

Day Rate Marketed Utilization

80%

85%

90%

95%

100%

$0

$100,000

$200,000

$300,000

$400,000

$500,000

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

Semisubmersibles

Day Rate Marketed Utilization

80%

85%

90%

95%

100%

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

Jackups

Day Rate Marketed UtilizationConfidential

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• Manpower forecasts show sharp decline in key position needs

• Staffing efforts focus on high-grading & efficient redistribution of

workforce

• Discretionary training reduced

• Training efforts focus on strategic initiatives

– Simulation training for key roles

– Links to Process Safety

– “Just in time” training

Staffing & Training Challenges

42

66

55

35

51

39 33

68

44

34

46 40

8

26 26

12 16 18

0

10

20

30

40

50

60

70

80

Key Position Demand 2013-2015

2013

2014

2015

Total

288

265

106

Confidential

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We Simultaneously Face 3 Critical Problems

Operators

Financially

Challenged at

$100 Oil

Oil

Oversupply

and Price

Collapse

Excess Supply of

Highly Capable

Newbuild Jackups

and Floaters

• Cut costs on all

fronts

• Reduce F&D Costs

• Reduce Rig rates

and spread costs

• Reduce labor costs

• Improved project

management

• Demand Growth

• Supply reductions

• Depletion

• OPEC Intervention

• Geo-political event

• Older less capable rigs

scrapped

• Marginal Rigs Stacked

• Newbuilds delayed/

cancelled

• Drilling demand increases

All Three Problems Must be Solved Before Our Business Improves

Solutions

Confidential

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