kca deutag · platforms and 2 jack-ups •approx. 67% of platforms designed or refurbished by rds...
TRANSCRIPT
www.kcadeutag.com
J.P. Morgan European High Yield & Leveraged
Finance Conference
September 2017
KCA Deutag
Private & Confidential – Not for Onward Distribution
1 Company Overview
2 Business and Financial Update
3 Q&A
Agenda
2
Disclaimer
3
This presentation has been prepared by KCA Deutag Alpha Limited (the “Company”). No reliance may be placed for any purposes whatsoever on
the information contained in this presentation or on its completeness. Although care has been taken to ensure that the facts stated in this
presentation are accurate, and that the opinions expressed are fair and reasonable, the contents of this presentation have not been subject to
any independent audit or review or been verified by the Company or its advisers. Accordingly, neither the Company, nor affiliated partnerships or
bodies corporate, nor any of the Company's advisers, nor the directors, shareholders, managers, partners, employees or agents of any of them,
makes any representation or warranty, express or implied, as to the accuracy, reasonableness or completeness of the information contained
herein. All such parties and entities expressly disclaim any and all liability for, or based on or relating to any such information contained in, or
errors in or omissions from, this presentation or based on or relating to the use of the presentation or otherwise arising in connection with it.
This presentation does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy
or acquire any securities or an inducement to enter into investment activity. No part of this document, nor the fact of its distribution, should form
the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever.
This presentation may include certain forward-looking statements, estimates, predictions, influences and projections with respect to anticipated
future performance and as to the market for products or services which may reflect various assumptions made by the management of the
Company. These assumptions may or may not prove to be correct and no representation is made as to the accuracy of such statements,
estimates, predictions, influences and projections. These statements and forecasts involve risk and uncertainty because they relate to events and
depend on circumstances that will occur in the future. Accordingly, forward-looking statements are not guarantees of future performance and
actual results of operations, financial condition and liquidity and the development of the industry in which it operates which may differ materially
from those made in or suggested by the forward-looking statements in this presentation. Furthermore, the information and opinions contained in
this presentation are subject to change without notice and the Company and its adviser assumes no responsibility or obligation to update this
presentation or any of the forward-looking statements contained herein.
The information contained within the accompanying presentation is confidential and must not be disclosed to any third party without the prior
written consent of the Company. The unauthorised disclosure of this presentation or any information contained in or relating to it could damage
the interests of the Company and/or its affiliates and advisers and have serious consequences.
The information contained in this document is provided as at the date of this document and is subject to change without notice.
This presentation contains non-IFRS measures and ratios that are not required by, or presented in accordance with, IFRS. The Company
presents non-IFRS measures because it believes that they and similar measures are widely used by certain investors, analysts and other
interested parties as supplemental measures of performance and liquidity. The non-IFRS measures may not be comparable to other similarly
titled measures of other companies and have limitations as analytical tools and should not be considered in isolation or as a substitute for
analysis of the operating result as reported under IFRS. Non-IFRS measures and ratios are not measurements of the Company's performance or
liquidity under IFRS and should not be considered as alternatives to profit for the year or any other performance measures derived in accordance
with IFRS or any other generally accepted accounting principles or as alternatives to cash flow from operating, investing or financing activities.
www.kcadeutag.com
Company Overview 1
Update on KCA Deutag: the leading international integrated
drilling and engineering company
5
Global platform with market leading positions
High quality, NOC/IOC customer base with interdivisional cross selling
Premium asset base with disciplined growth strategy
Integrated service offering with differentiation through technology/engineering capability
Proven management team, supported by committed shareholders
Strong industry reputation and track record of safe, reliable and efficient operations
Resilient business model through diversification and strategic focus on low cost basins/projects
1
2
4
5
6
7
3
8
Strong backlog of $5.2bn(1) that provides for great earnings visibility
Notes: (1) Backlog is an estimate and may change over time depending on certain factors
Offshore Services & Design
Integrated service offering with differentiation through
technology/engineering capability
6
Industry moving towards preference for integrated service offering
KCAD has long term track record of manufacturing/designing rigs/platforms and then operating them on long term contracts
Multiple touch points with clients through early engagement
Bentec designs premium, high horsepower rigs in demand by customers
Successful exit from MODUs
Integrated Land Drilling
Land Drilling Bentec Offshore Services Rig Design Services (RDS)
• A leading international
premium drilling rig owner
and operator
• Design and manufacture of
high-end premium land rigs and
components
• A leading global platform drilling
service operator outside North
America
• Rig design engineering from
concept to commission
• Operations: Russia, Africa,
Middle East, Asia and Europe
• Facilities: Germany, Russia,
Oman
• Operations: UK North Sea,
Norway, Azerbaijan, Russia,
Canada and Angola
• Offices: Aberdeen, Baku,
Bergen, Houston, London, St.
Johns
Design &
Manufacture Own & Operate
• Rigs: Operate high end
fleet of 54 drilling rigs(1)
• Nearly 90% of new rigs
since 2005 have been
built by Bentec
• Facilities: Capacity for
10-15 rigs and 55 top
drives p.a.
• Staff: c.2,500 managing
drilling operations on 32
platforms and 2 jack-ups
• Approx. 67% of
platforms designed or
refurbished by RDS
• Staff: c.200 engineers
and support staff
Design &
Engineering Manage
Note: (1) KCAD owns 49 drilling rigs and 1 workover rig and manages an additional 4 rigs
1
Resilient business model through diversification and
strategic focus on low cost basins/projects
7
KCAD operates in low breakeven oil price environments
International vs. North American drilling markets
International markets North America
Commodity price • Less dependency on commodity prices • High dependency on commodity prices
• Gas heavy market with depressed/volatile Henry Hub
prices
Volatility • Low operating cost base
• Rig count largely inelastic to price downturns
• High operating cost base
• High sensitivity to price downturns
Supply growth
drivers
• Supply critical to national economy and often driven by
NOCs
• Supply of less significance to government revenue
Contract duration • Customers willing to ensure rig availability through long
term contracts
• Contract durations and terms more favourable to
customers
15
32
41 42 42 43
48
55
56
0
10
20
30
40
50
60
70
80
Source Rystad Energy (May-16)
KCAD core markets
0 10 20 30 40 50 60 70 80 90 100
Onshore Middle East
Shelf
Russia
Onshore
Row
Onshore
Deepwater
Extra
Heavy Oil
Ultra
Deepwater
North
American
Shale
Weighted Average Breakeven Oil Price
($/bbl)
Cumulative Liquids Production in 2020 (MMbpd)
Oil Sands
Current Brent price
2
Global platform with market leading positions
8
Houston
Baku
London Bad
Bentheim
Tyumen
Nizwa
St.
Johns Bergen
Dubai
Land Drilling Offshore Services RDS offices Bentec Regional offices
Aberdeen (HQ)
PRESENCE IN KEY AREAS
North Sea
/Norway
21 Plat.
Europe &
Caspian
8 Rigs
Caspian
7 Plat.
Russia
16 Rigs
Middle
East
17 Rigs
Angola
2 Plat.
Africa
11 Rigs
Russia
Sakhalin
3 Plat.
Brunei
1 Rig
129
58 53 43
18
0
30
60
90
120
150
Europe North Africa Middle East North Sea Russia
Years
LTM Q2 2017 EBITDA split by region
Canada
1 Plat.
Map excludes 1 workover land rig in Nigeria, defined as being below 900HP
Map shows position at 1 August 2017
3
Strong backlog of $5.2bn that provides for great earnings
visibility
9
Total contract backlog(1) as at 1 August 2017
Contract backlog by BU as at 1 Aug 2017
Notes: (1) Backlog is an estimate and may change over time depending on certain factors; Backlog reflects business that is considered to be firm,
this calculation is based on assumptions deemed appropriate at the time and is subject to change. Backlog is not necessarily indicative of our future
revenue or earnings. KCAD backlog amounts are our estimates as of 1 August 2017. Backlog figures exclude revenue generated in the year to date
4
Historical and forecast Land utilisation
Contract Platform
Client Country Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 end date status #
Exxon Canada M ar-46 Operating 1
Stato il Norway M ay-36 Under Construction 2
Exxon Angola Apr-27 Stacked 2
AIOC Azerbaijan Dec-24 Operating 7
Nexen UK Feb-23 Operating 1
Stato il Norway Oct-22 Operating / Stacked 6/1
Stato il Norway Oct-22 Active mgmt. contract
Stato il Norway Oct-22 Operating 1
CNR UK Nov-21 Operating / Stacked 1 /3
SEIC Russia M ay-21 Operating 3
Total UK Dec-20 Stacked 1
Total UK Dec-20 Stacked 1
Enquest UK M ay-20 Operating / Stacked 1/1
Exxon Norway Dec-17 Stacked 1
COP UK Oct-17 Stacked 1
2017 2018 2019
Offshore Services order book overview
High quality, NOC/IOC customer base with interdivisional
cross selling
10
Diversified blue chip customer base
NOC/IOC’s typically better capitalized, able to spend through cycle
Track record of repeat business and sales across divisions
Key customers by division
Source: Company information
(1) Top 5 customer revenue breakdown by type with “Others” including the remaining customers of KCAD (irrespective of type)
(2) 2016 revenue breakdown by type for KCAD’s top 50 customers, representing c.96% of total revenue
Integrated
Land Drilling
Offshore Drilling
Services &
Design
5
Customer diversification
2016 revenue(1)
Customer breakdown by type(2)
NOC 1 20%
IOC 1 15%
NOC 2 6%
IOC 2 6%
NOC 3 7%
Others 45%
NOC 49%
IOC 32%
Independent 11%
Others 8%
c.37% of revenue
Premium asset base with disciplined growth strategy
11
Capital expenditures ($mm)
Approximately $1bn capex invested in 2011-2017
Premium fleet vs. global peers (high HP, 96% topdrives(3))
Offshore Services, Bentec and RDS are asset light
Limited future capex commitments
2,000-3,000 HP
Below 1,000 HP
1,000-1,500 HP
68 75 65 72 62 53 17
60 51
12
126 111
50
186
68
253 237
127
264
133
58
17
0
50
100
150
200
250
300
2011 2012 2013 2014 2015 2016 2017YTD
Maintenance capex MODUs SPS spend Growth capex
% of fleet ≥2,000 HP – KCAD vs. listed peers
42%
18% 16%
11%
7% 5%
3%
KCAD Nabors Helmerich & Payne
Weatherford Ensign Patterson-UTI PrecisionDrilling
Source: Company information, Douglas Westwood
(1) 2016 excludes $50mm of maintenance capex driven by an intercompany rig sale
(2) 2017 excludes $25mm of growth capex driven by an intercompany rig purchase
(3) % fleet (>900HP) fitted with top drives
24 new rigs added since 2007
(1)
4%
14%
40%
35%
7%
KCAD fleet by horse power range
KCAD fleet by year of manufacture/major upgrade
2010-2016
4%
29% 67%
2000-2004
2005-2009
1,500-2,000 HP
>3,000 HP
6
(2)
12
• Current consortium of investors acquired KCA Deutag in March
2011
• Shareholders have demonstrated continued support to KCAD
growth and success, more than $700mm total cash investment
to date to support the business and fund growth capex
• Experienced management with proven financial and
operational record and who have made personal equity
investments in the business
• Successfully led three most recent refinancings and executed
cost optimisation program improving business’
profitability in the downturn
42.3%
22.3%
22.0%
8.3%
5.1%
Others
Supportive shareholder base Senior management
Name, Title Biography
Norrie McKay
CEO
• 35+ years in the Oil & Gas industry
• Joined KCAD in 2011 as Executive Chairman, CEO in
May 2012
• With Schlumberger / Smith International for 26 years
internationally
Neil Gilchrist
CFO
• 20+ years of international finance experience with
LyondellBasell
• Joined KCAD as CFO in January 2013
• Graduated with degree in Accountancy and Economics
• Qualified as Chartered Accountant with PwC
Name Title Division Experience
Simon Drew President Land Drilling 20 years
Rune Lorentzen President Offshore 37 years
Dirk Schulze CEO Bentec 20 years
Comments
7 Proven management team, supported by committed
shareholders
13
• Industry leading safety standards and low non-productive time
provides “licence to operate”
• Sustained outperformance versus International Association of
Drilling Contractors (IADC)(1) averages and peer group
• Maintaining high safety and operational standards is a key priority
for the business
• Trusted reputation positions KCAD for future demand from NOC
and IOC customers
– KCAD was awarded "The Best Drilling Contractor" award at
the 5th Annual Russian Drilling Roundtable (RDCR) in 2017
– KCAD won both "Best Safety Performance Platforms" and
the "Chairman's Award for Best Safety Performance for a
Platform Drilling Unit“ at the IADC North Sea Chapter Annual
Safety Awards
TRIR(2) at Q2 2017
0.23, significantly
lower than
industry average
IADC industry
average(3) 0.45 for
2016
TRIR per 200,000 Man Hours
Operational excellence Total Recordable Incident Rate Improvement
(1) IADC stands for International Association of Drilling Contractors.
(2) Total Recordable Incident Rate per 200,000 man hours. This is a rolling 12 month average
(3) KCAD Total Recordable Incident Rate is directly comparable with IADC’s Total Recordables (RCRD) statistic
129 year operating history
8 Strong industry reputation and track record of safe,
reliable and efficient operations
www.kcadeutag.com
Business and Financial
Update
14
2
LTM Q2 2017 Business Unit Performance
15 (1) LTM revenue excludes $70.3m and $0.8m for LTM Q2 2016 and LTM Q2 2017 respectively, relating to the MODUs business, which was fully
divested in 2016
(2) LTM EBITDA excludes $25.6m and $0.9m for LTM Q2 2016 and LTM Q2 2017 respectively, relating to the MODUs business
(3) LTM margins based on revenue and EBITDA excluding the MODUs business unit noted above
(1) (2)
(3)
KCAD’s resilience has been proven through the downturn
16
Revenue YoY % change EBITDA margin YoY absolute
change EBITDA YoY % change
$263mm $622mm $140mm(3) $477mm $172mm(3) $212mm $31mm
84%
36% 34% 29% 28% 21% 12% 10%
KCAD Nabors Ensign Helmerich & Payne Precision Patterson-UTI Parker Drilling Weatherford
2016 as % of 2014 EBITDA(1)
(21%
)
(26%
)
(33%
)
(34%
)
(37%
)
(40%
)
(41%
)
(43%
)
(25%
)
(38%
)
(39%
)
(39%
)
(40%
)
(42%
)
(42%
)
(52%
)
(8%
)
(36%
)
(38%
)
(39%
)
(41%
)
(42%
)
(42%
)
(68%
)
(9%
)
(44%
)
(45%
)
(52%
)
(53%
)
(64%
)
(69%
)
(79%
)
3%
2%
1%
(1%
)
(3%
)
(4%
)
(6%
)
(8%
)
4%
(1%
)
(2%
)
(4%
)
(6%
)
(8%
)
(8%
)
(14%
)
2015 2016 2015 2016 2015 2016
Peer average: 24%
(2)
$248mm
2016 EBITDA ($US)
Source: Company filings; Notes: (1) Nabors: Adjusted EBITDA as reported in 2016 Q4 press release; Ensign: Adjusted EBITDA as reported in 2016 Q4 press release; Helmerich
& Payne: EBITDA not reported, calendarized value calculated as December 2016 10Q revenues ($386.6mm) less operating costs ($247.7mm) less R&D ($2.8mm) less G&A
($34.3mm) + September 2016 10K revenues ($1,624.2mm) less operating costs ($898.8mm) less R&D ($10.3mm) less G&A ($146.2mm) – December 2015 10Q revenues
($487.8mm) less operating costs ($276.6mm) less R&D ($2.9mm) less G&A ($32.1mm); Precision: Adjusted EBITDA as reported in 2016 Q4 press release; Patterson-UTI:
Adjusted EBITDA as reported in 2016 10K; Parker Drilling: Adjusted EBITDA as reported in 2016 Q4 press release; Weatherford: EBITDA not reported, value calculated from
2016 10K as revenues ($5,749.0mm) less cost of products ($2,143.0mm) less cost of services ($3,046.0mm) less R&D ($159.0mm) less SG&A ($970.0mm) less corporate G&A
($139.0mm) plus D&A ($956.0mm); Operating expenses used in the above calculations do not include depreciation and amortisation expenses; (2) KCAD 2016 revenues and
EBITDA of $1,252mm and $263mm, respectively. Note as per our stated strategy we have sold our sub-scale MODUs business which contributed $29mm of revenues and
$17mm of EBITDA in 2016; (3) Ensign and Precision 2016 EBITDA converted to US$ at the 2016 average USD/CAD exchange rate of 1.3253
Capital Structure Net leverage as at 30 June 2017
17
Utilisation
30th June 2017 Coupon Maturity
Facility
Rating(3)
Recovery
Rating(3) Net Leverage(1)
Revolver ($275m)(2) 2.0 L+400 Mar-22 Caa1/CCC+ 3/3 0.00x
Senior Secured Term Loan 360.6 L(100)+575 May-20 Caa1/CCC+ 3/3 1.49x
HSBC Oman Term Loan 56.0 L+400 Dec-20 0.23x
Total Bank Debt 418.6 1.73x
UK Finance Senior Secured Notes 375.0 7.250% May-21 Caa1/CCC+ 3/3 1.55x
UK Finance Senior Secured Notes 535.0 9.875% Apr-22 Caa1/CCC+ 3/3 2.21x
Total Institutional Debt 1,328.6 5.49x
Finance lease & other debt 4.4 - Aug-18 - - 0.02x
Gross Debt 1,333.0 5.50x
Cash 75.5 0.31x
Net Debt 1,257.5 5.19x
(1) Q2 2017 LTM EBITDA of $242m includes the $25m Holdco equity contribution as defined in the Amended Credit Agreement (2) Revolver is split $75/$200m non cash/cash, the amount shown represents the cash element utilised (3) Facility and Recovery ratings shown as at June 2017
18
KCAD is well positioned to take advantage of
improving market conditions
Strategic focus on low cost basins/production drilling 1
High barriers to entry through operational capability and global footprint 2
Leverage existing long-term NOC/IOC customer relationships 3
Economies of scale from streamlined cost base 4
In demand integrated service offering with differentiated technology /rig designs
5
6
Significant capacity to grow with limited capex required
