Goldman Sachs Global Energy Conference

Goldman Sachs
Global Energy Conference
January 2015
1
Forward-Looking Statements
Statements contained in this press release 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 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. 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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Current Market
Active
Fleet
Newbuilds
Floaters
Jackups
Contracted
245
340
Uncontracted
33
52
Stacked
12
11
Total
290
403
% Contracted
84%
84%
Under Construction
51
104
On Order / Planned
36
22
Total
87
126
Contracted
57%
10%
Uncontracted
43%
90%
Source: IHS-ODS Petrodata as of December 2014; competitive marketed floaters and jackups; jackups are independent leg cantilever rigs
3
Current Jackup Market
• Demand from diverse customer base across multiple regions
• Some customers reevaluating certain programs in light of the
decline in commodity prices
• New five-year lows for oil and increased commodity price volatility
• Shallow water drilling is profitable at lower commodity price levels
and customer activity remains higher for jackups vs. floaters
• New technology facilitates drilling more complex wells
economically
• Must be cognizant of new supply
– Zero contracted by non-established drillers thus far
• Aging of current global fleet should lead to more retirements,
especially as rigs approach 30/35 year surveys
4
Newbuild Jackup Order Book
126 Total
10%
12
Contracted,
Established
Drillers
36%
46
Uncontracted,
Established
Drillers
68
Uncontracted,
Non-Established
Drillers
Source: IHS-ODS Petrodata as of December 2014; marketed competitive jackups
54%
5
Jackup Supply
41% CAGR
77
115
58
164
2% CAGR
345
383
399
365
Dec. 2014
Dec. 2015
Dec. 2016
Dec. 2017
< 35 years old
>= 35 years old
Source: IHS-ODS Petrodata as of December 2014; marketed competitive independent leg cantilever jackups
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Current Floater Market
•
Pressure on customers to tighten capex spending as returns on capital
and commodity prices have declined
•
Less visibility as some customers postpone 2015 budgeting decisions
•
Production levels of Majors as a group below 2010 levels
•
Brazil
– 2 active Petrobras tenders
o 2,400m tender and 2,000m tender
– market undersupplied in ultra-deepwater / tender activity has increased
– more customers entering market following lease purchases, e.g. BG and Total
– new rig supply from Brazil has repeatedly been delayed
– Petrobras committed to contracting on the international market to address any
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shortfall
Current Floater Market
• Rest of World
– pull back in contracting, especially IOCs
– positive mid- to long-term growth outlook based on expectation of growing
energy demand
– expanding / emerging markets
o West Africa, East Africa and Mexico
• Scrapping / cold stacking accelerating
− reduce operating costs
− avoid costly 30/35 year survey capex
8
Newbuild Floater Order Book
87 Total
57%
50
Contracted
37
Uncontracted
Source: IHS-ODS Petrodata as of December 2014; marketed competitive floaters
43%
9
Floater Supply
56
52
8% CAGR
52
238
Dec. 2014
66
271
287
297
Dec. 2015
Dec. 2016
Dec. 2017
< 35 years old
>= 35 years old
Source: IHS-ODS Petrodata as of December 2014; marketed competitive floaters
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Ensco’s Proactive Fleet Management
2Q14
• Moved five floaters to held for sale to proactively reduce expenses
• $1.5 billion impairment charge
• Streamlined discretionary capex in light of market conditions
• “Some of our competitors have rigs in the 35-year plus age group
in much higher numbers. If they, too, conclude that reducing
operating costs is the best option, then we could see more
floaters come out of the system.”
3Q14
• Sold four jackups for more than $200 million
– 16 jackups sold since 2010
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2H14 Competitor Actions
Transocean
• $2.6 billion in goodwill & asset impairment charges (3Q14)
• “We intend to scrap certain cold stacked rigs, recognizing their
limited potential to re-enter the market. The Company will continue
to assess the competitiveness of non-core assets on a case by
case basis and we are likely to retire additional rigs.” (3Q14)
• Scrapping an additional seven low-spec deepwater and
midwater floaters – $100+ million impairment (4Q14)
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2H14 Competitor Actions
Diamond
• Scrapping six floaters – $100 million impairment (3Q14)
• “As we progress through 2015, we expect to see more low-end
mid-water units retired across our industry. (3Q14)
Paragon
• $900 million impairment for four floaters (3Q14)
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Ensco is Well Positioned
• Fleet highgrading
– 7 newbuild rigs under construction with differentiated designs
– major upgrade investments last three years will benefit 2015 and beyond
– mooring capability to be added to ENSCO 8500 Series® rigs
– 5 floaters held-for-sale in 2Q14; 18 rigs sold since beginning of 2010
• Efficiency / rig uptime
– 96% operational utilization in 3Q14
– vendor quality management
– training and education
• Expense management discipline
– leading net income margins among major competitors
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Ensco is Well Positioned
• Capex discipline
– total capex peaks in 2015 driven by newbuilds; drops by more than half in
2016
– upgrade capex to decline sharply in 2015
– drillship option not exercised
• Global presence / diverse customer base
– operations across six continents
– extensive customer relationships: NOCs, Majors, IOCs
• 2015 results to benefit from newbuilds and prior upgrades
– full year impact of three ENSCO 120 Series jackups & two upgraded semis
– partial year impact of two new drillships & one upgraded semi
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Highgrading Actions
• Fleetwide review in light of challenging floater market conditions
• Five floaters reclassified as held-for-sale / cold stacked
– proactively reduce expenses and redeploy capital
– mostly older, midwater floaters
• 10 year average age for go-forward floater fleet
• Five year average age for ultra-deepwater fleet
• Seven jackups sold year to date for $70 million gain
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Organic Growth:
Newbuild Contracts/Deliveries
2012.75
2013.75
2016.75
2017.75
2018
20192018.75
2014 2014.75
2015 2015.75
2020 2019.75
2016
2017
2013
ENSCO DS-7
3 yrs with Total
ENSCO 120
1.7 yrs with Nexen
ENSCO 121
2 yrs w/ Wintershall
ENSCO 122
2 yrs with NAM
Contracted
ENSCO DS-8
5 yrs with Total
ENSCO DS-9
3 yrs with ConocoPhillips
ENSCO 110
ENSCO DS-10
ENSCO 123
ENSCO 140
ENSCO 141
Drillships
Premium jackups
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High Quality Fleet
66 Rig Fleet
10
ULTRA & DEEP
WATER DRILLSHIPS
11
DYNAMICALLY POSITIONED
SEMISUBMERSIBLES
3
MOORED
SEMISUBMERSIBLES
42
PREMIUM
JACKUPS
Note: Includes rigs under construction or on order and excludes rigs in discontinued operations
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Global Platform
Europe & Mediterranean
U.S. Gulf of Mexico
Ships
3
Semis
6
Jackups
8
Ships
1
Semi
1
Jackups
11
Middle East
Jackups
10
Africa
Ships
3
Jackups
1
Brazil
Semis
Asia Pacific
4
Under Construction
Ships
3
Jackups
4
Semi
3
Jackups
8
Held for Sale
Semis
5
19
Backlog Diversification
31%
31%
Semis
Premium
Jackups
Drillships
29%
National
Oil
Independents
Companies
Majors
12%
Asia
Pacific
38%
28%
15% Europe &
Med
43%
North &
South
America
24%
Brazil
25%
Note: Backlog as of 30 September 2014
14%
Africa
Middle
East
10%
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Uptime = Customer Satisfaction = Net Inc. Margin
29%
Net Income Margin
22%
20%
18%
18%
14%
ESV
SDRL
DO
NE
RIG
RDC
Source: Thomson One; sum of trailing eight quarters of net income divided by sum of trailing eight quarters of revenue
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Safety, Health & Environment
Total Recordable
Incident Rate
• Leading-edge safety
management systems
• Major competitive
advantage; especially
versus non-established
drillers
1.2
1.0
0.8
0.6
0.4
0.2
0.0
2008 2009 2010 2011 2012 2013 YTD
2014
Ensco
Note: 2014 TRIR for Industry is as of 3Q14
Industry
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Strong Financial Position
• $11 billion of contracted revenue backlog
• Baa1/BBB+ ratings from Moody’s/S&P
Leverage Ratios
56%
41%
SDRL
RIG
37%
NE
35%
RDC
33%
DO
33%
ESV
Source: Bloomberg; total debt-to-total capital ratios as of 30 September 2014 financial filings
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Dividend Growth
$3.00
$2.00
$1.50
$1.40
$0.10
Nov. 2009
Apr. 2010
Feb. 2012
Feb. 2013
Nov. 2013
Note: Dividend announcement date; dividend per share annualized
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Payout Ratios
116%
111%
70%
58%
11%
RIG
DO
NE
ESV
RDC
Source: Thomson Reuters; most recent declared quarterly dividend annualized divided by 2015 earnings per share mean estimate for dividendpaying offshore drillers
25
Contracted Revenue Backlog
$ billions
$3.9
$2.9
$1.6
$1.2
4Q14
2015
Note: Backlog as of 30 September 2014
2016
2017
$1.3
2018+
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Capital Expenditures
$ billions
~$2.0B
Note: Final rig enhancement and sustaining
project capital expenditure budgets for 2015 –
2017 TBD once budgets are completed
1.60
$0.4B
0.085
0.140
0.175
4Q14
0.40
2015
Newbuild construction
2016
Rig enhancements
2017
Sustaining
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Debt Maturity Profile
$2,400
$2,100
$1,800
$1,500
$1,500
$1,200
Raised $1.25B in September 2014
$1,020
$905
$900
$505
$600
$625
$300
$300
$0
$625
$150
$47
$5
$5
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Note: As of October 31, 2014
2027
2040
2044
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Capital Management Recap
•
Proactive highgrading continues
– investments in newbuilds/upgrades support future cash flows
o capex peaks in 2015; then drops off sharply
– proceeds from rig sales re-invested in new assets
•
Attractive dividend
– $11 billion of contracted revenue backlog
– strong balance sheet
– enhanced liquidity
o $1.25 billion debt raise in 3Q14 ($1.4 billion of cash as of 9/30/14)
o Revolving credit facility increased to $2.25 billion
– customer, geographic & fleet diversification
– subject to Board approval incorporating long-term market outlook
•
Flexibility regarding use of future free cash flows enhanced by share
repurchase authorization
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Ensco’s Strengths
• Leader in customer satisfaction – four consecutive years
• High quality fleet of floaters and jackups
• Technology advantages, e.g. ENSCO 120 Series jackups and
Samsung GF 12,000 drillships
• Highest net income margins among major competitors
• Strongest balance sheet in peer group
• $11 billion of contracted revenue backlog; record jackup backlog
• Attractive dividend yield
30
Summary
•
Current market conditions more challenging as commodity prices have
declined
– customer activity higher for jackups
– less visibility as customers postpone 2015 budgeting decisions
•
Mid- to long-term outlook remains positive with expectations of growing
energy demand
•
Ensco is well positioned – use strengths and experience to navigate
market conditions
•
Well diversified – customers, geography and fleet
•
Newbuild program and prior upgrades support organic growth
•
Leverage global footprint to expand customer base & enter new markets
•
Disciplined capital management
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