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Drilling industry downturn - challenges from a Contractor's perspective
IUMI Conference Genoa, 20 September 2016
Svein Bergstad, Vice President Risk & Insurance
Forward Looking Statements
2
This presentation includes forward looking statements. Such statements are generally not historical in nature, and specifically include statements about the
Company’s plans, strategies, business prospects, changes and trends in its business and the markets in which it operates. These statements are made
based upon management’s current plans, expectations, assumptions and beliefs concerning future events impacting the Company and therefore involve a
number of risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed or implied in the forward-looking
statements, which speak only as of the date of this news release. Important factors that could cause actual results to differ materially from those in the
forward-looking statements include, but are not limited to offshore drilling market conditions including supply and demand, day rates, customer drilling
programs and effects of new rigs on the market, contract awards and rig mobilizations, contract backlog, dry-docking and other costs of maintenance of the
drilling rigs in the Company’s fleet, the cost and timing of shipyard and other capital projects, the performance of the dri lling rigs in the Company’s fleet,
delay in payment or disputes with customers, our ability to successfully employ our drilling units, procure or have access to financing, ability to comply with
loan covenants, liquidity and adequacy of cash flow from operations, fluctuations in the international price of oil, international financial market conditions
changes in governmental regulations that affect the Company or the operations of the Company’s fleet, increased competition in the offshore drilling
industry, and general economic, political and business conditions globally. Consequently, no forward-looking statement can be guaranteed. When
considering these forward-looking statements, you should keep in mind the risks described from time to time in the Company’s fil ings with the SEC,
including its Annual Report on Form 20-F. The Company undertakes no obligation to update any forward looking statements to reflect events or
circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time,
and it is not possible for us to predict all of these factors. Further, the Company cannot assess the impact of each such factors on its business or the extent
to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward looking statement.
Agenda
3
Seadrill Overview
Oil Market Fundamentals
Seadrill Focus Areas
Stacking of rigs
4
Seadrill at a glance
6,500 employees operating in over 18 countries
38 rigs in operation: 19 floaters and 19 jack-ups (11 idle units)
2015 Revenue: $4.3 billion
2015 EBITDA: $2.4 billion
Seadrill Limited (includes NADL, Sevan and AOD)
Seadrill Group (Seadrill Limited, SDLP and Seamex)
54 rigs in operation: 27 floaters, 24 jack-ups and 3 tender rigs
(13 idle units)
2015 Revenue: $6.3 billion
2015 EBITDA: $3.6 billion
0
10
20
30
40
50
Ensco COSL Paragon Rowan Seadrill Noble MaerskDrilling
Transocean DiamondOffshore
Atwood VantageDrilling
Nu
mb
er
of
Un
its
Jack-up Units
0
10
20
30
40
50
60
Transocean Seadrill DiamondOffshore
Ensco Noble Ocean Rig COSL MaerskDrilling
PacificDrilling
Atwood VantageDrilling
Nu
mb
er
of
Un
its
Floater Units
5
One of the largest Offshore Drillers…
Second largest floater and fifth largest jack-up fleet
SDLP
SMX
6
…with a Modern Fleet…
Youngest fleet among major drillers
0 5 10 15 20 25 30 35 40
ParagonDiamond Offshore
EnscoRowanCOSLNoble
TransoceanMaersk Drilling
Vantage DrillingSeadrill
SeamexAtwood
Average Jack-up Age
0 5 10 15 20 25 30 35 40
Diamond OffshoreCOSL
TransoceanEnscoNoble
AtwoodSeadrill
Ocean RigSeadrill Partners
Maersk DrillingPacific Drilling
Vantage Drilling
Average Floater Age
Vantage
Maersk
Noble
Ensco
Atwood
Transocean
COSL
Rowan
Paragon Offshore
Seamex
Diamond Offshore
0%
20%
40%
60%
80%
100%
120%
0 5 10 15 20 25 30 35 40 45
% >
35
0ft
. D
ep
th
Average Age of Jack-ups
Ocean Rig Pacific
Noble
Ensco
Vantage
Maersk
Atwood Transocean
Diamond Offshore
COSL
0%
20%
40%
60%
80%
100%
120%
0 5 10 15 20 25 30 35
% U
ltra
-De
ep
wa
ter
Average Age of Floaters
7
…and Exposure to Premium Segments
Note: Size of bubble
indicates number of
units
Agenda
8
Seadrill Overview
Oil Market Fundamentals
Seadrill Focus Areas
Stacking of rigs
Challenging times for Seadrill and the industry
9
• Difficult O&G macro-environment,
particularly upstream
• Oil price now at $49 per barrel,
down 57% from peak of $114 in
2014
• E&P spend down 23% in 2015
versus previous year; another 15%
cut forecast for 2016
• Continuing pressure on drilling sector
• Operators asking to re-negotiate
contracts and reduce day rates
• Rig over-supply
• Little tendering activity
80,2 80,9 81,7 82,6 83,3 84,2
2015 2016 2017 2018 2019 2020
10
Oil demand growth projection
Base case demand forecast (mbbl/d)
2020 2016 2015 2017 2019 2018
+ 4
Oil demand expected to increase
Source: Morgan Stanley Research
Supply cost curve
11
Source Evercore ISI Energy Research
1. Offshore barrels are required to meet demand
2. The marginal cost of extraction suggests prices must rise
3. Offshore is competitive and sustainable
Weighted Average breakeven
2020 Production
Cost Curve
Onshore Middle East
Offshore Shelf
Onshore Russia
Extra Heavy Oil
Onshore Row
Deepwater
NAM Shale
Oil Sands
13
32 36
42 46
54
36
50
Arctic
Ultra Deepwater
12
Source Rystad Energy, Morgan Stanley Research estimates
Offshore is a Critical Source of Future Supply
Existing production Gross additions
Nam Onshore
Deepwater
RoW Onshore
Nam Onshore
Deepwater
RoW Onshore
Ne
w P
roje
cts
(8.9
MM
bd
)
Infill D
rilling
(16
.7M
Mb
pd
)
Shallow Water
Shallow Water
Global Liquid Production (mbbl/d)
Offshore will drive future supply growth
Agenda
13
Seadrill Overview
Oil Market Fundamentals
Seadrill Focus Areas
Stacking of rigs
Safe and efficient operations
14
Hurts Trend – 2014, 2015, 2016 YTD
Economic utilization – 2014, 2015, 2016 YTD
…much lower today
+8 pts
2016 YTD 2015 2014
15
Uptime is the single biggest contributor to EBITDA
Each 1% increase in TU on our fleet =
$ 4 million in revenues and EBITDA
every month or $50 million a year
• Delivering safe and efficient operations consistently is the
most important thing we can do for our EBITDA
• Best way to help the business
• Continue the positive trend in HSE and ensure no one
gets hurt
• Minimize downtime and boost economic productivity
of our rigs
Cost savings & cost competitiveness
16
Headcount reductions of 25% in 2015
2014 savings: $250 million
2015 savings: $830 million
2016 estimate: $390 million
Seeing the impact of our cost savings program
Improvement in cost basis
17
-26%
Long-term 2014
???
2016 YTD Q2 2015
OPEX per rig per day including overhead ($’000)
Floaters
2014 2016 YTD Q2 2015
-25%
???
Long-term
Jack-ups
18
• Customer discussions have become more and more
difficult
• Demands to re-negotiate contracts and simply cut day rates
are increasing
• Some oil companies are willing to terminate high dayrate
contracts and pay penalties, because they:
(a) have no work, or
(b) can sign up a another rig and still pay less overall
Customers and backlog
Working to protect our backlog, but difficult discussions continue
As the downturn continues, customer discussions have become more and more difficult
• Demand to re-negotiate contracts and cut day rates
• Supply far exceeds demand
• “Blend and extend”
• “Traditional” drilling contracts being challenged and “new” solutions being introduced
Contract backlog under pressure
19
Shift in liability regime?
Consequences?
Little tendering activity, but…
20
Managing deliveries effectively
21
Completed newbuild deferrals and cancellations
West Mira cancelled
West Rigel joint venture
Sevan Developer agreement
8 JU-2000s
Ongoing discussions
2 Samsung & 2 DSME units
Agenda
22
Seadrill Overview
Oil Market Fundamentals
Seadrill Focus Areas
Stacking of rigs
Stacking – curse or provident?
23 Photo::MatthewsDaniel
Laying up rigs
24
Floaters Jack-ups
27 24
Warm Stacked:
• West Venture
•
•
•
•
•
•
•
Cold Stacked:
• West Sirius
• West Eminence
• West Taurus
Warm Stacked:
• West Leda
• West Resolute
• West Triton
• West Telesto
• West Prospero
Things to consider when you stack rigs
25
When – Where – How ?
Photo: MatthewsDaniel
Cluster stacking
26
27
Roles & responsibilities stacking
28
•
•
•
•
Transit preparation Transit to stacking location
Preservation preparation
Vessel preservation
Idle/stacked period
Reactivation preparation
Vessel reactivation
Re-mobilization
Operating Region
Operating Region
Operating Region Corporate Corporate & Operating Region Operating
Region
Cold stacking
Warm stacking
Delivering on these four priorities will help us through
the challenges of 2016/17
1 Safe and
efficient
operations
2 Savings and
cost
competitiveness
3 Re-financing
plan
4 Customers and
backlog
29
A stronger set up for long-term success
West Atlas, 1 November 2009
30
What can insurers do?
“WHATEVER IT TAKES”
31