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www.kcadeutag.com
KCA Deutag is a leading international drilling and engineering
company working onshore and offshore with a focus on safety,
quality and operational performance
Third Quarter 2014
Investor Presentation
Disclaimer
1
The distribution of this presentation in certain jurisdictions may be restricted by law. Persons into whose possession this presentation comes are required to inform themselves about and to observe any such restrictions.
This presentation contains forward-looking statements concerning KCA Deutag. These forward-looking statements are based on management’s current expectations, estimates and projections. They are subject to a number of assumptions and involve known and unknown risks, uncertainties and other factors that may cause actual results and developments to differ materially from any future results and developments expressed or implied by such forward-looking statements. KCA DEUTAG has no obligation to periodically update or release any revisions to the forward-looking statements contained in this presentation to reflect events or circumstances after the date of this presentation.
2
Agenda
1 Key Highlights
2 Commercial Developments
3 Business Overview
4 Group Results
5 Summary
Q3 Key highlights
KCA Deutag is a leading international drilling and engineering company working onshore and offshore with a focus on safety, quality and operational performance
1Group revenue and EBITDA of $520.0m (Q3 2013: $537.7m) and $73.5m (Q3 2013: $73.7m) respectively, driving improved YTD EBITDA of $243.3m (YTD EBITDA Q3 2013: $192.5m)
2 LTM EBITDA of $352m, a 30% year over year improvement
3 Major contract win for our land business
4Contract backlog of $8.8bn (as at 1 October 2014) across a blue chip customer base
5Significant year-on-year reduction in Net debt/LTM EBITDA leverage – from 4.75x at Q3 2013 to 3.6x by Q3 2014
3
Integrated Land Drilling Offshore Drilling Services & Design
$191m LTM EBITDA (54% of total)¹ $159m LTM EBITDA (46% of total)¹
Land Drilling Bentec Platform Services Rig Design Services (RDS)
• Leading international premium drilling rig owner and operator
• Design and manufacture of high-end premium land rigs and components
• Leading global platform service operator outside North America
• Rig design engineering from concept to commission
• Operations: Russia, Africa, Middle East, Europe and SE Asia
• Facilities: Germany, Russia, Oman
• Operations: UK North Sea, Norway, Azerbaijan, Russia, SE Asia and Africa
• Offices: Aberdeen, Baku, Bergen, Houston, London
Market-leading international drilling & engineering company
4
Design &
Engineering
Design &
ManufactureOwn & OperateOwn & Operate ManageManage
• Rigs: High end fleet of 53 drilling rigs, 4 workover rigs
• 94% of new rigs since 2007 have been built by Bentec
• Facilities: Capacity for 12-16 rigs and 50 top drives p.a.
• Staff: c.3,100 managing drilling operations on 40 platforms
• Approx. 60% ofplatforms designed or refurbished by RDS
• Staff: c.780 engineers and support staff
¹ LTM EBITDA pre-exceptional items, excluding MODUs and after reallocation of support costs previously shown as central overheads. EBITDA by segment for 2013 has been re-presented to reallocate support costs which were previously shown as central overheads (such as HR, Supply Chain and IT costs) to the operational business segments. 2014 figures are presented on the same basis.
5
Lukoil T-506: the perfect spud
• Contract awarded for one new build, 320T 1,500HP cluster-slider rig to operate on the Yuzhno-Lyzhskoefield within the Komi Republic of Russia
• This rig was secured on a 3 year USD day rate contract with 2x1 year extensions
• The contract was received at the end of 2013 and the rig was built in Bentec’s Tyumen facility in Russia with some key components provided from Germany
• The build was completed on budget by the end of August and it was mobilised to location during September
• The Land Drilling team successfully spudded the rig on location on 1 October 2014: the first of a 10 day window allowed by our contract
The success of this project demonstrates the excellent integration between the Bentec and Land Drilling
businesses driving successful and timely delivery to our client
Houston
Ben Loyaljack-up rig
Baku
London
Stavanger
Bad Bentheim
Tyumen
Nizwa
Ben Rinnesjack-up rig
St. Johns
Bergen
Dubai
Land Drilling Platform Services RDS offices MODUs BentecRegional offices
Continued strong market position and balanced portfolio of assets across highly attractive international markets
Aberdeen (HQ)
1LTM EBITDA excludes results from the Ben Avon jack-up which was disposed of in March 2013 and is stated before normalisation adjustments and excluding central overheads.Map excludes work over land rigs, defined as being below 900HP.
PRESENCE IN KEY AREAS
North Sea /Norway26 Plat.
Europe & Caspian8 Rigs
Caspian7 Plat.
Russia16 Rigs
Middle East
14 Rigs
Angola3 Plat.
Africa14 Rigs
RussiaSakhalin3 Plat.
Brunei 1 Rig
Myanmar 1 Plat.
126
55 5040
15
0
30
60
90
120
150
Europe NorthAfrica
MiddleEast
North Sea Russia
Ye
ars
LTM Q3 2014 EBITDA split by region
6
Europe24%
Russia21%
Africa18%
Caspian13%
Middle East10%
Far East7%
Other7%
0
1,500
3,000
4,500 3% CAGR 2006-18
$0 $20 $40 $60 $80 $100
Onshore Middle East
Other Conventional Oil¹
Shallow Water¹
Deepwater
EOR
US Shale Gas
Brazil Pre-Salt (Deepwater)
Coal to Liquid
Arctic Oil
US Shale Oil
Canadian Oil Sands
Breakeven Oil Price (US$/bbl)
14%21%
62%
Total WellsDeviated WellsTop Drives
KCADtarget
market
KCAD well positioned to benefit from current sector trends
7
KCAD relevanceThemes
Source: Douglas Westwood, April 2014¹ Majority of conventional and shallow water projects are commercial below $50/bbl.
Focused on
production drilling
with attractive
economics
Strong
international land
drilling environment
Increased drilling
complexity driving
demand and margins
• KCAD operates in drilling environments with low breakeven oil prices
• Operating in regions with oil revenue critical to government budgets
• Operating production platforms where the majority of capex has already been invested (opex focus)
• Rig counts steadily increased over the last 2 years
• No exposure to US market, where rig count levels are much more volatile
• High specification equipment can drill vertical and longer wells, supporting project economics by improving the recovery
• Increased reservoir and drilling complexity is driving the demand for high specification rigs, including top drive equipment
Supporting data
Forecast Growth
2014-2018
KCAD core markets
28% decline 2008-09
International Rig Count (Y-o-Y) North America Rig Count (Y-o-Y)
0
1,500
3,000
4,500
6,000 6% CAGR 2006-18
1% decline 2008-09
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
TR
IR p
er
20
0,0
00
ma
n h
ou
rs
Total recordable incident rate improvement
TRIR (average)
8
Health, safety and environmental performance
KCAD TRIR at end of Q3 2014 was 0.401 injuries per 200,000 man hours worked
IADC industry average 0.812 for 2013
1 Total Recordable Incident Rate per 200,000 man hours. This is a rolling 12 month average.2 KCAD Total Recordable Incident Rate is directly comparable with IADC’s Total Recordables (RCRD) statistic. IADC figures are annual and are not released until after year end, therefore no 2014 information is available.Note: IADC stands for International Association of Drilling Contractors.
• Sustained progress made on improving TRIR performance
• The Group reaches 0.40 TRIR for the first time
9
T-47: 7+ years without Lost Time Incident
• On 15th January 2014, the crews of Rig T-47 in Kazakhstan reached the key milestone of 7 years without a Lost Time Incident. This milestone has continued through the year to this quarter end
• This achievement is all the more impressive when taking into consideration the difficult climatic extremes (-35oC in winter and +45oC in summer).
• Lost Time Incidents can result in penalties and non-payment of day rate which in turn lower our returns on projects
• Low incident rates are a key criteria that we are measured against when tendering for new work, so continued low health and safety scores are vital to the success of our business
Significant New Contracts – RDS, Premier Oil’s Sea Lion development
10
Contract natureContract to carry out front-end engineering design (FEED) contract by AMEC for Premier Oil’s Sea Lion development in the North Falklands Basin.
Contract length & timeframes
The FEED work is part of AMEC’s overall FEED contract for the Sea Lion development and follows a concept study which was executed by an RDS team in Houston. The contract, which is expected to be carried out over the next 12 months, will see RDS deliver the design of drilling rig modules for a Tension Leg Platform (TLP), 200km north of the Falkland Islands.
Customer AMEC, on behalf of Premier Oil
“The Sea Lion field will be the first major development of oil and gas reserves in the Falklands. Due to its remote location, we need to ensure that we deliver a rig that is reliable, efficient and can be easily maintained and supported to deliver safe, effective operations. RDS and KCA Deutag have a lot of experience in designing and operating rigs in remote locations and this is a great opportunity to put that experience to good use in a new region. We look forward to continuing to work closelywith Premier Oil and AMEC as we move the Sea Lion development forward.”
Simon Drew, President of RDS
Significant New Contracts – BP Khazzan
11
Contract nature
Construction and operation of an additional two new build fast moving land rigs in Oman, to supplement the previous three rig award by the same client. The rigs will mainly be manufactured in Germany and assembled in Oman using Bentec’s Nizwa facility. The contract terms will provide equivalent economics to those of the first three rigs.
Contract length 5yrs + 2x1yr options.
Customer BP Khazzan
“KCA Deutag has been operating in Oman since 1964 and has a long track record of successful operations in the Middle East. BP Khazzan is one of our most significant contract wins to date and we are extremely proud to play a very important role in the project.”
Andy Hendry, President of Land Drilling
Disposal of the Barges
12
Nature of divestment
Divestment of the entire issued share capital of KCA Deutag Tender Barges Pte Limited (“Barges Business”) to a single buyer.
The buyer will take ownership of the Barges Business operated from Kuala Lumpur including two KCA Deutag self-erecting tender barges; the Glen Affric and the Glen Tanar, and their associated equipment.
Earlier this year, KCA Deutag sold the Glen Esk on an asset only basis to Energean.
“The sale of the Barges Business is an important step for KCA Deutag as we focus our activities on the core businesses within our portfolio.”
Norrie McKay, Chief Executive Officer of KCA Deutag
13
Healthy backlog providing high level earnings visibility for the future
Total contract backlog as at 1 August 2014
Contract backlog by BU as at 1 August 2014
$1,975m
$269m
$6,250m
$109m
$298m
Land Drilling
Bentec
Platforms
RDS
MODUs
$762 $1,115$2,223
$4,099
$6$120
$4,675
$4,801
0
2,000
4,000
6,000
8,000
10,000
2014 2015 2016 andthereafter
Total backlog$m
Contract Option
$768m $1,235m $6,898m $8,900m
NB: Backlog figures exclude revenue generated in the year to date.
Total contract backlog as at 1 October 2014
Contract backlog by BU as at 1 October 2014
$2,080m
$203m
$6,176m
$104m
$281m
Land Drilling
Bentec
Platforms
RDS
MODUs
$483$1,140
$2,346
$3,969
$4
$121
$4,750
$4,875
0
2,000
4,000
6,000
8,000
10,000
2014 2015 2016 andthereafter
Total backlog$m
Contract Option
$487m $1,261m $7,096m $8,844m
Q3 2014
Q31
2013Variance
2014 YTD
20131
YTDVariance
$m $m $m % $m $m $m %
Revenue 156.1 180.1 (24.0) (13.3)% 513.0 499.0 14.0 2.8%
EBITDA pre support costs allocation1
40.1 44.8 (4.7) (10.5)% 127.0 114.2 12.8 11.2%
Support costs allocation (3.1) (2.9) (0.2) 7.4% (8.7) (7.9) (0.8) 10.1%
EBITDA post support costs allocation1
37.0 41.9 (4.9) (11.7)% 118.3 106.3 12.0 11.3%
Margin % 23.7% 23.3% 23.1% 21.3%
14
• EBITDA growth of 11% YTD compared to the same period last year, however the business unit saw a reduction in activity levels and EBITDA compared to both Q2, 2014 and Q3, 2013. This was mainly driven by performance in Africa which has been negatively impacted by lower levels of utilisation
• Russia have continued to generate good levels of EBITDA with earnings relatively consistent compared with both Q2, 2014 and Q3, 2013 due to continued good utilisation levels
• Pakistan saw a significant improvement in performance, as a rig redeployed from Libya had a full quarter of operations
• Utilisation softened in the quarter to 74% down from 80% in the prior quarter
Financial Performance to 30 September 2014
Land Drilling
1 EBITDA by segment for 2013 has been re-presented to reallocate support costs which were previously shown as central overheads (such as HR, Supply Chain and IT costs) to the operational business segments. 2014 figures are presented on the same basis.
Q3 2014
Q31
2013Variance
2014 YTD
20131
YTDVariance
$m $m $m % $m $m $m %
Revenue 101.3 49.2 52.1 105.9% 191.3 167.9 23.4 13.9%
EBITDA pre support costs allocation1 13.5 4.9 8.6 175.5% 21.2 17.5 3.7 21.1%
Support costs allocation (0.7) (0.8) 0.1 (14.8)% (2.1) (2.2) 0.1 (5.9)%
EBITDA post support costs allocation1 12.8 4.1 8.7 212.2% 19.1 15.3 3.8 25.1%
Margin % 12.7% 8.3% 10.0% 9.1%
Bentec
15
• Bentec delivered significantly stronger results in the third quarter than both Q2, 2014 and Q3, 2013, showing 25% YTD EBITDA growth compared with 2013
• With the construction of a number of new rigs reaching an advanced stage of completion in Q3 we were to recognise significantly more revenue and EBITDA than the prior year
• The rig for the Land Drilling contract with Lukoil was delivered during Q3 and the first deliveries under the seven rig contract for Enafor will start in November
• The third quarter also saw an increased contribution from component sales which largely drove the increase in margins
Financial Performance to 30 September 2014
1 EBITDA by segment for 2013 has been re-presented to reallocate support costs which were previously shown as central overheads (such as HR, Supply Chain and IT costs) to the operational business segments. 2014 figures are presented on the same basis.
Platform Services
16
Financial Performance to 30 September 2014
1 EBITDA by segment for 2013 has been re-presented to reallocate support costs which were previously shown as central overheads (such as HR, Supply Chain and IT costs) to the operational business segments. 2014 figures are presented on the same basis.
Q3 2014
Q31
2013Variance
2014 YTD
20131
YTDVariance
$m $m $m % $m $m $m %
Revenue 200.8 184.1 16.7 9.1% 597.6 539.1 58.5 10.9%
EBITDA pre support costs allocation1
25.7 22.5 3.2 14.2% 76.5 62.1 14.4 23.2%
Support costs allocation (2.2) (2.1) (0.1) 5.0% (6.1) (5.6) (0.5) 9.6%
EBITDA post support costs allocation1
23.5 20.4 3.1 15.2% 70.4 56.5 13.9 24.5%
Margin % 11.7% 11.1% 11.8% 10.5%
• Our Platforms business unit continued to deliver strong earnings in Q3, 2014 with performance largely in line with Q2, 2014 but showing improvement from Q3, 2013
• This year on year improvement reflects the award of previously announced new contracts in Angola, the Far East and Canada as well as good execution of existing contracts and delivery of services to our customers
RDS
17
• []
Financial Performance to 30 September 2014
• Our RDS business unit had lower revenues and EBITDA than both Q2, 2014 and Q3, 2013 largely as a result of lower activity on greenfield projects. YTD EBITDA growth remains positive at 9%
• Compared to Q3, 2013 there has been a significant reduction in activity on the Hebron project in Canada with the detailed design phase now nearing completion.
• Activity is increasing on our new project for Premier Oil’s Sea Lion development in the North Falklands basin with this work expected to be carried out over the next twelve months
1 EBITDA by segment for 2013 has been re-presented to reallocate support costs which were previously shown as central overheads (such as HR, Supply Chain and IT costs) to the operational business segments. 2014 figures are presented on the same basis.
Q3 2014
Q31
2013Variance
2014 YTD
20131
YTDVariance
$m $m $m % $m $m $m %
Revenue 73.1 92.7 (19.6) (21.1)% 251.9 259.1 (7.2) (2.8)%
EBITDA pre support costs allocation1
9.6 13.3 (3.7) (27.8)% 42.3 38.9 3.4 8.7%
Support costs allocation (0.7) (0.8) 0.1 (9.4)% (2.1) (2.0) (0.1) 2.9%
EBITDA post support costs allocation1
8.9 12.5 (3.6) (28.9)% 40.2 36.9 3.3 9.1%
Margin % 12.2% 13.5% 16.0% 14.2%
MODUs
18
• The MODU business unit had a reduction in EBITDA compared with both Q2, 2014 and Q3, 2013
• This was largely due to the performance of the three self-erect tender barges all of which were off contract by the end of Q3, 2014
• During the quarter we were able to complete the sale of the Glen Esk barge, and in October completed the sale of the Glen Tanar and Glen Affric barges
• EBITDA in Q3 for the two jack ups was circa $6m (pre support cost allocation)
Financial Performance to 30 September 2014
1EBITDA by segment for 2013 has been re-presented to reallocate support costs which were previously shown as central overheads (such as HR, Supply Chain and IT costs) to the operational business segments. 2014 figures are presented on the same basis.2Post reallocation of support costs.
Q3 2014
Q31
2013Variance
2014 YTD
2013 YTD
Variance
$m $m $m % $m $m $m %
Revenue 28.6 36.4 (7.8) (21.5)% 104.9 115.2 (10.3) (8.9)%
EBITDA pre support costs allocation1
1.6 3.8 (2.2) (58.0)% 19.6 1.6 18.0 N/M
Support costs allocation (0.6) (0.6) (0.0) 1.0% (1.6) (1.5) (0.1) 8.8%
EBITDApost support costs allocation2
1.0 3.2 (2.2) (68.1)% 18.0 0.1 17.9 N\M
Margin % 3.6% 8.9% 17.2% 0.1%
Group ResultsFinancial Performance to 30 September 2014
19
Revenue and EBITDA ($m) Q3 2014
Q3 2013
2014 YTD
2013YTD
Revenue from business units 560 542 1,659 1,580
Consolidation adjustments (40) (4) (84) (20)
Total revenue 520 538 1,575 1,560
EBITDA from business units 83 82 266 216
Corporate costs/other (9) (8) (23) (23)
Total EBITDA 74 74 243 193
Cash Flow and Working CapitalFinancial Performance to 30 September 2014
20
Working Capital
9
(60)
1Denotes the effect of foreign exchange rate changes on cash and bank overdrafts.*Deltas denote working capital movements from Q2 2014 and Q2 2013 respectively.
Free Cash Flow
9
• Cash flow from operating activities was strengthened due to improvements in working capital partially offset by higher cash taxes
• Capital expenditure was slightly increased on Q2 2014 as the Group continues to invest in the land drilling fleet once secure contracts have been won
• Decrease in working capital in Q3 2014 compared to Q2 2014 due to:
• Reduced inventory and work in progress at Bentec associated with component sales, together with the write down of some inventory in Libya
• Continued focus on collections and impact of activity
• Timing of vendor payments
• Q3 2013 working capital was negatively impacted by certain overdue accounts mostly collected in Q4 2013
Q3 2014
Q3 2013
2014 YTD
2013 YTD
Cash flow from operating activities55.7 1.8 179.5 (10.8)
Capital expenditure(65.8) (28.2) (148.4) (101.1)
Proceeds from sale of Fixed Assets8.8 2.9 12.5 54.1
Net interest(7.1) (5.3) (60.9) (51.6)
Other2.9 (2.2) 1.3 (0.6)
Cash flow from investing activities(61.2) (32.8) (195.5) (99.2)
Equity injection0.0 0.0 0.0 59.0
Foreign exchange1 (8.4) (4.5) (14.3) (2.0)
Net Cash flow before debt drawdown/(repayment)
(13.9) (35.5) (30.3) (53.0)
Drawdown/(repayment) of debt and debt issuance costs
0.7 (11.7) (81.7) 19.1
Net cash flow(13.2) (47.2) (112.0) (33.9)
8
(60)(70)
(60)
(50)
(40)
(30)
(20)
(10)
0
10
20Q3 2014 Delta* Q3 2013 Delta*
Cash im
pact of
Delta
($m
)
21
Disciplined Growth
2014 2015 2016
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Rig 1
Rig 2
Rig 3
Rig 4
Rig 5
Rig 6
Rig 7
Rig 8
Rig Client CountryCost($m)
Contract length
Rig 1 BP Khazzan Oman c.34 5yrs + 2x1yr options
Rig 2 BP Khazzan Oman c.34 5yrs + 2x1yr options
Rig 3 BP Khazzan Oman c.34 5yrs + 2x1yr options
Rig 4 Lukoil Russia c.27 3yrs + 2x1yr options
Rig 5 Shell Brunei Brunei c.35 3yrs + 3x1yr options
Rig 6 Bashneft Russia c.27 3yrs
Rig 7 BP Khazzan Oman c.34 5yrs + 2x1yr options
Rig 8 BP Khazzan Oman c.34 5yrs + 2x1yr options
New build land rigs scheduleNew build contracts
Significant uplift in EBITDA from eight new rig contracts is anticipated
Pre-award Under construction Operational
• Growth capex to target strict return criteria, with robust investment appraisal process implemented
• Active pursuit of long-term contracts with blue chip clients
• Focus on countries with existing operations, allowing the Group to benefit from operational synergies
• Targeting up front contributions from clients in order to optimise cash flow profile of new projects
• EBITDA profile of projects provides excellent scope for further deleveraging
1Excludes profits/losses from the Ben Avon, which was sold.
1
352
c.420
c.65-75
0
50
100
150
200
250
300
350
400
450
Pro forma Q3 LTMEBITDA
EBITDA from new rigs Pro forma with new rigs
EB
ITD
A $
M
1
22
Capital StructureNet leverage as at 30 September 2014
Amount Utilised
Coupon Maturity Facility Rating1
Recovery Rating
Net Leverage2
Revolver ($250m)3 45.7 L+400 May-19 B3/B 3/3 0.13x
Senior Secured Term Loan 374.1 L(100)+525 May-20 B3/B 3/3 1.07x
Total Bank Debt 419.8 1.20x
UK Finance Senior Secured Notes 375.0 7.250% May-21 B3/B 3/3 1.07x
Globe Luxembourg Senior Secured Notes 500.0 9.625% May-18 B3/B 3/3 1.42x
Total Institutional Debt 875.0 2.49x
Finance lease & other debt 19.0 - Aug-18 - - 0.05x
Gross Debt 1,313.8 3.73x
Cash 40.9 0.12x
Net Debt 1,272.9 3.61x
1All facilities have ratings outlooks of positive / stable.2Based on Q3 2014 LTM EBITDA of $352m; all LTM EBITDA figures exclude profits/losses from the Ben Avon, which was sold.3Revolver is split $75/$175m non cash/cash, the amount shown represents the cash element.
1,296 1,230 1,1691,265 1,273
273 304 325 350 352
4.7x
4.0x
3.6x 3.6x 3.6x
0.00x
0.50x
1.00x
1.50x
2.00x
2.50x
3.00x
3.50x
4.00x
4.50x
5.00x
0
200
400
600
800
1,000
1,200
1,400
Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014
Net
Deb
t/L
TM
EB
ITD
A
Net
Deb
t &
LT
M E
BIT
DA
$m
Net Debt/LTM EBITDA evolution
Net Debt LTM EBITDA Net Debt/EBITDA
Closing remarks
23
• Excellent performance in the YTD 2014 provides a robust platform for 2015
• Continued delivery of important contract wins
• Huge backlog of $8.8bn underpins future earnings
• Geopolitical environment has steadied; Kurdistan is operational and Libyan exit is almost complete
• Actions continue to optimise the group portfolio and increase business efficiency
• Growth opportunities are only being pursued where they provide robust capex returns driving increased cash generation based upon long term contracts
• All of this is underpinned by a stable and experienced management team focused on further delivery of results
24