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Supply Chain ManagementAn Industry View
PESA Supply Chain SeminarFebruary, 2015
Brent ShinallRowan Companies
1
Intro to Rowan Companies
Market Dynamics
Supply Chain Drivers in the Drilling Industry
Closing Points
2
Intro to Rowan Companies
Market Dynamics
Supply Chain Drivers in the Drilling Industry
Closing Points
3
Rowan Overview
• Recognized as outstanding in drilling demanding wells
• Young high-specification1 fleet well positioned in key industry segments
• Geographic diversity with assets located in seven markets
• Improving margins and strong earnings growth, expanding into more profitable UDW market
• Large contract backlog and strong balance sheet
• Strong culture with experienced and loyal workforce
Highlights
• RDC listed NYSE
• 3800 Employees worldwide
• 34 Offshore Drilling Units
• 4 UDW Drillships
3 Delivered + 1 Under Construction
• 30 Jack-ups
19 High-Spec(1) + 8 Premium + 1 Commodity + 2 Stacked
Company Overview
(1) High-specification Rig: Defined by Rowan as rigs with a two million pound or greater hook-load capacity.4
Rowan’s Diverse Global Footprint Spans Seven Markets
• HP/HT Deep Gas• Key location for demanding UDW
US Gulf of Mexico 7 JU(2), 3 UDW(1)
• Harsh environment HP/HT market• Super Gorilla / N-Class well suited
North Sea 6 JU
• Demanding environmental conditions
Trinidad 2 JU
• Most active jack-up region in the world
Middle East 10 JU
• NOC / IOC high grading fleets
• Multiple country demand
SE Asia 4 JU• Large UDW market• Expanding high-spec jack-up market• Expanding HP/HT environment
West & North Africa 1 JU , 1 UDW
(1) One ultra-deepwater drillships currently under construction(2) Two cold-stacked
5
19Rowan High-Spec
Jack-ups
Includes data supplied by ODS-Petrodata, Inc. Copyright 2014 (as of 11/07/14) and Rowan Companies
Customers Demand Higher-Specification Rigs
• Drilling challenging wellbore designs
• Focused on achieving lower wellbore costs rather than the lowest day rate
• Higher standards post-Macondo
Rowan has a Leading Position in High-Spec Jack-ups
Number of High Specification Jack-Ups
0
2
4
6
8
10
12
14
16
18
20
Current High-Spec By YE 2017
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Rowan is Focused on Demanding Drilling Services
Rig: Scooter YeargainCustomer: Saudi AramcoWells drilled: RBIB: 2-6Location: Middle EastTotal Depth (ft): 17,000+Pressure (psi): 11,000+Temp (ºF): 350º +
Rig: Gorilla VCustomer: TotalWells drilled: West FranklinLocation: North SeaTotal Depth (ft): 18,000+Pressure (psi): 15,800+Temp(ºF): 380º +
Rig: Mississippi / EXL IIICustomer: McMoRanWells drilled: Davy Jones 1 & 2Location: US GOMTotal Depth (ft): 28,000+Pressure (psi): 25,000Temp (ºF) : 400º +
Rig: Bob PalmerCustomer: ShellWell drilled: JosephLocation: US GOM Total Depth (ft): 25,000+Pressure (psi): 24,500+Temp (ºF): 450º +
“Our mission is to be recognized by our customers as the most efficient and capable provider of demanding contract drilling services”
7
0
2
4
6
8
10
Includes data supplied by ODS-Petrodata, Inc. Copyright 2014 (as of September 2014) and Rowan Companies
Best In Class Features Include
• Two seven-ram BOPs• Equipped for 12,000
ft water depth• 1250 ton hook load• DP-3 compliant with
retractable thrusters• Five mud pumps with
split mud systems• Four million pound
riser tensioning system
• Third load path• Accommodations for
>200 people on board
Rowan Ultra-Deepwater Drillships are Best in Class
Drillships with two BOP stacks and 1250 ton hook load path
4Rowan High-Spec
Drillships
8
Intro to Rowan Companies
Market Dynamics
Supply Chain Drivers in the Drilling Industry
Closing Points
9
Global Jack-up Fleet Utilization has dropped to 82%
Includes data supplied by ODS-Petrodata, Inc; Copyright 2014 (as of 1/19/2015)
US GOM
Indian Ocean
North Sea
Mediterranean
Middle East
Southeast AsiaMexico
C&S America
West AfricaAustralia
36% 56 Rigs
88%58 Rigs
76%17 Rigs
72%29 Rigs
97%33 Rigs
100%2 Rigs
87%73 Rigs
86%155 Rigs
81%16 Rigs
98%51 Rigs
Fleet total: 541 rigs
10
-80
-60
-40
-20
0
20
40
60
80
1985198019751970 201520102005200019951990
1980’s Era Jack-ups Approaching 40 Years of Age
• 305 jack-ups were delivered over a 25 year period• Design life of 1980s era jack-ups was approximately 30 years
Total jack-up market additions and attrition by year (1970-2017)Number of rigs
305JACK-UPSOVER 25
YEARS
337 JACK-UPS ORDERED IN LATEST CYCLE
192 DELIVEREDTO DATE
Includes data supplied by ODS-Petrodata, Inc; Copyright 2014 (as of 11/07/14)
Additions Attrition (accident)Attrition (retirement)
2020
11
-80
-60
-40
-20
0
20
40
60
80
201020052000199519901985 2015198019751970
1980’s Era Jack-ups Approaching 40 Years of Age
26Over 40
Years Today
289Over 40
Years By 2024
• Today, 26 jack-ups are 40 years of age or older, 289 jack-ups will reach 40 years of age by 2024
• Only the most marketable older jack-ups will stay active in the face of new competition
Total jack-up market additions and attrition by year (1970-2017)Number of rigs
Includes data supplied by ODS-Petrodata, Inc; Copyright 2014 (as of 11/07/14)
2020
Effect on worldwide fleet if all 40 year old JUs left the market
JUs Over 40 years oldAttrition (retirement) Attrition (accident)Additions12
Significant number of jack-up newbuilds incoming; Delayed deliveries into 2016 are probable
135 Newbuild Jack-ups yet to be delivered
6 7 2
69
40
110
20
40
60
80
2015 2016 2017
Contracted Not Contracted
75
47
13
Includes data supplied by ODS-Petrodata, Inc; Copyright 2015 (as of 01/19/15)
Jack-up Newbuilds by Delivery Year
• 15 contracted (11%)
• 120 uncontracted newbuilds
• Approximately 40% of newbuildfleet is rated high-spec
• Recent cancellations and more are expected
13
Global Drillship Fleet Utilization is 83%, Down 13% from January 2014
USA
Indian Ocean
North Sea
Far East
Southeast Asia
S. America
West AfricaAustralia
85%39 Rigs
100%25 Rigs
80%30 Rigs
100%8 Rigs
100%1 Rigs
33%9 Rigs
0%1 Rig
100%1 Rig
Includes data supplied by ODS-Petrodata, Inc; Copyright 2014 (as of 1/19/2015)
Mediterranean66%
3 Rigs
Fleet total: 117 rigs
14
14 uncontracted newbuilds are entering an oversupplied 2015 drillship market
8 1016
14
2
3
0
5
10
15
20
25
30
2015 2016 2017+
Contracted Not Contracted
12
22
• 34 contracted (64%)
• Delayed deliveries into 2016 expected
• Six additional units under construction that are <10,000’ (4-Opus / 2-Transocean)
• Less than 1/3 of the current newbuilds are identified as dual BOP stack (equipped) and 1250 hookload
19
53 Newbuild Drillships rated for 10,000’+
14 f
or P
etro
bras
Includes data supplied by ODS-Petrodata, Inc; Copyright 2015 (as of 01/19/15)
15
Overview of Rowan Companies
Market Dynamics
Supply Chain Drivers in the Drilling Industry
Closing Points
16
In a market downturn, SCM is critical for success
Inventory Optimization
Streamlined Logistics
Strategic Sourcing
Supplier RelationshipManagement
Supply Chain Drivers
17
Strategic Sourcing
Supply Chain Drivers
18
Bringing Value through Strategic Sourcing
• Spend analysis identifies opportunities
• One strategy doesn’t fit all
• The best supplier, in the right region, at a fair price
• Feeds transactional efficiency
• Technology supports, but does not replace, strategic sourcing
Define the opportunity and set the team
Analyze the market, build the strategy
Execute the strategy
Supplier selection, complete contract
Manage supplier performance
1 2 3 4 5
19
Total Cost Approach to Strategic Sourcing
PurchaseCost
SpecificationsStandardization
Inventory Practices
Operational PracticesDisposal/Salvage Practices
Perceived Opportunity
Actual Opportunity
Environmental Issues
Warehousing Costs
Maintenance Expense
Quality Costs
Procurement Practices
Warranty Terms
Freight
20
Streamlined Logistics
Supply Chain Drivers
21
Logistics…a lot of moving parts…
Supplier
Consolidation point (Origin)
DockCustoms Clearance
Destination Port
Rig
22
How do we streamline logistics?
• Proactive “new country entry”
• Integration with 3rd Party Logistics Providers (3PLs)
• Clear understanding of tax and customs requirements
• Master the last mile
• Reverse logistics
How can suppliers help?
Deliver on time Accurate collection date communicated Include all documentation
23
Mastering the Last Mile
• High cost and complexity
• Consumes extensive resources to manage
• Communication with the rig is critical
24
Inventory Optimization
Supply Chain Drivers
25
Inventory Optimization for a Driller
Procedural discipline is critical
Inventory is money! Draw down instead of purchasing
Max/min levels set to manage cost and risk
Equipment documentation must be delivered and maintained
The right part, in the right place, at the right time – to avoid downtime
26
Maintain Low Operational Downtime
Jack-ups Targeted at 2.5%
DrillshipsTargeted at ~5%
27
What must be overcome to optimize inventory?
• Drilling rig layout not optimal
• Operational, financial, and regulatory processes that are far more complex than other industries
• We must get better at forecasting demand
• Full visibility is difficult across rigs and regions
28
Supplier RelationshipManagement
Supply Chain Drivers
29
SRM at Rowan
• Frequent business reviews, quarterly with executives
• Cooperative risk management strategies
• Quarterly feedback through scorecards
• Jointly-developed improvement plans
30
Supplier Name: ABC MaterialsSupply Chain Sponser: Brent Shinall Scorecard Period: Q4-2014
Q1 2014 Q2 2014 Q3 2014 Q4 2014
92% 83% 73% 86%
-1% -7% -3% -4%
100 100 100 100 20% 20.0
64 68 73 80 20% 16.1
75 75 75 75 20% 15.0
Total (out of 100): 83.6Adjusted On Time Delivery Supporting Data Q1 2014 Q2 2014 Q3 2014 Q4 2014
Number of line items 718 383 1249 746
On time delivery 657 316 910 639
On time percentage 92% 83% 73% 86%
Past due 30 days 9 26 41 33
Past due 30 days % 1% 7% 3% 4%
Pricing 0: Supplier unwilling to negotiate, no disount structure or price agreement in place, supplier provides consistently high prices50: Discount structure set up, no price agreement in place 75: Discount structure and price agreement in place, supplier provides consistently competitive prices90: Discount strcuture and price agreement in place, supplier provides flat pricing year over year100: Discount structure and price agreement in place, supplier provides deflationary pricing year over year
Score LegendScore >= 90%
75%<= Score <90%Score < 75%
On Time DeliveryPercentage of on-time deliveries
40% 32.5Past 30 Days Late DeliveryPercentage of deliveries past 30 days late
Customer SupportCustomer Support Evaluation performed every 6 months by Supply Chain Owner with feedback from key personnel
Improvement PlanImprovement Plan Score measuring the progress of key action items and improvement opportunities
Supplier Performance Scorecard
Key Performance Indicator KPI Score Weight Net Score
68%48%
24% 16%
0%
20%
40%
60%
80%
100%
'13 Q4 '14 Q1 '14 Q2 '14 Q3
Delivery Performance
On Time
Past Due 30 Days
Adjusted On Time
83.9
78.9
77.4
83.6
74
76
78
80
82
84
86
'14 Q1 '14 Q2 '14 Q3 '14 Q4
Total Score
# KPI Deliverables ResponsibleTarget Due
DateStatus Comments
1Customer Support
ABC Materials to return main point of contact for each region by 2/15/2015
John Doe Ongoing
In Progress
2 Pricing
ABC Materials and Rowan are to have monthly meetings to discuss part number changes
John Doe 3/31/2015
In Progress
3 PricingFixed pricing agreement by 2/28/2015
John Doe 3/31/2015In Progress
On going discussions for global agreement
4Customer Support
Repairs and service facility to be created by ABC Materials by end of 2015
John Doe 12/31/2015In Progress
On going discussions with ABC Materials in Dubai
5 Pricing
John Doe 11/1/2014
CompletePricing received from ABC
Materials and uploaded into SAP globally.
6Adjusted On
Time Delivery
Brent Shinall 6/21/2013
Complete
7Customer Support
John Doe 4/11/2014Complete
8 Pricing
John Doe 6/1/2014
Complete
9 MSA / T&CJohn Doe 3/20/2014
Complete
10Adjusted On
Time Delivery
John Doe Ongoing
Complete
11Customer Support
John Doe 4/11/2014
Complete
Part number changes are not communicated decreasing the effectiveness of the agreement
Investigate a method of communicating these changes to Rowan for ongoing contract maintenance. Slow progress on this issue. We have seen part number changes on purchase orders without prior communication.
Supplier Improvement PlanSupplier Name ABC Materials Supply Chain Owner Brent ShinallSupplier Contact John Doe Date Issued 1/13/2015
Findings Corrective Action
ABC Materials responsiveness is low
2014 Q1 Customer Support Survey score improved and customer service reps recognized for their responsiveness. Will continue to monitor the situation through the survey. 2014 Q3 Customer Support shows good response time in the ME and GOM but lacking in the North Sea (UK)
Currently no agreement with ABC Materials fluid end expendables, centrifuge pumps, and high pressure valves
We received global pricing and working on regional specific market baskets to fit the needs of the rigs in region. ME region finalized and sent for signature.
No support currently in Qatar for repairs and serviceReport on any plans for expansion into Qatar. No movement at this time. Spare parts still being supplied from Dubai.
Many deepwater spares are not included in our current spares market basket
Rowan submitted a list of items to be added. Pending ABC Materials' review and pricing. Slow progress from ABC Materials. They are reluctant to add parts to a contract within the contract year.
Delivery informaiton is combined for all of ABC Materials not allowing each group to take corrective action
Split delivery information into three main groups, Distribution, ABC Materials, and Petroleum Services
ABC Materials - Capital equipment deliveries being delayed
A report to be created with all capital equipment manufacturing status. Sean now sends report on a quarterly basis.
ABC Materials spares agreement up for renewal.
Renew contract and minimize any price increases as well as grow the size of the contract. Pricing received includes both jackup and deepwater spares and contract loaded for 2014-2015.
No Finalized MSAMSA finalized as of 3/20/2014
On time receipts may not be performed representing an innacurate delivery score
Shipping report to be provided by ABC Materials to compare to Rowan reciept date. John submitted initial design and will roll out for Q2. On time receipt performance is now tied out between Rowan and ABC Materials
ABC Materials responsiveness is low
Open order reports to be rolled out by each region similar to Norway's current format. John designed a global report and is being distributed on a weekly basis.
Strong SRM results in alignment
Supplier Driller
Innovation Asset Strategy
Optimal Lead Time Forecasting
On Time Delivery
Purchase Order
Accuracy
ResponsiveTechnical Support
Solid Maintenance
Planning
33
Overview of Rowan Companies
Market Dynamics
Supply Chain Drivers in the Drilling Industry
Closing Points
34
Closing Points
In a down market, SCM is critical for success1
Cost control through solid inventory management and streamlined logistics
2 Bring exceptional value through strategic sourcing
3
4 Supplier and Driller alignment for success
35
Brent ShinallVice PresidentSupply Chain Management
Rowan Companies
2800 Post Oak Blvd.Suite 5450Houston, TX 77056713.621.7800www.rowancompanies.com
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