J.P. Morgan Global High Yield & Leveraged Finance Conference - - PowerPoint PPT Presentation

KCA Deutag is a leadinginternational drilling and engineering company working onshore and offshore with a focus on safety, quality and

• perational performance

J.P. Morgan Global High Yield & Leveraged Finance Conference

KCA DEUTAG

February 2018 1

Disclaimer

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

• n 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

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• n in connection with, any contract or commitment or investment decision whatsoever.

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violation of the laws of other jurisdictions. This document must not be acted on or relied on by persons who are not eligible to invest in the Securities. Any investment or investment activity to which this communication relates is available only to persons eligible to invest in the Securities and will be engaged in only with such persons. To the extent available, the industry and market data contained in this Presentation has come from official or third party sources. Third party industry publication, studies and surveys generally state that the data contained therein have been obtained from sources believed to be reliable, but that there is no guarantee of the accuracy or completeness of such data. In addition, certain of the industry and market data contained in this Presentation come from the Company’s own internal research and estimates based on the knowledge and experience of the Company’s management in the market in which the Company operates. While the Company believes that such research and estimates are reasonable and reliable, they, and there underlying methodology and assumptions, have not been verified by any independent source for accuracy or completeness and are subject to change without notice. Accordingly, undue reliance should not be placed on any of the industry or market data contained in this Presentation. 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.

2

Agenda

3

1

Company Overview

2

Business and Financial Update

3

Q&A

• 1. Company Overview

4

Update on KCA Deutag: the leading international integrated drilling and engineering company

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 earnings visibility 2017 revenue of over $1.16bn(2) and EBITDA of $219-224mm(2) Global platform with market leading positions

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 Feb-2018; (2) 2017 Revenue and EBITDA numbers shown are based on preliminary unaudited information and subject to change.

5

Integrated service offering with differentiation through technology/engineering capability

6

Offshore Services & Design

 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

Integrated Land Drilling

Land Drilling Bentec Offshore Services Rig Design Services (RDS)

• A leading international

premium drilling rig owner and

• perator
• 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 and Europe

• Facilities: Germany, Russia,

Oman

• Operations: UK North Sea,

Norway, Azerbaijan, Russia and Africa

• Offices: Aberdeen, Baku,

Bergen, Houston, London, St. Johns Design & Manufacture Own & Operate

• Rigs: Operate high end fleet
• f 54 drilling rigs1
• 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 and 1 workover rigs and manages an additional 4 rigs

1

KCAD Operations Are Diversified Across Global Markets

7

PRESENCE IN KEY AREAS

130 59 54 44 19 30 60 90 120 150 Europe North Africa Middle East North Sea Russia Years

Houston Baku London Bad Bentheim Tyumen Nizwa

• St. Johns

Bergen Dubai

Land Drilling Offshore Services RDS offices Bentec Regional offices

Aberdeen (HQ)

North Sea /Norway 21 Plat. Europe & Caspian 8 Rigs Caspian 7 Plat. Russia 17 Rigs Middle East 17 Rigs Angola 2 Plat. Africa 10 Rigs Brunei 1 Rig

LTM Q4 2017 EBITDA(1) split by region

Canada 1 Plat.

(1) 2017 EBITDA numbers shown are based on preliminary unaudited information and subject to change. Map excludes 1 workover land rig in Nigeria, defined as being below 900HP Map shows position at 1 February 2018

Russia Sakhalin 3 Plat.

2

69% 30% 1%

Resilient business model through diversification and strategic focus

• n low cost basins/projects

8 3

Source Rystad Energy (May-16)

KCAD core markets

KCAD operates in low breakeven oil price environments International vs. North American drilling markets EBITDA split by division (2017)(1) Land Drilling Offshore Services RDS & Bentec

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 longer term contracts

• Contract durations and terms more

favourable to customers

 More stable International markets, less impacted by oil price volatility  Diversified business model with

potential for further growth

Source: Company information; Notes: (1) Based on EBITDA contribution from Land Drilling, Offshore Services, RDS and Bentec only; (2) 2017 EBITDA range is based on preliminary unaudited information and subject to change. Total EBITDA range includes corporate overhead and other charges

Total: $219-$224mm(2)

Strong backlog that provides for great earnings visibility

9 4

Source: Company information; 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 Feb-2018; (2) Ordered by contract end date (including options)

2017 2018 2019 Contract Platform Client Country Assets

date status # Exxon Canada Hebron Mar-46 Operating 1 Statoil Norway CAT J (2) May-36 Operating 2 Exxon Angola Kizomba (2) Jan-28 Stacked 2 AIOC Azerbaijan Azeris, SD, DWG, Cop & Chirag Dec-24 Operating 7 Nexen UK Scott Feb-23 Operating 1 COP UK Britannia Nov-22 Stacked 1 Statoil Norway Oseberg's (4) & Gulfaks (3) Oct-22 Operating / Stacked 6/1 Statoil Norway Pipe pool management Oct-22 Active mgmt. contract Statoil Norway Kvitebjorn Oct-22 Operating 1 CNR UK Ninian's (3) Tiffany Nov-21 Operating / Stacked 1/3 SEIC Russia LA, PA & PB May-21 Operating 3 Total UK Alwyn / Dunbar Dec-20 Operating / Stacked 1/1 Enquest UK Thistle & Heather May-20 Operating / Stacked 1/1 Point Resources Norway Ringhorne Dec-18 Stacked 1

757 364 682 1,804 88 349 2,918 3,355 845 713 3,601 5,159 1,500 3,000 4,500 6,000 2018E 2019E 2020E+ Total

Firm Option

Offshore Services order book overview(1)(2) Contract backlog by type ($m)(1)

Total: $5,159m Land Drilling Offshore Services

Land Fleet Utilisation Contract backlog by segment ($m)(1)

Bentec RDS Revenue coverage 4,096 889 18 156 3.0% 0.3% 17.2% 79.4%

Option Firm

55 57 56 56 55 54 79% 74% 72% 58% 60% 62% 0% 20% 40% 60% 80% 100% 20 40 60 80 100 2014 2015 H1 2016 H2 2016 H1 2017 H2 2017 Rigs Utilisation

High quality, NOC/IOC customer base with interdivisional cross selling

10 5

Source: Company information (1) Top 5 customer revenue breakdown by type with “Others” including the remaining customers of KCAD (irrespective of type)

 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 Customer diversification 2017 revenue(1)

Integrated Land Drilling Offshore Drilling Services & Design

c.46% of revenue

2% 30% 68% 2000-2004 2005-2009 2% 15% 37% 39% 7% 67 75 65 74 61 52 126 111 50 134 68 4 60 51 12 253 237 127 208 130 56 35-40 0.0 50.0 100.0 150.0 200.0 250.0 300.0 2011 2012 2013 2014 2015 2016 2017 $m Maintenance capex Growth capex MODU SPS spend

Premium asset base with disciplined growth strategy

11 6

Source: Company information (1) 2016 excludes $50mm of maintenance capex driven by an intercompany rig sale . 2017 excludes $25m of maintenance capex driven by an intercompany rig sale and is based on preliminary unaudited information and subject to change

Capital expenditures ($m)

 Over $1bn capex invested 2011-2017  Premium fleet  Offshore Services, Bentec and RDS are asset light  Robust capex controls – ability to manage spend if required

24 new rigs added since 2007

(1)

Premium Fleet

KCAD fleet by year of manufacture/major upgrade 2010-2017 2,000-2,999 HP Below 1,000 HP 1,000-1,499 HP KCAD fleet by horse power range 1,500-1,999 HP >3,000 HP

(1)

Proven management team, supported by committed shareholders

12 7

• 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
• perational 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 Chairman, CEO in May 2012
• With Schlumberger / Smith International for 26 years

internationally Neil Gilchrist CFO

• 20+ years of international finance experience with

Lyondell Basell

• 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 35+ years Dirk Schulze CEO Bentec 20+ years Albert Allan Senior Vice President RDS 25+ years

Comments

Strong industry reputation and track record of safe, reliable and efficient operations

13 8

• 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 – Piltun B awarded Shell’s 2017 Rig of the Year

• Sustaining low TRIR levels in a range which are the best in the

company’s history - KCAD achieved the lowest ever TRIR of 0.18 in October and November 2017

Lowest TRIR in the company’s history(2) IADC industry average(3) for 2017

Operational excellence Total Recordable Incident Rate Improvement

130 year operating history

(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

• 2. Business and Financial

Update

14

150 164 186 163-165 2014 2015 2016 2017

Our core divisions performed well in 2017 with further upside potential as tendering activity increases across the company

• Decrease in EBITDA driven primarily by full year of decreased

pricing

• Tendering activity pickup should continue to improve utilisation
• Continued stable performance in Offshore division
• CAT J & Hebron started operations in H2 2017
• Activity levels remain at lower levels with a baseline of

brownfield work continuing

• Some signs of pickup in greenfield activity, including a recent

FEED win 98 90 74 72-74 2014 2015 2016 2017 Offshore EBITDA ($m) Land EBITDA ($m)

Estimated $219-224m EBITDA(1) in 2017

Source: Company information (1) 2017 figures are based on preliminary unaudited information and subject to change

15

RDS EBITDA ($m) Bentec EBITDA ($m)

• Bentec maintained at neutral EBITDA with capability retained
• Pickup in activity including recent new build rig (5 + 1 rigs) and

component orders which will drive a return to positive EBITDA generation

32 19 (1)-1

2014 2015 2016 2017 46 16 5 1-3 2014 2015 2016 2017

= EBITDA Margin

27% 22% 33% 33% 13% 12% 14% 13% 13% 17%

• 2%

0% 10% 15% 7% 4%

Overdue collection update

16

• The Company had a significant receivable overdue from a key client
• Formal recovery proceedings were initiated to pursue this collection
• Settlement negotiations were held in late January 2018
• These settlement negotiations resulted in the client paying KCAD $42m in

February 2018

• As well as a cash inflow this has also resulted in an additional $11m EBITDA gain

that will be recorded in Q1 2018

212 263 301 315 290 263 219-224

50 100 150 200 250 300 350 400 2011 2012 2013 2014 2015 2016 2017

Key financials

17

2017(1) Quarterly EBITDA ($m) EBITDA ($m)

(1)

Source: Company information; Notes: (1) 2017 EBITDA numbers shown are based on preliminary unaudited information and subject to change.

50 51 55 63-68 10 20 30 40 50 60 70 Q1 2017 Q2 2017 Q3 2017 Q4 2017

KCAD’s resilience has been proven through the downturn

18

2017E as % of 2014A EBITDA

Source: Capital IQ 13th February 2018 Note: Patterson-UTI adjusted proforma for Seventy Seven Energy acquisition

70% 39% 36% 44% 31% 25% 23% 17% KCAD Patterson-UTI Ensign Precision Nabors Helmerich & Payne Parker Drilling Weatherford Peer average: 31%

Proactive cost management has been a core focus with the business expected to benefit from a lower base level going forward

19

Successful implementation of cost optimization program

1,796 1,379 989 943-953

500 1,000 1,500 2,000 2014 2015 2016 2017

Operating costs

$m

Source: Company information; (1) 2017 figures are based on preliminary unaudited information and subject to change

• 23%
• 28%

Operating costs reduced by 47% vs 2014

• 4%

Capital Structure

20 Maturity profile (Dec-17) ($m) Net debt / EBITDA Available Liquidity(3) ($m)

(1) 2017 figures are based on preliminary unaudited information and subject to change. Note: 2017 EBITDA includes the $25m Holdco equity contribution as defined in the Amended Credit Agreement; (2) 2017 figures are based on preliminary unaudited information and subject to change. Note for illustrative purposes we have included an additional $42m received in February 2017 and relating to an overdue receivable that we have now recovered (3) Available liquidity calculated as free cash plus undrawn RCF

(1) (2)

HSBC 16 TLB 4 VTB Debt 3 HSBC 16 TLB 4 Revolver 25

KCAD is well positioned to take advantage of the improving market conditions

21

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 earnings visibility 2017 revenue of over $1.16bn(2) and EBITDA of $219-224mm(2) Global platform with market leading positions

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 Feb-2018; (2) 2017 Revenue and EBITDA numbers shown are based on preliminary unaudited information and subject to change.

22

Q & A

investor.relations@kcadeutag.com

Appendix

23

Land Drilling Overview

Key Highlights Land Drilling revenue and EBITDA(1)

• Strong performance in Russia (all 16 rigs utilised at year

end) and the Middle East

• EBITDA reduced on 2016 but still in line/above 2014/15 with

margins substantially improved

• Improved utilisation in Europe during the course of 2017
• This was offset by lower utilisation in Algeria and Nigeria

although tendering activity has increased significantly in Q4 2017 and into Q1 2018

679 599 570 498-502 150 164 186 163-165 22% 27% 33% 33% 15% 20% 25% 30% 35% 200 400 600 800 2014A 2015A 2016A 2017E $m Revenues EBITDA % EBITDA Margin

Key Utilisation Assumptions

55 57 56 56 55 54 54 54 79% 74% 72% 58% 60% 62% 57% 53%

• 10%

10% 30% 50% 70% 90% 20 40 60 80 100 120 2014 2015 H1 2016 H2 2016 H1 2017 H2 2017 H1 2018 H2 2018 Rigs Utilisation Note: (1) EBITDA numbers are post corporate overhead allocation. 2017 figures are based on preliminary unaudited information and subject to change

24

Offshore Services Overview

Key Highlights Offshore revenue and EBITDA(1)

• Steady performance in 2017 supported by long term

contracts in principal markets

• Lower activity levels continued in Angola and the North

Sea

• Significant upside from Cat J and Hebron projects

starting up on schedule in H2 2017

• Pipe rental business in Norway saw a pick up in activity
• ver the past few months

809 687 524 547-551 98 90 75 72-74 12% 13% 14% 13% 0% 2% 4% 6% 8% 10% 12% 14% 16% 200 400 600 800 1,000 2014A 2015A 2016A 2017E $m Revenues EBITDA % EBITDA Margin Note: (1) EBITDA numbers are post corporate overhead allocation. 2017 figures are based on preliminary unaudited information and subject to change

25

RDS Overview

Key Highlights RDS revenue and EBITDA(1)

• Challenging conditions led to a decrease in EBITDA and

Revenues vs. 2016

• Baseload activity continues to be brownfield
• Some signs of pickup in greenfield activity, including a

recent FEED win

• Potential to recover quickly and drive growth if strong

market continues to pick up

• Efforts ongoing to diversify into non-O&G activities

309 156 75 56-60 46 16 5 1-3 15% 10% 7% 4% 0% 2% 4% 6% 8% 10% 12% 14% 16% 40 80 120 160 200 240 280 320 360 2014A 2015A 2016A 2017E $m Revenues EBITDA % EBITDA Margin Note: (1) EBITDA numbers are post corporate overhead allocation. 2017 figures are based on preliminary unaudited information and subject to change

26

Bentec Overview

Note: (1) EBITDA numbers are post corporate overhead allocation. 2017 figures are based on preliminary unaudited information and subject to change

Key Highlights Bentec revenue and EBITDA(1)

• Small increase in revenues and EBITDA vs. 2016
• Breakeven result assisted by significant cost reductions

during the downturn

• Recent contract wins securing significant backlog for 2018
• Increased number of top drive sales in 2017
• New business developed for power control rooms with non-

O&G clients

183 141 53 60-64 32 19 (1) (1)-1 17% 13%

• 2%

0%

• 4%

1% 6% 11% 16% 21% (20) 20 40 60 80 100 120 140 160 180 200 220 240 2014A 2015A 2016A 2017E $m Revenues EBITDA % EBITDA Margin

27