Pareto Securities’ annual Oil and Offshore...

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Pareto Securities’ annual Oil and Offshore Conference 12 September 2012 CEO Scott Kerr

Transcript of Pareto Securities’ annual Oil and Offshore...

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Pareto Securities’ annual Oil and Offshore Conference12 September 2012

CEO Scott Kerr

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Important information

THIS PRESENTATION AND ITS ENCLOSURES AND APPENDICES (HEREINAFTER JOINTLY REFERRED TO AS THE “PRESENTATION”) HAVE BEENPREPARED BY SEVAN DRILLING ASA (”SEVAN DRILLING” OR THE ”COMPANY”) EXCLUSIVELY FOR INFORMATION PURPOSES. THIS PRESENTATIONHAS NOT BEEN REVIEWED OR REGISTERED WITH ANY PUBLIC AUTHORITY OR STOCK EXCHANGE. RECIPIENTS OF THIS PRESENTATION MAY NOTREPRODUCE, REDISTRIBUTE OR PASS ON, IN WHOLE OR IN PART, THE PRESENTATION TO ANY OTHER PERSON.

THE CONTENTS OF THIS PRESENTATION ARE NOT TO BE CONSTRUED AS LEGAL, BUSINESS, INVESTMENT OR TAX ADVICE. EACH RECIPIENTSHOULD CONSULT WITH ITS OWN LEGAL, BUSINESS, INVESTMENT AND TAX ADVISER AS TO LEGAL, BUSINESS, INVESTMENT AND TAX ADVICE.

THERE MAY HAVE BEEN CHANGES IN MATTERS WICH AFFECT THE COMPANY SUBSEQUENT TO THE DATE OF THIS PRESENTATION. NEITHER THEISSUE NOR DELIVERY OF THIS PRESENTATION SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATIONCONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THE AFFAIRS OF THE COMPANY HAVE NOTSINCE CHANGED, AND THE COMPANY DOES NOT INTEND, AND DOES NOT ASSUME ANY OBLIGATION, TO UPDATE OR CORRECT ANYINFORMATION INCLUDED IN THIS PRESENTATION.

THIS PRESENTATION INCLUDES AND IS BASED ON, AMONG OTHER THINGS, FORWARD-LOOKING INFORMATION AND STATEMENTS. SUCHFORWARD-LOOKING INFORMATION AND STATEMENTS ARE BASED ON THE CURRENT EXPECTATIONS, ESTIMATES AND PROJECTIONS OF SEVANOR ASSUMPTIONS BASED ON INFORMATION AVAILABLE TO THE COMPANY. SUCH FORWARD-LOOKING INFORMATION AND STATEMENTS REFLECTCURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO RISKS, UNCERTAINTIES AND ASSUMPTIONS. SEVAN CANNOT GIVEANY ASSURANCE AS TO THE CORRECTNESS OF SUCH INFORMATION AND STATEMENTS.

AN INVESTMENT IN THE COMPANY INVOLVES RISK, AND SEVERAL FACTORS COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE ORACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS THAT MAYBE EXPRESSED OR IMPLIED BY STATEMENTS AND INFORMATION IN THIS PRESENTATION, INCLUDING, AMONG OTHERS, RISKS ORUNCERTAINTIES ASSOCIATED WITH THE COMPANY’S BUSINESS, SEGMENTS, DEVELOPMENT, GROWTH MANAGEMENT, FINANCING, MARKETACCEPTANCE AND RELATIONS WITH CUSTOMERS, AND, MORE GENERALLY, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES INDOMESTIC AND FOREIGN LAWS AND REGULATIONS, TAXES, CHANGES IN COMPETITION AND PRICING ENVIRONMENTS, FLUCTUATIONS INCURRENCY EXCHANGE RATES AND INTEREST RATES AND OTHER FACTORS. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIESMATERIALISE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBEDIN THIS DOCUMENT. THE COMPANY DOES NOT INTEND, AND DOES NOT ASSUME ANY OBLIGATION, TO UPDATE OR CORRECT THE INFORMATIONINCLUDED IN THIS PRESENTATION.

THIS PRESENTATION IS SUBJECT TO NORWEGIAN LAW, AND ANY DISPUTE ARISING IN RESPECT OF THIS PRESENTATION IS SUBJECT TO THEEXCLUSIVE JURISDICTION OF NORWEGIAN COURTS.

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A pure-play ultra deepwater drilling company

Options for additional two rigs of same design with a delivery time of 30 months

All-in turnkey price of USD 526 million each

Options expire on 10 December 2012

• From yard end 2009• In operation for Petrobras

under a six year contract• Start up: Q2 2010• Charter rate: USD 423,000

Sevan Driller

• From yard Q1 2012• In operation for Petrobras

under a six-year contract • Start up: Q3 2012• Charter rate: USD 400,000

Sevan Brasil

• Delivery in Q4 2013• No need for additional

financing until delivery• Progress on schedule

Sevan Drilling Rig 3 Sevan Drilling Rig 4

3

• Delivery in Q2 2014• No need for additional

financing until delivery• Progress on schedule

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• Large load carrying capacity

• Independent of environmental directionality

• Low roll and pitch motions

• Simple structural layout – simple to build

• Lower cost to build and operate

With a unique and cost efficient design

Offers a very stable drilling platform tomeet growing need for low cost, efficient

operations

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Dry exploration wellsDiscoveries and producing fieldsAwarded acreage

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• Discoveries and producing fields– “Development risk”: Appraisal, development and production maintenance drilling at existing discoveries and producing fields

• Awarded acreage –“Exploration and development risk”: Exploration, appraisal, development and productionmaintenance drilling for discoveries to be made in awarded acreage

• Unawarded (open) acreage –“Award, exploration and development risk”: Exploration, appraisal, development and production maintenance drilling for discoveries to be made in unawarded (open) acreage

Floating rig market growth

Source: Rystad Energy UCube, research & analysis

Market growth beyond 2014 relies on exploration and developmentin currently unawarded acreage

By number of wells

By rigs

Global floating rig drilling demand by field/license status

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Most deepwater discoveries still not developed

Start-up of oil and gas disc. deeper than 400 ft by current status

Million boe/decade

Discoveries of oil and gas deeper than 400 ft by current status

Million boe/decade

55% of discovered resources not yet put in production – a significant backlog of deepwater discoveries to be developed

Resources found,but not yet developed

Source: Rystad Energy UCube

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The future of deepwater developments

• Supply of oil and gas will be adequate to meet demand− Demand driven by non-OECD Growth − All potential sources of supply must be exploited

• Deepwater and ultra deepwater are key to supply

• Half of demand for deepwater drilling rigs will be for development drilling

− Development drilling will require mobile units− More specialization in rig designs

• Safe, reliable and efficient operations are critical− 50% of capital in upstream is spent on drilling− Macondo

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Sevan Drilling well fitted with market demand

Ultra deepwater capabilites

• Capable of drilling in water depths up to 10,000 feet

• Upgradable to 12,000 feet

• 2.5–3.0 times deck load capacity of a 6th generation semi-submersible unit

• High storage capacity for bulk and fluids

• High stability reserve

• Less roll and pitch confirmed through drilling and FPSO operations

• Zero discharge capabilites• Double sides – double bottom• Low fuel consumption• Drilling through moon pool

High storage capacity

Excellent motion characteristics

Environmentally friendly

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’Sevan Driller’ has proven the rig design

• In operation since June 2010

• Operations in ultradeep waters− Campos Basin (1,800 meters)− Santos Basin (2,200 meters)

• Improving uptime− Downtime related to specific events on

specific equipment

• Good client feedback − Consistently high ratings from

Petrobras (BAD Sonda scores)

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Technical uptime and BAD Sonda – last 12 months

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jun. 11 aug. 11 okt. 11 des. 11 feb. 12 apr. 12

Technical Uptime BAD Sonda score

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’Sevan Brasil’ proves project management and delivery• Delivered on time and on budget

• Accepted in 7 weeks and now operates under a 6 year contract with Petrobras on 24 July

• Achieved a technical uptime of 100% in August

• On 90% stand-by rate since acceptance

• Spudded the first well at 1 800 meters in Santos basin on 31 August

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Solid contract coverage and backlog

Unit Built Region Client

Sevan Driller 2009 Brazil Petrobras

Sevan Brasil 2012 Brazil Petrobras

Sevan UDW 3 2013 ‐ ‐

Sevan UDW 4 2014 ‐ ‐

Construction period

Firm contract period

2017 20182012 2013 2014 20162015

Existing rigs secured onlong term contracts withPetrobras

Aggregated revenue backlog of USD 1.5 billion as per Q2 2012

• Average base dayrate

• Sevan Driller: ~USD 423k/day

• Sevan Brasil: ~USD 400k/day

• Bonus element of up to 10%

• Cash opex of ~USD 170k/day after 6 months of operations

• Opex cost inflation mitigated throughannual dayrate adjustments

152 152 152 15276

58136 145 145

145

145

2012 2013 2014 2015 2016 2017

Sevan Driller Sevan Brasil

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Significant revenue potential*

• Controlled expansion− One rig in 2011

− Four rigs in 2014

• Corresponding revenue growth − From USD 130 million in 2011 to above

USD 600 million in 2015

• Cost control and operational synergies− A four-fold increase in EBITDA

− Significant reduction in leverage

152 152 152 154

58136 145 145

164 173

108173

2012 2013 2014 Run RateEnd 2015

Sevan Driller Sevan BrasilRig No. 3 Rig No. 4

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*) Excluding bonus element and reflecting additional dayrate in operating year 2 of USD 36k/day for Sevan Driller. Assuming dayrates of USD 500,000 for Rig No.3 and Rig No.4 with start-up in Q4 2013 and Q2 2014 respectively, mobilization fee to cover costs. Technical uptime from 80% to 95% after 12 months of operation for newbuilds.

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Strategic priorities in Sevan Drilling

• Lower risk, operational excellence− Stable operations for Sevan Driller

− Construction of newbuilds on schedule and budget

− Solid financial position and adequate leverage

• Time to look ahead− From one to two revenue sources in

2012, to four in 2014

− No significant increase in overheads

− Financial leverage to decrease

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Projected revenue development *)

Revenue range depending on dayrates on Rig. 3 and Rig. 4

*) Revenue run-rate at end 2015: Lower range based on dayrates of USD 450,000 for Rig 3 and Rig 4. Higher range based on dayrates of USD 550,000. Assuming a technical uptime of 95%

Dayrates at USD 450k/day

Dayrates at USD 550k/day

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Sevan Drilling Rig no 3 on schedule

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10% Probability 90% Probability Actual• 49% overall completion• Living quarters and drill-floor integrated to the

main hull in Q4• All main equipment deliveries are on schedule

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Sevan Drilling Rig no 4 on schedule

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10% Probability 90% Probability Actual• 34% overall completion • Erection of lower part of main hull is ongoing• Living quarters and drill-floor according to plan

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New builds: Marketing considerations

• Active and broad marketing of new rigs

• Seeking long-term contracts− 3 years or more

• Preferably with an blue-chip operator

• Day rates target − Reference equivalent to mid-point of Petrobras

tenders

• Sevan Drilling offers− Rigs that fit operators’ requirements

− Ability to deliver services required

− Ability to deliever the rigs on time

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Key investment considerations

• Risk has been significantly reduced over the last 12 months

• Continued focus on safe and efficient operations

• Time to focus on earnings potential

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Risk 2011 2012 2015

Technology High Proven Proven

Operational High Medium Low

Market Medium Low Low

Financial High Medium Low

Start-up High Medium Low

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Appendix

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Sevan Drilling

• Low cost efficient design for exploration and development drilling

− High deck loads− Stable motion characteristics− Safe and efficient to operate

• In operation offshore Brazil with two rigs and another two on order

• Designed to operate in deep and ultra-deep water

• A stable work platform for long term operations

− Simplified training and operations

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Cost efficient operations and construction

• Cost efficient construction− 4 similar rigs from same yard− Effective design, yet top of the line

equipment− Significant cost advantage in

construction versus both peers and previous rigs

− Long term advantage in maintenanceand spare parts

• Cost efficient operations− Stable operating environment− Significant operational improvement

seen over last 12 months− Strong and experienced organisation in

a young company

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• 142 Bboe of deepwater resources have been found and developed globally

• 50% has been produced

• 174 Bboe have been found but have not yet been developed

• Deepwater development backlog amounts to 55% of volume discovered so far

• Another 590 Bboe of resources are expected to be discovered

• 90% higher than what has already been discovered

• Overall, based purely on resource numbers, less than 15% of the global deepwater drilling effort that is due to happen in the past and future, has already taken place

Summary of global deepwater drivers – stage set for growth

*Water depths 400-5000 feet**Water depths exceeding 5000 feet

Global oil and gas deepwater resource inventory

-37

52

107

-72

59

122

484

-75

67

174

591 831

Produced Developed Discovered Yet to find Currentinventory

Ultra deepwater*

Deepwater**

• Exploration wells• Development wells• Infill wells• Intervention

appraisal

GLO

BAL

INV

EN

TOR

YA

CTI

VIT

Y

billion boe

Source: Rystad Energy UCube

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Global discoveries

Source: Rystad Energy UCube

Global discoveries by water depthMillion boe/decade

Discoveries of oil and gas deeper than 400 ftMillion boe/decade

(much unconventional from 2000s)