Pressure Control by the Hour By Stefano de Stefano Counsel, Diamond Offshore 18 May 2016

Transcription

1 Pressure Control by the Hour By Stefano de Stefano Counsel, Diamond Offshore 18 May 2016

2 Disclaimer Statements made during the scope of the presentation that state the Company s or management s intentions, plans, estimates, expectations, anticipations, predictions and words of similar import are forward-looking statements made within the meaning of the Safe Harbor provisions under the Private Securities Litigation Reform Act of Although the Company believes the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove accurate. Important factors with respect to such forward-looking statements, including risks and uncertainties that could cause actual results to differ materially from the Company s expectations, include but are not limited to: The overall market demand for the Company s drilling services, foreign and domestic oil and gas exploration and production activity; dates that drilling rigs will enter service; day rate revenue for the Company s drilling rigs; industry competition; customer preferences and various other risk factors as may be discussed in reports filed with the U.S. Securities & Exchange Commission. The Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in the Company s expectations with regard thereto or any change in events, conditions or circumstances on which any forward-looking statement is based, which speak as of the date of today's presentation. Except where the source is otherwise noted, information presented herein can be found within Diamond Offshore Drilling, Inc. s public filings with the U.S. Securities & Exchange Commission. Please refer to the Company s 10-K, 10-Q or 8-K filings for more detailed information. 2

3 Agenda Why Pressure Control by the Hour Other Industries Deal Structure Risk Allocation Conclusion 3

4 Pressure Control by the Hour 4

5 Why Pressure Control by the Hour Changing Market and Regulatory Environment! Downtime on subsea equipment is the largest cause of nonproductive time 20 days per well for a stack pull $.5M of spread costs + $.5M of direct costs! Increased regulatory burden 30 CFR Part 250, Final Rule April 2016! Skin in the game! Market forces 5

6 Other Industries 6

7 Servitization Across Industries What is it the customer really values? Equipment Customer Objective Aircraft Engines Airlines Fly Passengers Mainframes/Computing Compressors Banks/Data Analytics Pipeline Companies Analyze Data Transport Oil Industrial Turbines Utilities Sell Electricity Medical Imaging Machinery Blow out Preventers Hospitals Offshore Drillers Provide Healthcare Drill Wells 7

8 Deal Structure 8

9 Deal Structure! Sale Leaseback Transaction Diamond received $210M as proceeds from sale of BOPs Diamond makes lease payments going forward! 10-Year Service and Maintenance Contract Diamond pays a daily rate for service, spare parts, upgrades, certification, data monitoring, etc. If downtime occurs because of the subsea stack, then GE is not paid Service Provider has a performance-based incentive/penalty structure! GE Employees Onboard Constant maintenance on spare BOP Faster emergency support during downtime events! Evergreen Certification Constant maintenance eliminates the 5-year overhaul 9

10 Risk Allocation 10

11 Risk Allocation! Risk for Downtime! Risk of Equipment Failure! Risk of Damage to People/Property! Risk of Environmental Event! Risk of Obsolescence! Risk of Inflation! Risk of Market Impacts! Risk of Regulationhighlights or agenda pages The comments and thoughts presented on this slide are the opinion of Stefano de Stefano and are not to be taken as indicative of any obligations, terms, or conditions of the Parties which may have been included in the Pressure Control by the Hour transaction between GE and Diamond. In addition all such thoughts are obviously to be discounted heavily and all the attorneys reading this should definitely seek outside counsel to assist with their own analysis prior to engaging in a project such as this. 11

12 Risk Allocation! Risk of Downtime and Equipment Failure Warranties Uptime guarantees Bonus/penalty structures Liquidated damages A major point of negotiation is duration of the structure! Text highlights or agenda pages The comments and thoughts presented on this slide are the opinion of Stefano de Stefano and are not to be taken as indicative of any obligations, terms, or conditions of the Parties which may have been included in the Pressure Control by the Hour transaction between GE and Diamond. In addition all such thoughts are obviously to be discounted heavily and all the attorneys reading this should definitely seek outside counsel to assist with their own analysis prior to engaging in a project such as this. 12

13 Risk Allocation! Risk of People, Property and Environmental Damage If the cause of the event lies with the equipment, which is maintained by, repaired by, and manufactured by... Pre-existing relationships and allocations Statutory provisions govern much of this liability Choice of law! Text highlights or agenda pages The comments and thoughts presented on this slide are the opinion of Stefano de Stefano and are not to be taken as indicative of any obligations, terms, or conditions of the Parties which may have been included in the Pressure Control by the Hour transaction between GE and Diamond. In addition all such thoughts are obviously to be discounted heavily and all the attorneys reading this should definitely seek outside counsel to assist with their own analysis prior to engaging in a project such as this. 13

14 Risk Allocation! Risk of Obsolescence Who is in a better position to address this risk? Ties in to regulatory concerns (accounting, BSEE) Ties in to manufacturing liability Lease provisions also affected (make-whole payments, give-backs, termination)! Text highlights or agenda pages The comments and thoughts presented on this slide are the opinion of Stefano de Stefano and are not to be taken as indicative of any obligations, terms, or conditions of the Parties which may have been included in the Pressure Control by the Hour transaction between GE and Diamond. In addition all such thoughts are obviously to be discounted heavily and all the attorneys reading this should definitely seek outside counsel to assist with their own analysis prior to engaging in a project such as this. 14

15 Risk Allocation! Risk of Inflation/Market Impacts Who is in a better position to address this risk? Escalator/escalation provisions 5-year price reviews What kind of relationship is there between the Parties? Lease renewal provisions (1 vs. all, caps and floors, indexation, letting it ride)! Text highlights or agenda pages The comments and thoughts presented on this slide are the opinion of Stefano de Stefano and are not to be taken as indicative of any obligations, terms, or conditions of the Parties which may have been included in the Pressure Control by the Hour transaction between GE and Diamond. In addition all such thoughts are obviously to be discounted heavily and all the attorneys reading this should definitely seek outside counsel to assist with their own analysis prior to engaging in a project such as this. 15

16 Risk Allocation! Risk of Regulation New BSEE rules, U.S. Gulf, Brazil, West Africa, UK Lease Accounting ASU (12 APPR 04, 2/26/16) The comments and thoughts presented on this slide are the opinion of Stefano de Stefano and are not to be taken as indicative of any obligations, terms, or conditions of the Parties which may have been included in the Pressure Control by the Hour transaction between GE and Diamond. In addition all such thoughts are obviously to be discounted heavily and all the attorneys reading this should definitely seek outside counsel to assist with their own analysis prior to engaging in a project such as this. 16

17 Conclusion 17

18 The Future of Offshore! Regulation and the low price of oil are driving offshore drillers to be more efficient, and that means more buy-in from the manufacturers! The accounting rule changes will have an effect on all of these structures! There will be more of these structures, but each one will be unique and designed to address the operational imperatives of each set of Parties. 18