Rig Market Regional Challenges from a Risk Managers perspective. Svein Bergstad Director of Risk & Insurance 24 October 2013

Transcription

1 Rig Market Regional Challenges from a Risk Managers perspective Svein Bergstad Director of Risk & Insurance 24 October 2013

2 Content Who is Seadrill? Rig market Insurance challenges and compliance 2

3 Seadrill Who We Are... Most modern fleet of all the offshore drillers Diverse asset base of 64 units 31 drillships & semi-submersibles (10 Under Construction) 31 jack-up rigs (12 Under Construction) 3 tender rigs Global reach including harsh environment Current market capitalization ~ US$21.7 bn Broad customer base with contract backlog ~ US$19 bn Dividend annualized ~ US$1.7 bn Market Leading Track Record of Value Creation 3

4 Seadrill Concept Premium Assets - One of the youngest fleets in the industry Existing rigs Units Ultra-Deepwater units Transocean Seadrill Ensco Noble Diamond 10 Capability Safety and operational track record results in repeat business Newbuilds Average Age Newbuilds Deepwater units Seadrill 3 Ensco 7 Transocean 14 Noble 15 Diamond 23 Presence in all major offshore markets - standardized and leverage off common equipment Available assets and organic growth Build on speculation and deliver on time 35 Rigs delivered since Rigs under construction 4

5 Modern Fleet & High Exposure to Premium Segments One of the largest Offshore Drillers with a Modern Fleet and Exposure to Premium Segments Ultra-Deepwater Units Average Floater Age % Ultra-Deepwater of Total Floaters Number of units % of Total Floaters Jack-Up Units Average Jack-Up Age % of Jack-Up fleet >350 Water Depth Number of units % of Total Floaters Maersk Vantage Seadrill Rowan Transocean Aban Offshore Ensco COSL Noble Source: ODS Petrodata 5

6 Market Outlook 6

7 Investment Slowing & Cash Flow Declining Global E&P Investments and Free Cash Flow USD billion Investments Free Cash Flow Is this bad news for Seadrill? 7 Source: Rystad Energy 7

8 ...However, Slowdown Driven by Onshore Capex for North America focused E&P s USD million nominal Capex for non-north America focused E&P s USD million nominal % % Source: Rystad Energy Seadrill is in a good position to capitalize 8

9 and Growth Coming from Ultra-Deepwater Global liquids production, by land and water depth Global offshore production by water depth Million bbl/d CAGR = 1.3% CAGR Thousand boe/d % 2% % mbbl/d 16 mbbl/d 1% mbbl/d Shelf (to 400 ft) Deep water ( ft) Ultra deepwater (5000+ ft) 9 Source: Rystad Energy 9

10 The Golden Triangle lives on 10

11 Market outlook fundamentals and trends Market fundamentals Increasing energy demand, declining production and stable oil prices provide strong fundamentals for oil companies and drillers Strong rebound / growth in E&P spending Trend towards more challenging and complex resources continues. The next barrels of oil will come from: More complex wells (HPHT, highly deviated, managed pressure) In more challenging locations (harsh environment, remote / frontier area) Under increased regulatory oversight 11

12 Floater Supply & Demand Balance Supply/demand bridge for floating drilling units in 2020 Supply* Demand ~ Current Fleet Newbuilds - Including 29 rigs to be built in Brazil. Potential Supply Possible Retirements Additional Rig Requirements 2020 Demand Source: Rystad Energy 12

13 UDW Replacing Aging Deepwater Fleet ~16% of the Ultra-Deepwater Fleet is Operating in Ultra-Deepwater Source: ODS Petrodata 13

14 Bifurcation Amongst Asset Classes Floater Utilization by Asset Class UDW floaters: Dayrate development Modern (2005+) vs. vintage (2004 and older) units Dayrate (kusd) Jan-11 Jul-11 Jan-12 Average duration, new (3 mhts rolling) Dayrates, new (3 mhts rolling) Jul-12 Jan-13 Jul-13 Average duration, vintage (3 mhts rolling) Dayrates, vintage (3 mhts rolling) 0 Source: Fearnleys 14

15 New Equipment Commanding Higher Dayrates Ultra-Deepwater Floaters Jack-ups >350 Water Depth Customers Demand Better Performance and Safety of New Equipment Source: ODS Petrodata 15

16 Ultra-deepwater Market Very limited UDW availability Order activity slow and expected to remain with large players Orderbook to be absorbed by replacement of old mid- and deepwater fleet Expect increased bifurcation in rates between older (5 th Gen) and newer UDW rigs Demand expected to grow significantly in West Africa with large drilling campaigns ahead USGoM to continue rebound post Macondo development of deepwater discoveries driving demand Brazil expected to have limited incremental demand 16 Sources: Pareto Research, Fearnleys Offshore, DNB Securities 16

17 Jackup Market In , increased demand was met with reactivations (utilization rates increased) By 2012, with nothing left to reactivate, dayrates have increased Increase in demand continues in 2013 with limited availability (including newbuilds) +27% in firm tenders, +14% in overall open demand over the past 4 month, despite 15% more awards (rig years) Continued upward pressure on dayrates 17 Sources: IHS (ODS), Pareto Research 17

18 Promising rig market - what about insurance? Risk A probability or threat of a damage, injury, liability, loss, or other negative occurrence that is caused by external or internal vulnerabilities, and that may be neutralized through preemptive action. Insurance A promise of compensation for specific potential future losses in exchange for a periodic payment. Insurance is designed to protect the financial wellbeing of an individual, company or other entity in the case of unexpected loss. 18

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21 Compliance with requirements Comply with the International Insurance Requirements (IMO) 21

22 Limited compulsory insurances for drilling contractors International Convention on Civil Liability for Bunker Oil Pollution Damage (BUNKER) Entry into force: 21 November

23 Compliance with requirements Comply with the International Insurance Requirements (IMO) Comply with the insurance requirements in accordance with applicable law in the area of operation 23

24 Local content requirements Change in government resulting in changes in law Regulatory challenges & Political instability 24

25 Compliance with requirements Comply with the International Insurance Requirements (IMO) Comply with the insurance requirements in accordance with applicable law in the area of operation Comply with the contractual requirements in the drilling contracts 25

26 Oil companies and contractors view risk differently: Customers often expect us to view it the way that they do, on a project basis Contractors view risk on a fleet basis Reducing risk through contracts: Contractor is responsible for rig and crew & Operator is responsible for its well 26

27 Contractual risk assessment AVOID ACCEPT RISK TRANSFER REDUCE 27

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29 Compliance with requirements Comply with the International Insurance Requirements (IMO) Comply with the insurance requirements in accordance with applicable law in the area of operation Comply with the contractual requirements in the drilling contracts Comply with the insurance requirements in the loan agreement 29

30 Mortgagees protection NMIP 1996 Chapter 7 Chapter 7 of the Plan gives the Mortgagee protection under the H&M policy. The chapter states that a Mortgagee has certain rights, for example; changes and/or cancellations of the policy will not be valid for the Mortgagee unless they have been notified. Further, the Plan s chapter 7 prevent compensation being paid to the owners exceeding 5% of the of the sum insured unless otherwise agreed. The Insured is required to declare the Mortgagee to the policy. When declared, the Mortgagee s interests are protected by the same insurance terms as the owner s insurance. 30

31 Mortgagees protection continue Cut Through Clause This is a clause relevant to reinsurance arrangements. Seadrill have fronting policies for some territories where local insurance is legally required. The cut through clause does not need to reference the Loss Payee/Mortgagee, whose interests are dealt with in the Loss Payable clause. The clause is purely a vehicle which allows the claim handling to bypass the local policy. The claim is therefore handled by the claims leader (currently Gard) in the usual manner. 31

32 Mortgagees protection continue Notice of Cancellation Clause NMIP gives 14 days notice of cancellation in the event there is a material alteration of the risk 3-10 or non payment of premium 6-2. Seadrill s policy extends this to 30 days. Fleet Lien Waiver Protects the interests of the lender to the rigs that are relevant to them when the asset is part of a large fleet. Forms part of the Broker Letter of Undertaking. Brokers agree to this in their Letter of Undertaking when it has been attached to the policy with the leaders agreement. 32

33 Compliance with requirements Comply with the International Insurance Requirements (IMO) Comply with the insurance requirements in accordance with applicable law in the area of operation Comply with the contractual requirements in the drilling contracts Comply with the insurance requirements in the loan agreements Comply with the Seadrill risk profile 33

34 Self assessment The insurance provisions in the drilling contracts do normally in no way limit the liability of CONTRACTOR under the CONTRACT. Some of the issues to consider; Downtime provisions vs loss of hire insurance Buyback of named windstorm insurance in US GoM Liability and indemnity provisions in contract vs P&I and/umbrella liability insurance Area of operation political stability vs political risk insurance Selection of underwriters - hold an acceptable rating (S&P/AM Best) - understand our business and our needs - be aware of the difference between rate lead, claims lead and following market - worship the same values as ourselves 34

35 Compliance Comply with the International Insurance Requirements (IMO) Comply with the insurance requirements in accordance with applicable law in the area of operation Comply with the contractual requirements in the drilling contracts Comply with the insurance requirements in the loan agreements Comply with the Seadrill insurance requirements and risk profile 35

36 Thank you for your attention! 36