Investor Presentation Fourth Quarter 2016 KCA Deutag is a leading international drilling and engineering company working onshore and offshore with a focus on safety, quality and operational performance www.kcadeutag.com
Disclaimer The distribution of this presentation in certain jurisdictions may be restricted by law. Persons into whose possession this presentation comes are required to inform themselves about and to observe any such restrictions. This presentation contains forward-looking statements concerning KCA Deutag. These forwardlooking statements are based on management s current expectations, estimates and projections. They are subject to a number of assumptions and involve known and unknown risks, uncertainties and other factors that may cause actual results and developments to differ materially from any future results and developments expressed or implied by such forward-looking statements. KCA Deutag has no obligation to periodically update or release any revisions to the forward-looking statements contained in this presentation to reflect events or circumstances after the date of this presentation. 1
Agenda 1 Q4 Key Highlights 2 Business Update 3 Business Unit Financials 4 Group Results 5 Summary 2
Q4 and Full Year Key Highlights KCA Deutag is a leading international drilling and engineering company working onshore and offshore with a focus on safety, quality and operational performance 1 2 3 4 2016 full year revenue and EBITDA of $1,252.2m (2015: $1,668.8) and $262.9m (2015: $289.8m) respectively Q4 2016 Group revenue of $287.6m (Q4 2015: $396.0m) and Q4 2016 EBITDA of $60.1m (Q4 2015: $79.1m) respectively Contract backlog of $5.3bn (at 1 February 2017) across a blue chip customer base Positive cash generation of over $100m with available liquidity of $262m at 31 December 2016 3
Market Overview KCAD operates in low breakeven oil price environments Weighted Average Breakeven Oil Price ($/bbl) 80 70 60 50 40 30 20 10 KCAD core markets Current Brent price Onshore Middle East 15 Shelf 32 Ultra Deepwater Russia Row Deepwater Onshore Onshore 48 41 42 42 43 Extra Heavy Oil 55 North American Shale Oil Sands 56 0 0 10 20 30 40 50 60 70 80 90 100 Source Rystad Energy (May-16) Cumulative Liquids Production in 2020 (MMbpd) International vs. North American drilling markets 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 long term contracts Contract durations and terms more favourable to customers 4
Business update Integrated land drilling Offshore drilling services & design $186.1m / 66.1% of total¹ $(1.2)m / (0.4)% of total¹ $74.8m / 26.6% of total¹ $5.1m / 1.8% of total¹ Land drilling Bentec Bentec Offshore services RDS Strong activity in Oman and Russia Utilisation in Nigeria, Kurdistan and Algeria remains weaker Utilisation now picking up in Europe After sales remains stable with a large increase in component activity 21 Top Drives now secured for 2017 backlog Continued focus on cost savings Most of our International operations continue to perform well despite market conditions Activity levels remain lower in the North Sea and Angola Recent contract wins provides for long term stable backlog Reduced capex spend by E&P companies continues to impact activity A focus on continued cost savings to preserve low level positive EBITDA All activity now brownfield with few opportunities in greenfield 5 1 The % split of LTM EBITDA is calculated using total group EBITDA (including MODUs) of $281.4m (before corporate costs of $18.5m). Note: MODUs LTM EBITDA of $16.6m represented 5.9% of total EBITDA.
Group margin performance 6
Years KCAD operations are diversified across global markets PRESENCE IN KEY AREAS Canada 1 Plat. 150 120 90 60 30 0 129 Europe 58 53 North Africa Middle East 43 North Sea 18 Russia Houston St. Johns Aberdeen (HQ) London North Sea /Norway 26 Plat. Bergen Europe & Caspian 8 Rigs Bad Bentheim Baku Caspian 7 Plat. Middle East 17 Rigs Tyumen Russia 16 Rigs Russia Sakhalin 3 Plat. Africa 11 Rigs LTM Q4 2016 EBITDA split by region Dubai Nizwa Brunei 1 Rig Angola 2 Plat. Regional offices Land Drilling Offshore Services RDS offices Bentec 7 Map excludes work over land rigs, defined as being below 900HP. Map shows position at 1 February 2017.
Health, safety and environmental performance IADC industry average 0.60 2 for 2015 KCA Deutag has continued to achieve satisfactory safety results The group continues to perform ahead of industry peers in the International Association of Drilling Contractors (IADC) Maintaining high safety and operational standards is a key priority for the business KCAD TRIR at end of Q4 2016 was 0.26 1 injuries per 200,000 man hours worked 8 1 Total Recordable Incident Rate per 200,000 man hours. This is a rolling 12 month average. 2 KCAD Total Recordable Incident Rate is directly comparable with IADC s Total Recordables (RCRD) statistic. Note: IADC stands for International Association of Drilling Contractors.
Backlog Status Total contract backlog as at 1 November 2016 Total contract backlog as at 1 February 2017 Contract backlog by BU as at 1 November 2016 Contract backlog by BU as at 1 February 2017 9 Backlog figures exclude revenue generated in the year to date.
Land fleet utilisation Historical and forecast utilisation 10 Contracted utilisation as of 1st February 2017, adjusted to include additional potential contribution from 5 new Russian rig contracts (additional 0.4%, 6.6%, 9.2% and 8.8% contracted utilisation in H1 2017, H2 2017, H1 2018 and H2 2018)
Robust platform services contract backlog @ 15 February 2017 2018 2019 Client Country Assets Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 end date status # Exxon Canada Hebron M ar-46 Under Construction 1 Statoil Norway CAT J (2) M ay-36 Under Construction 2 Exxon Angola Kizomba (2) Jan-27 Stacked 2 AIOC Azerbaijan Azeris, SD, DWG, Cop & Chirag Nov-24 Operating 7 Nexen UK Scott Feb-23 Operating 1 Statoil Norway Oseberg's (4) & Gulfaks (3) Oct-22 Operating 7 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 M ay-21 Operating 3 Total UK Alwyn M ar-20 Stacked 1 Total UK Dunbar M ar-20 Stacked 1 Exxon Norway Ringhorne Dec-17 Stacked 1 COP UK Britannia Jul-17 Stacked 1 Taqa UK Cormorant A & N, Tern, Eider & Harding Jul-17 Stacked 5 Enquest UK Thistle & Heather Apr-17 Operating / Stacked 1 /1 Contract Platform 11 Contracts have been extended or renewed since last call
Land Drilling Financial Performance to 31 December 2016 Q4 2016 Q3 2016 Q4 2015 Q4 2016 Q4 2015 Result Result Result YTD YTD $m $m $m $m $m Revenue 133.6 135.2 157.7 569.6 600.7 EBITDA (post support allocation) 46.7 43.8 55.4 186.5 164.2 Margin 34.7% 32.4% 35.1% 32.7% 27.3% Despite tough market conditions the land business has delivered strong financial results and is significantly ahead of the prior year EBITDA Activity levels remain robust in Russia and Oman We continue to experience weaker market conditions in Nigeria, Kurdistan and Algeria due to weaker utilisation Significant increase in tendering activities Utilisation for the quarter of 58%, which is consistent with the prior quarter 12
Bentec Financial Performance to 31 December 2016 Q4 2016 Q3 2016 Q4 2015 Q4 2016 Q4 2015 Result Result Result YTD YTD $m $m $m $m $m Revenue 16.5 12.4 43.3 75.4 235.4 EBITDA (post support allocation) (2.0) (2.2) 2.3 (0.8) 20.7 Margin -12.2% -17.8% 5.2% -1.1% 8.8% Revenues and EBITDA significantly lower than Q4 2015, but has improved revenue compared to the prior quarter Improved activity during Q4 with a marked increase in tender activity Increase in After Sales and 21 Top Drives now secured for 2017 backlog Continued focus on cost savings 13
Offshore Services Financial Performance to 31 December 2016 Q4 2016 Q3 2016 Q4 2015 Q4 2016 Q4 2015 Result Result Result YTD YTD $m $m $m $m $m Platform Services Revenue 131.0 121.2 159.6 524.2 686.8 EBITDA (post support allocation) 19.2 17.4 24.3 74.9 89.5 Margin 14.6% 14.4% 15.2% 14.3% 13.0% MODUs Revenue 0.0 0.8 18.2 29.4 85.4 EBITDA (post support allocation) (0.2) 1.2 (0.3) 16.7 22.3 Margin 0.0% 140.8% -1.7% 56.5% 26.2% Offshore Services Revenue 131.0 122.0 177.8 553.5 772.2 EBITDA (post support allocation) 19.0 18.6 24.0 91.6 111.8 Margin 14.5% 15.2% 13.5% 16.5% 14.5% Strong performance despite challenging market conditions Lower activity levels continued in Angola and the North Sea Cat J and Hebron projects continuing on schedule to commence operations mid-2017 Recent contract wins provide for stable long term backlog 14
RDS Financial Performance to 31 December 2016 Q4 2016 Q3 2016 Q4 2015 Q4 2016 Q4 2015 Result Result Result YTD YTD $m $m $m $m $m Revenue 14.4 16.9 31.3 75.3 168.1 EBITDA (post support allocation) (0.3) 1.8 (0.5) 5.1 15.8 Margin -2.4% 10.9% -1.4% 6.8% 9.4% All activity now brownfield with few opportunities in greenfield Reduced capex spend by E&P companies continues to impact activity We continue to manage costs in line with project activity 15
Group Results Financial Performance to 31 December 2016 Revenue and EBITDA ($m) Q4 2016 $m Q3 2016 $m Q4 2015 $m FY 2016 $m FY 2015 $m Revenue from business units 295.7 286.5 410.2 1,274.4 1,776.9 Eliminations (8.0) (2.9) (14.2) (22.2) (108.1) Total third party revenue 287.7 283.6 396.0 1,252.2 1,668.8 EBITDA from business units 63.4 62.0 81.2 282.4 312.5 Eliminations 0.2 (0.1) (0.1) (0.3) (1.5) Corporate costs/other (4.6) (5.1) (4.0) (18.9) (18.4) Exchange 1.1 (0.4) 2.0 (0.3) (2.8) Total EBITDA 60.1 56.4 79.1 262.9 289.8 16
Cash flow and working capital Financial Performance to 31 December 2016 Free Cash Flow Working Capital 2 Q4 2016 Q3 2016 Q4 2015 2016 2015 $'m $'m $'m $'m $'m Cash generated from operations 87.1 54.0 68.6 281.5 293.6 Tax paid (6.4) (9.3) (13.7) (38.6) (49.6) Cash flow from operating activities 80.7 44.7 54.9 242.9 244.0 Capital expenditure (15.1) (15.3) (24.9) (105.6) (128.0) Proceeds from sale of Fixed Assets 1.0 0.8 9.7 61.6 13.9 Interest received 5.4 5.1 5.8 21.1 19.5 Other 0.0 0.2 (1.9) 0.0 0.0 Cash flow from investing activities (8.7) (9.2) (11.3) (22.9) (94.6) 9 Interest paid 1 (50.5) (13.2) (50.7) (127.3) (125.7) Foreign exchange 1 10.0 (0.7) (3.3) 20.4 (6.6) Dividend paid to minority shareholders 0.0 (0.5) 0.0 (0.5) 0.0 Acquisition of non-controlling interests 0.0 0.0 0.0 0.0 (25.0) Net Cash flow before debt drawdown/(repayment) 31.5 21.1 (10.4) 112.6 (7.9) Drawdown/(repayment) of debt and debt issuance costs (8.1) (8.0) (1.9) 51.4 (22.2) Net cash flow 23.4 13.1 (12.3) 164.0 (30.1) 17 1 Denotes the effect of foreign exchange rate changes on cash and bank overdrafts. 2 Deltas denote current quarter working capital movement
Capital structure Net leverage as at 31 December 2016 Utilisation 31 st December 2016 Coupon Maturity Facility Rating 3 Recovery Rating 3 Net Leverage 1 Revolver ($250m) 2 19.4 L+400 May-19 Caa1/CCC+ 3/3 0.07x Senior Secured Term Loan 363.3 L(100)+525 May-20 Caa1/CCC+ 3/3 1.38x HSBC Oman Term Loan 64.0 L+400 Dec-20 0.24x Total Bank Debt 446.8 1.70x UK Finance Senior Secured Notes 375.0 7.250% May-21 Caa1/CCC+ 3/3 1.43x Globe Luxembourg Senior Secured Notes 500.0 9.625% May-18 Caa1/CCC+ 3/3 1.90x Total Institutional Debt 1,321.8 5.03x Finance lease & other debt 5.9 - Aug-18 - - 0.02x Gross Debt 1,327.7 5.05x Cash 181.4 0.69x Net Debt 1,146.3 4.36x 18 1 Based on Q4 2016 LTM EBITDA of $263m. 2 Revolver is split $75/$175m non cash/cash, the amount shown represents the cash element. 3 Facility and Recovery ratings shown as at March 2016
Closing remarks Full year EBITDA of $263m and fourth quarter EBITDA of $60m delivered in challenging market conditions Backlog position of $5.3bn across a blue chip company base Strong HSE and operational performance recognised by customers Increase in tendering activity across several regions providing positive outlook for 2017 5m Positive cash generation of over $100m and strong liquidity position at $262m g liquidity position at $245m 19
20 Q & A investor.relations@kcadeutag.com