Pareto Securities 23rd Annual Oil & Offshore Conference September 14-15, 2016 Oslo, Norway www.paragonoffshore.com
Safe Harbor Statement This material contains statements that are forward looking statements about Paragon s business and financial performance. These statements can be identified by the fact that they do not relate strictly to current or historical facts. Each future projection is a forward looking statement that involves certain risks, uncertainties and assumptions. These include but are not limited to operational risks, contract backlog, earnings, costs, cost reductions, revenue, rig demand, fleet condition or performance, shareholder value, contract commitments, dayrates, contract commencements, contract extensions or renewals, contract disputes, industry fundamentals, customer relationships and requirements, strategic initiatives, future performance, growth opportunities, market outlook, ability to achieve value through the company s Chapter 11 filing, ability to implement the transactions contemplated by the Revised Plan, the timing of any court proceedings and their outcomes, plans for the remaining Prospector rigs under construction, and other factors including those detailed in Paragon s filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those indicated. Paragon disclaims any duty to update the information presented here. www.paragonoffshore.com 2
Overview of Paragon Offshore HISTORY WORLDWIDE PRESENCE Shared history with Noble Corporation from 1921 to 2014 NW Europe 9 1 Rig Type PGN + PROS Newbuild Options Jackups 34 3 Floaters 6 0 Spin-off completed 1-Aug-2014 Acquired Prospector Offshore in Nov-14 GoM 11 4 ME 7 1 China 3 STRATEGY Africa 3 India 3 SEA 1 Provide safe, reliable, and efficient operations Under Construction Jackups Floaters Leverage operational excellence and local knowledge to grow business Evaluate opportunities to renew fleet; focus primarily on jackups RELATIVE JACKUP FLEET SIZE PGN s standard spec assets meet majority of customer requirements at lower price point, with less downtime, and comparable operational efficiency than newbuild competition 3
Paragon s Competitive Advantages High quality low cost operations Experienced, well-trained people Well-maintained, reliable rigs Long-standing customer relationships Industry-leading work processes Strong Safety and Environmental culture Performance culture Improved capital structure with good liquidity post-restructuring The rig itself is only one component of what a Drilling Contractor delivers Without the Contractor s People, Processes, Principles, and Performance, a rig is just a rig, no matter how new it is 4
Safe, Reliable, Efficient Operations Continuously improving operational performance Operational Downtime 5 4 3 2 1 0 Days % 3,400 3,355 2.51 2.55 1.78 0.8 2013 2014 2015 2016 Q2 Consistently better safety performance than Industry Expenses down more than operating days 3,300 3,200 3,100 3,000 2,900 2,800 2,700 1H 2016 Days & Rig-Based Expenses $/Day Budg. Op. Days -12% 2,960 Actual Op. Days $131,600 Budg. Op. Costs -21% $104,300 Actual Op. Costs $140,000 $130,000 $120,000 $110,000 $100,000 $90,000 $80,000 5.0 4.0 3.0 2.0 1.0 0.0 Total Recordable Incident Rate Paragon TRIR IADC TRIR Paragon s vision is to be the High- Quality, Low-Cost Drilling Contractor 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 We have a culture focused on continuously improving performance to ensure we meet and exceed customer expectations 5
Where Are We in the Restructuring Process? Acted quickly to commence our restructuring believe we may see more in our industry Reached agreement on a revised restructuring plan Upon emergence much greater runway if downturn persists Expect >$450 million of cash on balance sheet Only financial covenant until 2019 is minimum liquidity of $103 million No debt due until 2021 Noble settlement preserves liquidity; assists with Mexican tax assessments Preserved majority ownership for existing shareholders February 14 Filed Chapter 11 Timeline June 21 August 5 September 27 Early to Mid 4Q Beginning of confirmation hearing Revised restructuring plan filed with support of Bondholders and Revolver Lenders Confirmation hearing resumes; anticipate ruling from Court in October Expect to emerge from Chapter 11 6
What Paragon Should Look like After Restructuring Today Available Cash: >$950 million (as of 7/31/16) After Emerging >$450 million Debt Categories: Bonds: $ 984 million $ 60 million Term Loan: Revolver: Prospector Sale-Leaseback: Total Debt on Balance Sheet: $ 641 million $ 796 million* $ 210 million** $2,631 million $ 641 million $ 631 million* $ 210 million** $1,542 million* Converted to new Term Loan and Covenants eased Cash Interest Expense: ~$ 135 million/year ~ $75 million/year Paragon Shares (Equity) Outstanding: ~88 million - 100% by current shareholders ~ 166 million - 53% by current shareholders - 47% by bondholders * Includes $87 million in Letters of Credit ** Proforma for September 30, 2016 7
Industry Outlook The current market is challenged Near term outlook will continue to be uncertain Paragon consolidating around key markets Producers have significantly reduced capital budgets; some have had multiple budget reductions Brent prices and European gas prices continue to be volatile 4 th quarter prices will be important factors for 2017 capital budgets There is some jackup tender activity in different regions and expect an increase in activity in 2017; >150 potential tenders reported for work beginning in 2017 Talks continue around a production freeze, but OPEC production is at a peak Worldwide crude inventories are high Shipyards full of uncontracted rigs under construction, both floaters and jackups Scrapping of old or obsolete rigs has accelerated, more floaters than jackups Credit markets continuing to place pressure on energy companies With limited activity in 2016, Paragon has retrenched to key markets in the North Sea, Middle East, and India while maintaining business development activities in West Africa, Asia, and Mexico Paragon plans to exit Brazil at the end of 2016; last working rig recently departed Brazil Paragon s main focus is to position for eventual industry recovery Maximize liquidity Minimize discretionary capex Put idle rigs back to work Maintain optionality 8
Historically, Downturns Have Lasted Less Than 24 Months; We Appear to Have Turned the Corner on Commodity Price 100% Percentage of Oil Price at the Trough Vs. the Peak (100%) of Each Downturn 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Nov. 85 Jun. 08 Nov. 00 Jul. 87 Jun. 92 Example Oil Price June 2014: $105.79 Oil Price February 2016: $29.90 # Months Since Peak: 20 Lowest price as % of original high price: 28% Longest Downturn 24 months Jun. 14 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Length of Downturn Number of Months from Maximum Oil Price to Lowest Price Before Rebounding Dec. 96 www.paragonoffshore.com 9
But Pressure Could Keep Us Range-Bound in the Near Term Number of Long or Short Bets on Oil 400,000 300,000 200,000 100,000 0-100,000-200,000-300,000 Short Bets track oil price Oil Price $/bbl 90 80 70 60 50 40 30 Commodity traders continue to influence prices As prices approach $50, Short Bets increase As prices approach $40, Short Bets decrease As prices approached $50, some US onshore rigs returned to work, adding to supply 8/28/2015 9/27/2015 10/27/2015 11/26/2015 12/26/2015 1/25/2016 2/24/2016 3/25/2016 4/24/2016 5/24/2016 6/23/2016 7/23/2016 8/22/2016 Strong U.S. dollar negatively impacting oil prices Short Bets Net Long Bets Long Bets WTI Price www.paragonoffshore.com 10
General Cycle Evolution and Paragon Positioning Utilization ILLUSTRATIVE HS Dayrates Standard Dayrates Paragon positioned to compete effectively in Phases 3 and 4 : Lowest possible cost structure to withstand low/recovering dayrates High-quality service delivery/operational performance Focused on putting rigs back to work as quickly as possible Looking for fleet renewal opportunities when recovery begins Phase 1 High utilization Phase 2 Utilization begins to fall Phase 3 Utilization troughs Phase 4 Recovery begins Std. and HS rates both high, but HS earns a premium. Customers choose right rig for the job Std. dayrates begin to fall. HS rates hold up before they also begin to drop as competition increases Fierce competition emerges as dayrates approach cash breakeven. Customers may have their choice of HS vs. Std., but HS does not always win the day Dayrates begin to diverge again as activity and utilization increase. Std. rigs find best use, HS rigs begin to be used in appropriate application www.paragonoffshore.com 11
Focusing Utilization for Paragon s Existing Fleet Suitability for High Spec JU P&A/ Decom 100% 80% 60% 40% 20% 0% Workover 6 31 63 20 27 65 68 13 5 Focus for High Spec Fleet Focus for Standard Spec Fleet Development Drilling Operational Complexity Paragon January 2015 Split by Rig Activity 50 50 Exploration Drilling 3 14 41 53 Mexico North Sea West Africa India Middle/Far East ILLUSTRATIVE Deeper water; HPHT 47 38 Total In a differentiated market, where Standard Spec and High Spec rigs find their best use, historical data supports Standard Spec rigs finding work in operations requiring lower capabilities and/ or complexity However, still must account for individual preferences where customers may prefer new/high spec rigs, competition from local contractors, but also price sensitivity and a desire by customers to have skilled, reputable service providers Workover Development Exploration Other www.paragonoffshore.com 12
278 Working* Jackups: >50% of Working Rigs Older Than 10 Years Norway 11 Saudi 43 Mexico 23 GoM 4 UK 9 Neth. 2 Den. 6 Egypt 10 UAE 29 Qatar 8 Iran 23 Thai. 8 Mal. 4 China 28 Vietnam 8 Nigeria 2 India 32 Indo. 3 Younger <10 yrs old (133) Location Tot. Jus (278) Older Rigs >=10 yrs old (145) Other Countries 27 * Working = Under contract and with a status defined as accommodation, drilling, moving to location ; standby Source: IHS Petrodata 9.2.16 www.paragonoffshore.com 13
Market by Market Review Highlights Mexico OPTIONALITY Paragon has no rigs in Mexico but jackups stacked just across border in US GoM in anticipation of recovery Pemex Funding issues resulted in much lower rig count Pemex needs to drill more wells to stem production decline Pemex no longer only operator in Mexico with potential opportunities for IOCs in the future North Sea KEY FOCUS AREA Paragon has a long history of efficient operations in the North Sea New contract for the MSS1 with several follow-on opportunities North Sea is a mature basin with growing decommissioning market Africa OPTIONALITY Paragon has extensive experience working in West Africa Jackup market primarily driven by smaller companies drilling for oil Potential market for idle rigs currently in other markets Brazil EXIT DPDS3 has departed with little or no future opportunities for our rigs in Brazil Market shrinking for all drilling contractors Middle East KEY FOCUS AREA Historically strong market for Paragon Middle East producers focused on expanding production capacity Positioned with rigs in the right place to capture upside when the market recovers India KEY FOCUS AREA Consistent market for Paragon with long term work Anticipate steady future demand Very competitive market Southeast Asia OPTIONALITY Home to numerous speculative jackups owned by statesupported contractors Premium for experienced contractors going forward Potential market for stacked rigs in US GoM 14
Jackup Rig Construction Update 120 80 40 0 109 9 Total Newbuilds to be Delivered Contracted Rigs 109 Anticipated Jackup Deliveries Through 2020 15 100 50 Rigs Under Construction-No Contract 7 21 6 Completed & on standby China Singapore Other (UAE, India, Indonesia) 1 New order flow has ceased Very little activity in Chinese yards Some rigs still being completed and will go on standby in the yards Entire Chinese Yard-Bank-Owner system under stress and looking for solutions Recognition that there is no market for these rigs today Rig delivery dates likely continue to be extended Source: IHS Petrodata 9.2.16 www.paragonoffshore.com 15
Paragon s Near-Term Focus Continued Focus on Operational Excellence Successfully emerge from chapter 11 process Identify additional opportunities to eliminate waste and reduce cost Contract Drilling Services, Corporate G&A, and Shorebase costs Control what we can Position Paragon for eventual industry recovery Maintain as much liquidity as possible-cash position continued to build through July 2016 Minimize discretionary capital spending Put idle rigs back to work in key operational regions Maintain optionality in other markets www.paragonoffshore.com 16
Questions Safe Reliable Efficient