DISCLAIMER Statements contained in this press release that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include words or phrases such as anticipate, believe, estimate, expect, intend, plan, project, could, may, might, should, will and similar words and specifically include statements involving expected financial performance, effective tax rate, day rates and backlog, estimated rig availability; rig commitments and contracts; contract duration, status, terms and other contract commitments; letters of intent or letters of award; scheduled delivery dates for rigs; the timing of delivery, mobilization, contract commencement, relocation or other movement of rigs; our intent to sell or scrap rigs; and general market, business and industry conditions, trends and outlook. Such statements are subject to numerous risks, uncertainties and assumptions that may cause actual results to vary materially from those indicated, including commodity price fluctuations, customer demand, new rig supply, downtime and other risks associated with offshore rig operations, relocations, severe weather or hurricanes; changes in worldwide rig supply and demand, competition and technology; future levels of offshore drilling activity; governmental action, civil unrest and political and economic uncertainties; terrorism, piracy and military action; risks inherent to shipyard rig construction, repair, maintenance or enhancement; possible cancellation, suspension or termination of drilling contracts as a result of mechanical difficulties, performance, customer finances, the decline or the perceived risk of a further decline in oil and/or natural gas prices, or other reasons, including terminations for convenience (without cause); the cancellation of letters of intent or letters of award or any failure to execute definitive contracts following announcements of letters of intent or letters of award; the outcome of litigation, legal proceedings, investigations or other claims or contract disputes; governmental regulatory, legislative and permitting requirements affecting drilling operations; our ability to attract and retain skilled personnel on commercially reasonable terms; environmental or other liabilities, risks or losses; debt restrictions that may limit our liquidity and flexibility; our ability to realize the expected benefits from our redomestication and actual contract commencement dates; cybersecurity risks and threats; and the occurrence or threat of epidemic or pandemic diseases or any governmental response to such occurrence or threat. In addition to the numerous factors described above, you should also carefully read and consider Item 1A. Risk Factors in Part I and Item 7. Management s Discussion and Analysis of Financial Condition and Results of Operations in Part II of our most recent annual report on Form 10-K, as updated in our subsequent quarterly reports on Form 10-Q, which are available on the SEC s website at www.sec.gov or on the Investor Relations section of our website at www.enscoplc.com. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements, except as required by law.
When will we see the light at the end of the tunnel? To know this we need to know what is happening with the Price of Oil! Supply and Demand Part 1
RECAP FROM LAST MAY SAPC CHAPTER MEETING. WHERE IS OIL HEADING Ignore the Dreamers (Traders) that are talking the Market up or Down! Temporary impacts can have an impact but most of it will be short term (strike in Kuwait, fires in Canada, attacks on platforms in Nigeria Consider these facts: 1. US oil production has peaked and will drop by 1 million BBLs between 2015 and 2016. Other countries are going thru the same crisis in lost production. 2. The Debt in the Energy Market worldwide has been devastating. The survivors will not try to ramp up production or be able to get the finances for it. 3. The geopolitical turmoil in the Mid-East will play a factor. Iran and the Saudi Conflict will not go away as will there be issues with a number of other OPEC Countries
SAUDI IS SURROUNDED!
TODAYS CONSIDERATIONS Supply and Demand is heading towards a balance. There still remains excessive inventories thru out the world. Demand will continue to rise. Minor fluctuation on the Supply side will continue with the less stable countries. Saudi still calls the shots with 2 million spare capacity! Future developments will not be financially viable due to the lift costs. Not enough investment is being made in exploration (2015 lowest new conventional discoveries since 1952. Geopolitical tensions with OPEC countries will continue The Mid-East oil industry will remain relatively robust due to the low cost of producing
WHERE OIL WILL BE OVER THE NEXT YEAR. Do not expect to see oil below $40/bbl unless the world economy tanks, driving down consumption Do not expect to see oil above $60/bbl unless some major incident happens that gets the traders/speculators worked up. (Major disruption) Oil should trade at $50/bbl (+/- $10) Long term the price of oil has no choice but to continue to rise as supply has trouble meeting demand.
US ENERGY INFORMATION ADMINISTRATION
LETS TAKE A LOOK AT THE PAST TO FULLY UNDERSTAND WHAT HAS CHANGED TODAY AND WHERE WE ARE HEADED!!!
LET S TURN THE CLOCK BACK TO 2013
OIL PRICE CONSOLIDATION FROM 2011 TO 2014
ESTIMATED BREAK EVEN POINTS IN 2013
WHAT THE EXPERTS WHERE PREDICTING IN 2013 PRIOR TO US THANKSGIVING DAY NOV 2014 OPEC MEETING
CAPITALISM AT WORK LEAVE IT TO THE YANKS TO SCREW THINGS UP
SOMETHING HAD TO GIVE AND IT DID!!!!!!!!
PRICE OF BRENT OVER THE LAST 10 YEARS
$ billions $250 $200 $150 $100 $50 MARKET CONDITIONS Major & European IOCs Upstream Capital Spending Outlook $218 $208 $181 $126-45% $120 Substantial reduction in upstream capex among Major & European IOCs since 2013 unprecedented decline in exploration spending 2016 upstream capex for Major & European IOCs expected to decline ~30% year-over-year, but bottoming in 2017 $0 Significant pullback in spending will affect supply in the future Source: IHS Energy Notes: Group of Major & European integrated oil companies includes BP, Chevron, Eni, ExxonMobil, OMV, Repsol, Shell/BG, Statoil and Total; historical years include acquisitions; 2016 and 2017 estimates exclude acquisitions
PATH TO RECOVERY Commodity Breakeven Economics Offshore Rig Supply Catalyst Markets Improvement / stabilization in oil prices Re-engineering / standardization / innovation Retirement of older, less capable assets Brazil opens pre-salt to more players Cost deflation and efficiency gains Deferral and cancellation of newbuild deliveries Mexico offshore lease sales and entrance of international operators
OFFSHORE BREAKEVEN ECONOMICS IMPROVING Offshore Outlook Customers attention has turned to project re-engineering, efficiency gains and better expense management Cost deflation across supply chain: operators, service companies Statoil Johan Castberg BP Mad Dog Phase 2 Recent Customer Commentary on Deepwater Projects Reduced breakeven cost from >$80/bbl to <$45/bbl through supply chain savings, optimized project design and standardized and simplified solutions Cost estimates reduced to less than $9 billion from prior estimate of $20 billion Project re-engineering through standardization and scope optimization, coupled with industry deflation, resulted in significantly less capital required to develop approximately 90% of resources Break-even economics are improving significantly for offshore projects Shell Vito Lowered estimated breakeven cost from >$60/bbl to $45/bbl through project re-scoping Sources: Statoil 4 February 2016 Capital Markets Day; BP 17 June 2016 Bloomberg interview; Shell Capital Markets Day 7 June 2016
OFFSHORE BREAKEVEN ECONOMICS IMPROVING Project breakevens for pre-fid deepwater projects have been reduced to $45 per barrel on average Brazilian pre-salt project breakevens under $40 per barrel on average Cost reductions have led to an average project breakeven of $40 to $45 per barrel Average breakeven prices for future projects on Norwegian continental shelf have been reduced from $70 per barrel to approximately $40 per barrel Deepwater single-well breakeven economics between $20 per barrel and $40 per barrel for brownfield developments in U.S. Gulf of Mexico Sources: Shell Capital Markets Day 7 June 2016; Maersk Earnings Release 12 August 2016; Statoil 29 August 2016 Upstream Interview; Chevron 29 April 2016 earnings conference call
FUTURE CATALYST MARKETS: BRAZIL In 1Q16, the Brazilian Senate passed a bill that would eliminate requirement for Petrobras to manage all pre-salt operations and hold a minimum 30% stake in pre-salt projects More recently, Statoil conditionally acquired Petrobras 66% operating interest in BM-S-8 offshore Brazil including the Carcará discovery for $2.5 billion Diversification of customer base offshore Brazil is ongoing with outstanding tenders from Premier, Total and Chevron We believe in the strong fundamentals of Brazil and the fundamentals of its geology. We will be looking at a substantial part of our production from Brazil. Ben van Beurden, Shell CEO February 2016
FUTURE CATALYST MARKETS: MEXICO During 4Q15, an auction was completed for shallow-water blocks offshore Mexico, awarding licenses to several exploration and production companies Deepwater blocks are scheduled to be auctioned in late 2016 with 26 E&Ps registered for participation including several integrated oil companies Regardless of what happens in the international context, Mexico will move forward with the energy reform implementation. Enrique Peña Nieto, President of Mexico February 2016
JACKUPS FLOATERS ATTRITION OF OLDER RIGS 60 more floaters could be retired by year-end 2017 if attrition continues at similar rates observed throughout the downturn Retired to Date 63 floaters retired since 3Q14 Currently Idle ~35 floaters >30 years of age idle without followon work could be retired Expiring Contracts ~25 floaters >30 years of age have contracts expiring before YE17 without followon work could be retired Up to 150 additional jackups could be retired as expiring contracts and survey costs lead to the removal of older rigs from drilling supply Retired to Date 20 competitive jackups retired since 3Q14 Currently Idle 87 competitive jackups >30 years of age idle without followon work could be retired Expiring Contracts 63 jackups >30 years of age have contracts expiring before YE17 without followon work could be retired Source: IHS-ODS Petrodata as of August 2016; competitive jackups are independent leg cantilever rigs, retired includes scrapped rigs, announced scrapping and rigs converted to non-drilling units. Historical attrition ratio of 88% for floaters older than 35 years of age and 67% for floaters between 30 and 35 years of age applied annually to rigs that are currently idle or rolling off contract for each age category.
NEWBUILD FLOATER ORDER BOOK 5% 3 Contracted News reports suggest SETE Brasil program could be reduced to 8 newbuilds in total 45% 28 Uncontracted, Under Construction 8 29 SETE Brasil 47% 2 Uncontracted, On Order 3% Source: IHS-ODS Petrodata as of August 2016; marketed competitive floaters
NEWBUILD JACKUP ORDER BOOK 7% 7 Contracted, Established Drillers Zero rigs being built in China by speculators have been contracted 35% 37 Uncontracted, Established Drillers? 61 Uncontracted, Speculators 58% Source: IHS-ODS Petrodata as of August 2016; marketed competitive jackups (independent leg cantilever rigs)
WHAT WILL NEEDS TO HAPPEN BEFORE THINGS PICK UP! Price of Oil needs to stabilize and increase to $60 plus for a period of time by Supply and Demand coming into Balance. In return the following will happen: Gain confidence so people are willing to invest in the Oil Industry Financial communities, stockholders and oil companies. Oil companies borrowing money to pay dividends and not invest in E&P. Numerous countries are highly dependent on Oil Revenues requiring a higher price to stimulate their economies and spend on E&P. Deferred development programs become economically viable. Encourages exploration to replace dwindling reserves/portfolios of the Operators.
WHAT WILL NEEDS TO HAPPEN BEFORE THINGS PICK UP! Operators, Contractors and Service Companies need to actively continue with innovative ways to reduce the overall lift costs Consolidations, reorganizations and bankruptcies to increase significantly over the next couple of years. AMATEUR HOUR IS OVER Going forward only the strong will survive. Rig attrition to continue improving rig supply dynamics. Unfortunately based on a recent report by Clarkson's Platou (Sept 2016) the Jackup market will not balance until 2030 at the current retirement rate of 13 jackups /year. The Floater market is currently much better off and will balance by 2019 provided that the annual retirement pace of 31 rigs/year is maintained.
THANK YOU. ANY FURTHER QUESTIONS?