Eurasia Drilling Company Limited Capital Markets Day Excellence in Service - Leadership in Growth 14th November 2012 Eurasia Drilling Company Limited
Kim Kruschwitz, VP Marketing & IR PLAN FOR THE DAY Eurasia Drilling Company Limited 3
Agenda 10.00am: Plan for the Day, Kim Kruschwitz, VP Marketing & IR Introduction and Investment Highlights Alexander Djaparidze, CEO Outlook and Strategy Kim Kruschwitz, VP Marketing & IR Onshore and Offshore Operations Murat…
Alexander Djaparidze, CEO INTRODUCTION AND INVESTMENT HIGHLIGHTS Eurasia Drilling Company Limited 5
EDC History Ordered MERCURY jack-up from Lamprell (late-2014 delivery) Acquired Kaliningrad drilling business from LUKOIL (4 rigs) Entered Iraq acquiring 2+1 drilling rigs SATURN jack-up rig acquired from Transocean Schlumberger…
EDC Strategy at IPO Eurasia Drilling Company Limited INTRODUCTION AND INVESTMENT HIGHLIGHTS 7
EDCs 2007 IPO Agenda The Scorecard Organic growth and efficiency improvement Metres drilled grew organically by 15% CAGR during 2007 to 2012 period EBITDA margin grew 21% between IPO and 2012E Metres drilled per crew per day up 40%…
EDCs 2007 IPO Agenda Scorecard (continued) Further growth of customer base and expansion into new markets Metres drilled for LUKOIL, our largest customer, grew 40% from 2007 to 2012E Metres drilled for non-LUKOIL customers nearly…
EDC Investment Highlights Key Attributes Leading Drilling Company Largest onshore driller and only independent Russian offshore driller Strong Results Expanding Prospects Established track record of Exposure to high growth…
EDC Investment Highlights - Implications Leadership - market leading position in innovation and growth Secure fundamentals stable core market environment less volatile than other major drilling markets Growth - multiple growth…
Kim Kruschwitz, VP Marketing and IR OUTLOOK AND STRATEGY Eurasia Drilling Company Limited 12
The Story So Far - Phase 1 Growth & Efficiency 11 120 Phase I Russian oil production v. Urals price 10 100 2005 Q3 2008 9 80 Growth and Efficiency 8 60 Market Rapid production Environment growth 7 40 Soaring commodity 6 20…
The Story So Far - Phase 2 Crisis Response 11 120 Phase II Russian oil production v. Urals price 10 100 Q4 2008 2009 9 80 Crisis Response 8 60 Market Oil price collapse Environment Significant cuts in 7 40 upstream capex 6…
The Story So Far - Phase 3 Re-Gearing for Growth 11 120 Phase III Russian oil production v. Urals price 10 100 2010 2012 9 80 Re-gearing for Growth 8 60 Market Oil price recovery Environment 7 40 Boost in upstream capex 6 20…
Market Outlook Structural Themes 1. Expanding prospects Russian economy highly dependent upon oil and gas industry (ca. 50% State revenues) Sustaining oil production requires more aggressive drilling estimated 7-10% pa drilling…
Market Outlook Structural Themes Geography of operations Head Office Regional/Branch Office Support Base Operational Areas Eurasia Drilling Company Limited OUTLOOK AND STRATEGY 17
Market Outlook Structural Themes Offshore developments Caspian Sea Approx 3% of world oil reserves LUKOIL discoveries in Russian sector Numerous blocks in exploration in Kazakh waters and Turkmenistan in development phase…
Market Outlook Structural Themes 2. Ageing rig fleet ill-suited for increasing drilling complexity Industry issues The Russian drilling fleet Many existing onshore rigs approaching end of 25 year useful life EDC Total Russian…
Market Outlook Structural Themes 3. Industry Structure Drilling industry less cyclical than western spot markets 2,500 Russia vs. North American drilling activity 2,000 1,500 1,000 500 0 Apr-02 Jul-02…
Market Outlook Structural Themes 4. Competition In-house operations being privatized or sold but International operators: challenges of: Barriers to entry Ageing assets with limited capabilities Logistical challenges Cost centre vs…
EDC Strategic Response 1. Grow the business from a Leadership Position '000 mtrs Metres drilled Strategic Leadership 5,000 Bought LUKOILs drilling assets in late 2004 4,000 18.8% CAGR Successful IPO in 2007 3,000 Successfully…
EDC Strategic Response 2. Focus on the most attractive Growth Opportunities Strong revenue growth dynamic in core markets Other large medium-term opportunities tight oil and Arctic Exploring international opportunities 3.…
EDC Strategic Response 4. Leverage the characteristics of Russias market to become our customers partner Seeking to develop long-term relationships Re-engineering the contractual model Anticipating our customers changing needs 5.…
The Next Phase Further significant opportunities Phase I Phase II Phase III Phase IV 2005 Q3 2008 Q4 2008 2009 2010 2012 2013 2015 + Growth and Efficiency Crisis Response Re-gearing for Growth Delivering Growth Market Rapid…
Murat Sampiev, COO ONSHORE AND OFFSHORE OPERATIONS Eurasia Drilling Company Limited 27
Russian Onshore The Legacy Historic context of OFS market Structure Strategy In-house cost-centres Priority to develop new fields and grow Geographically focused/full service lines production as quickly as possible incl. drilling…
Russian Onshore Structural Dynamics Russias strategic imperative to maintain oil production levels is driving higher drilling volumes as oil becomes harder to extract from maturing brownfields barrels Barrels produced per metre…
Russian Onshore Structural Dynamics More complex drilling services and the search for oil in new and more challenging environments will grow in importance EDC well depth /boe Upstream capex per boe 2,600 20.00 Average Measured Well…
Russian Onshore Rigs Over 60% of Russian rig fleet estimated to reach maximum operational life over next 10 years Russian fleet capacity profile Russian fleet age profile Light Medium Heavy 500 hp 750 hp 1,000 hp 1,200 hp 1,500 hp…
Russian Onshore Rigs Most traditional Russian rigs will not meet the drilling requirements of a growing % of fields Typical Russian drilling Limitations v. modern rig spread Uralmash-3000 series or Shallower wells equivalent Up…
Russian Onshore Rigs Modern rigs fit for purpose Modern drilling spread Advantages v. older rig AC VFD Cluster Deeper wells Foreign designed & built rig; 5,000 metres or more 1-8 years old Increased ROP 320-450 MT hook load…
Russian Onshore EDC fleet EDC fleet age 2012 EDCs fleet modernisation programme is focussed on: Refurbishment of Medium Pad/Cluster rigs Workhorses of West Siberia far into the future 28% 34% Up to 5 years Replacement of Light…
Russian Onshore Operating Efficiency Expl. drilling up metres EDC metres drilled per crew per day 65% Y-o-Y Horiz. Metres up EDC Crew Training Centre 120.0 30% Expl. drilling up 110.0 17% Y-o-Y Horiz. Metres up 102% 100.0…
Russian Onshore Utilisation Efficient utilisation of assets is a key driver of EDC profitability 100% Drilling fleet utilisation (excludes Sidetrack rigs) Support organisation optimisation 90% Divested transport & well services 80%…
Russian Onshore Workover and Sidetracking Enhancing recovery from existing wells 2007 2012 EDC 14% of current revenues Workover rigs 88 390 Attractive growth segment Workover & completion crews 48 303 Complementary to existing core…
Russia & CIS offshore Caspian Sea Current EDC Assets ASTRA BMC-150-H jack-up rig 150 ft. (45 m) water depth 15,000 ft. (4,570 m) drilling depth SATURN Keppel Fells CS Mod V jack-up 350 ft. (107 m) water depth 26,000 ft. (7,925…
Acquisitions and Partnerships Acquisitions and partnerships to extend geographic reach, expand complementary services or enable higher quality offering for customers Schlumberger (SLB) transaction Case Study Bought: 19 drilling, 23…
Q&A Eurasia Drilling Company Limited 40
Kim Kruschwitz, VP IR and Marketing MARKETING AND BUSINESS DEVELOPMENT Eurasia Drilling Company Limited 41
Market Context significant changes in just 8 years 2004 Primarily in-house operators pre-2005, cost centre focus Initial transformation shedding non-core activities Improving utilisation and efficiency Competitor…
Surprisingly similar, but also very different Russian onshore drilling models have key differences to RoW that play to EDCs strengths Russia Rest of World L-T contract model Spot market Lower volatility of pricing and margins…
2008/09 Case Study Russian market and RoW Russian drilling market characteristics result in less volatility EDC Experience North America Experience Volumes 2009 metres drilled decreased 7% 2009 average rig count decreased 42%…
Evolution of EDC Customer Mix - Onshore Spun out of LUKOIL in 2004 LUKOIL…
Customers as Partners Anticipating their needs Customers evolving needs EDC development Maintaining brownfield production becoming Stronger, heavier and more versatile fleet an increasingly complex problem Relationship with…
Re-engineering customer relationships and sharing risk intelligently Longer-term agreements improve revenue visibility LUKOIL onshore drilling, completion and workover TNK-BP Orenburg Gazpromneft West Siberia Caspian (Korchagin…
Drilling Market Medium-term outlook reinforces growing complexity of customer needs US bn 20 Russian onshore drilling US billions Horizontal drilling in Russia (000 metres) 18 2015F 4,400 16 2014F 4,000 14 2013F 3,600 12 10…
Russian Onshore EDC fleet EDC fleet age 2012 EDCs fleet modernisation programme is focussed on: Refurbishment of Medium Pad/Cluster rigs Workhorses of West Siberia far into the future 28% 34% Up to 5 years Replacement of Light…
Substantial Medium-term Market Opportunities Tight oil/ Bajenov shale play Distribution of geological formations Western Siberia up to 60-140bn barrels Geography aligns with EDC network infrastructure Modern rigs required to…
Substantial Medium-term Market Opportunities the US Experience kbp 700 Bakken tight oil dynamics 200 Recent US experience in tight oil North Dakota 180 600 500 160 140 Bakken and Eagleford plays show rapid 400 120 growth…
Incremental Growth Opportunities Bolt-on acquisitions in core markets Rig counts in Russia and other major markets 1,500 3,000 Tight oil opportunity (Bazhenov) 1,250 2,500 MOU with LUKOIL/SLB 1,000 2,000 No. of Rigs MENA 750…
Russian Oilfield Services in 2020 Our Vision What will the industry look like Competitive structure Geographic profile Service mix Onshore v offshore The big strategic issues operators and service companies will face Reservoir…
Richard Anderson, CFO FINANCIALS Eurasia Drilling Company Limited 55
Key Financial Highlights Transformation of EDCs Strong track record business reflected in robust operating and 2007 2008 2009 2010 2011 financial results Metres drilled (000s) 3,269 4,041 3,753 4,103 4,777 Resilience of core…
Significant Capex program focused on evolving fleet to meet the most demanding and complex customer needs EDC capital expenditure 32 new onshore rigs m expected in next 3 years: 700,000 26 heavy-weight rigs 6 light-weight/mobile…
EDCs Conservative Debt Profile Substantial debt headroom Strong FCF generation Net debt/EBITDA stable and not to exceed approx. 1.2x if large acquisition EDC US debt rated BB/B (positive outlook) by S&P and BB (stable outlook) by…
Debt Maturity Profile May refinance part of 2013 debt as current market conditions are 250 supportive 203 Broadly naturally 200 hedged 175 155 150 US (million) 118 100 68 50 34 0 2012 2013 2014 2015 2016 2017…
Management Incentive Plan Old Incentive Plan was a modified SAR plan Did not work effectively due to stock price volatility New Plan was tied to meeting yearly EPS targets with thee years vesting EPS closely aligns management…
Disciplined M&A Methodology Financial criteria Recent acquisitions generating attractive returns EBITDA accretive immediately Earnings accretive immediately IRR high teens Unlevered After tax Purchase of Transocean…
Steady Growth in Yearly Dividends 50 47 Dividend per share (US cents) 40 31 30 25 25 20 10 0 2008 2009 2010 2011 Growth business Historically progressive dividend with current payout ratio of 20-25% of earnings…
Outlook 2012 full year guidance October update: Revenues: US 3.175 bln EBITDA margin: at least 24.3% Metres drilled: over 5.8 mln metres 2013 and forward revenue visibility Healthy backlog/pipeline growing strongly 68% of 2013…
Base assumptions underlying EDCs 3 Year Target growth framework Urals blend oil price 70-120 pb Ruble stable at Rbs 31.5/US Rbs and US interest rates broadly unchanged Russian wage and cost inflation +5%-7% pa Onshore drilling…
Alexander Djaparidze, CEO SUMMARY AND OUTLOOK Eurasia Drilling Company Limited 66
Outlook for 2015 3 Year Target Growth Metrics EDC Core Business 2007 2012(E) 3 Year Target Range Revenues (US m) 1,492 3,175 4,500-5,200 EBITDA Margin (%) 21.0 24.3 26 to 28 PAT Margin (%) 11.3 12.0 13 to 15 Net Debt/EBITDA (x)…
EDC Investment Highlights Leadership Secure fundamentals Growth Higher value for our customers Efficiency Commitment to strong Shareholder Returns Eurasia Drilling Company Limited SUMMARY AND OUTLOOK 68
Q&A Eurasia Drilling Company Limited 69
APPENDIX Eurasia Drilling Company Limited 70
Presentation Team One of the founders of EDC in 2002 and its current Chief Executive Officer. Board member of EDC since 2002. Dr. Djaparidze served as the President of PetroAlliance Services Company Limited (which he also helped…
Presentation Team Chief Operating Officer of EDC since January 2010. 26 years in oilfield services sector. From 2009 to 2010 served as Senior Vice President of the Drilling Services Group at Schlumberger Russia. Before joining…
Presentation Team Chief Financial Officer of EDC since July 2008. Board member of EDC since 2011. Chairman of the Board of Directors of Vanguard Natural Resources LLC. Member of the Board of Directors of Transocean Ltd. from…
Presentation Team Vice President Marketing and Investor Relations of EDC since July 2008; VP Marketing of EDC since April 2008. Over 30 years of experience in the oilfield services sector. Prior to joining EDC, Mr. Kruschwitz was…
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