The Future of Offshore Drilling: Beyond Ultra Deep Chris Beckett, CEO Pacific Drilling S.A. September 22, 2014
Pacific Drilling: Committed to being the Preferred Ultra Deepwater Driller Only 100% high specification, ultradeepwater fleet NYSE: PACD Market Cap: $2.0 billion (1) Substantial growth and more to come 1Q2011 3Q2014 Number of Rigs 4 8 Number of operating rigs 0 6 Number of drilling contracts 2 6 Contract backlog (billion) $1.5 $3.0 (2) Number of employees ~500 ~1,600 2 1. Closing stock price of $9.34 as of September 19, 2014 and 217.3m shares outstanding. 2. As of September 1, 2014
Notion of Disruptive Technology A new technology that gets its start away from the mainstream of a market and then, as its functionality improves over time, invades the main market (C. Christensen, 1997) Established technology (Kelly) Successful Successor technology (Top Drive) Such new technology is disruptive because it may: Revolutionize industry structure and competition Make established strategies obsolete Cause the decline of established companies 3 Source: Haiyang Li, Rice University
Offshore Drilling: Over 100 years of technological progress Platforms enable drilling of first submerged wells Mobile offshore barge drilling rigs Semi-submersible drilling rigs Large displacement shipshape hull forms with dynamic positioning 1895 1905 1915 1925 1935 1945 1955 1965 1975 1985 1995 2005 2015? Jack-up drilling rigs Top drive Dual derrick, offline handling & rig floor automation 4
Newbuild cycles are driven by technology shifts Current floater fleet by delivery year Rig automation & focus on rig efficiency 30 25 20 Top drive Big hulls & DP 15 10 5 1971 1975 1980 1985 1990 1995 2000 2005 2010 2 nd Gen 3 rd 4 th Gen 5 th Gen 6 th Gen + 2014 5 Source: IHS Petrodata
Rig capabilities drive fleet utilization Floater utilization since 1985 by build cycle 100 90 80 Utilization % 70 60 <1978 1979 1997 50 1998 2006 >2007 40 6 Source: Utilization data from IHS Petrodata through June 30, 2014. 2007 Current adjusted to remove impact of Ocean Courage and Petrobras 10,000 in 2009, which were subject to construction finance issues and unable to work.
New capabilities driven by client requirements Conventional oil & gas volumes discovered proportionally by water depth 100% 90% 80% >5,000 ft 1,000 5,000 ft <1,000 ft 70% 60% 50% 40% 30% 20% 10% 0% 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 7 Source: Data from IHS EDIN; Copyright IHS 2014; Analysis by Pacific Drilling Substantial Increase in Deepwater Discoveries Coincides with Latest Newbuild Cycle
Deepwater continues to be more attractive than other non OPEC sources 8 Source: Wood Mackenzie, via Chevron presentation 11 March 2014; OPEC is onshore only; breakeven range: 25 th to 75 th percentile
There is demand for newest drillships in all water depths 87% of high spec floaters operate in less than 7,500 ft water depth By operating water depth (ft) 13% 34% 53% Less than 5,000 5,000 7,499 7,500 or greater 9 Source: IHS Petrodata as of August 3, 2014. Analysis by Pacific Drilling using most recent well depth data available for each rig.
Deepwater rig design has evolved to satisfy client needs Desired design features: Consistent, Proven Design & Drilling Proven design & drilling package Package Fleet wide Water Depth Capability 10 Water depth capability 12,000 ft 12,000 ft. Dual Derricks with 1000 1250 ST Hook 1250 ST hook loads; 22,000 MT VDL Loads 2x Single plus Offline & 4x Dual Load Path Dual derrick & offline handling Rigs 200 POB accommodation, 22,000 ST 200+ POB Displacement Up to 40,000 ft drilling depth with one or two six rams BOPs Satisfy operator demand: Guarantees equipment reliability Capable to drill in all water basins Exceeds most demanding wellconstruction requirements Optimizes drilling efficiencies, reduces flat lines during well construction Accommodates needs of remote and complex projects Meets needs for redundant safety systems and latest regulations 10
Clients are willing to pay for more capable rigs All in dayrate trend for floating rigs by rig specification index (1,2) 800 750 700 650 Dayrate ($K) 600 550 500 450 400 350 Jan 12 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Fixture date Rig Specification Index High Spec Standard and Low Spec Poly. (High Spec) Poly. (Standard and Low Spec) PACD Contract 11 1. Rig data from IHS Petrodata as of August 8, 2014. Analysis by Pacific Drilling. Priced option exercises, sublets and contracts for less than 1 year in duration not included. 2. Analysis includes rigs with water depth capability greater than 5000 ft and contract dayrate revenue from mutual contracts greater than one year.
Next generation of rigs will address well construction challenges Well construction features: Satisfy operator demand: Improved riser margins Safety and well control guarantees Wider drilling window Pushes exploration boundaries Access to deeper reservoir targets Additional reserves Fewer casings / better cement jobs Reduced overall well costs Fewer downhole problems and NPT Reduced economic uncertainty Improved pipe/casing tripping technology Reduced drilling costs 12
New, potentially disruptive drilling technologies are already beginning to address operator needs Fully automated tubular handling Managed pressure drilling (MPD) Dual gradient drilling (DGD) Solids & fluid handling Solutions Integrated movement of hydraracker, drillstem & top drive Closed loop circulation system enabling creation of back pressure Advanced form of MPD Better handling of waste returning from wellbore Benefits Remove people from the drill floor Reduce time to drill the well Increase reliability of the drilling process Faster detection of fluid inflow/outflow Faster response to losses/gains Improve riser margins Widen drilling window Remove effect of higher density mud in the riser Debottleneck drilling process Reduce environmental exposure Reduce cost to handle solids & liquids 13
Changes in technology are driving a change in industry structure 2008 2014 63% of offshore floater market Transocean Pride Ensco Diamond Offshore Noble Seadrill RIGP Transocean Shelf Caledonia Atwood Ensco Ocean Rig Odebrecht Pacific Rowan Songa Diamond Noble Paragon Seadrill NADL SDLP Sevan MLP Consolidated fleet Old jackups North Sea floaters Consolidated fleet Higher spec Lower spec Harsh environment MLP 14
Questions 15
Appendix Dual gradient drilling solutions Mud line pumping (riserless) Subsea pumping Dilution Controlled mud level FL 16 Source: IADC