What Is Different about the Ultra- Deepwater Market This Time? Chris Beckett, CEO Pacific Drilling May 2, 2012
Disclaimer This presentation contains statements that express opinions, expectations, beliefs, plans, objectives, assumptions or projections of Pacific Drilling S.A. (the Company or Pacific ) regarding future events or future results, in contrast with statements that reflect historical facts. Examples include discussion of our strategies, financing plans and growth opportunities. In some cases, we have identified such forwardlooking statements with typical conditional words such as anticipate, intend, believe, estimate, plan, seek, project or expect, may, will, would, could or should, the negative of these terms or other comparable terminology. These forward-looking statements are not a guarantee of performance, and you should not place undue reliance on such statements. We have based these forwardlooking statements largely on our current expectations and projections about future events. Forward-looking statements are subject to many risks, uncertainties and other variable circumstances that may cause the statements to be inaccurate and readers are cautioned not to place undue reliance on such statements. Many of these risks are outside of our control and could cause our actual results and experience to differ materially from those we thought would occur. The forward-looking statements included in this presentation are made only as of the date hereof. We do not undertake, and specifically decline, any obligation to update any such statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments. This presentation does not constitute an offer to sell or a solicitation of an offer to buy the Company s common shares. 2
Executive Summary Offshore Drilling a Cyclical Industry Demand Factors Providing a Structural Boost Measured Pace of Supply Growth
1971 1975 1980 1985 1990 1995 2000 2005 Offshore Floater Market Historically a Cyclical Industry 2010 Average Corporate Pre-tax Return on Assets (1) Average Utilization for Floaters 25 100 20 15 10 95 90 5 85 0-5 -10 80 75 >5000 ft <=5000 ft -15 1992 1996 2000 2004 2008 2011 70 1992 1996 2000 2004 2008 2012 Current Floater Fleet by Delivery Year Average Dayrate for Floaters by Water Depth 40 35 30 25 20 15 10 5 0 600 500 400 300 200 100 0 1992 >5000 ft (1) Unweighted average of Atwood, Diamond Offshore, Ensco, Hercules, Noble Drilling, Rowan, Seadrill, Transocean for years data available Source: ODS-Petrodata, Thomson Reuters for Corporate ROCE 1996 2000 <=5000 ft 2004 2008 2012 4
Recent Pricing and Utilization Data Indicate Cyclical Upswing Contract Dayrates and Utilization for 5 th Gen and Later Ultra-Deepwater Floaters Day rate, $K/d 700 % 100 650 95 600 90 550 85 500 80 450 75 400 70 5/11 6/11 7/11 8/11 9/11 10/11 11/11 12/11 1/12 2/12 3/12 4/12 5/12 Contract Length (LHS) 1-3 Years > 3 Years Contract Trend (LHS) Utilization (RHS) Source: ODS-Petrodata as of April 2012. 5
Characteristics of this Cycle Demand Factors for New Floaters 1 Sustained Higher Levels of E&P Capex 2 Growing development-driven offshore workload on top of sustained exploration activity 3 Emerging exploration success in frontier regions in addition to continued discoveries in the Golden Triangle 4 Heightened technical requirements across multiple rig systems 6
1 Global E&P Capex Sustained Higher Levels of E&P Capex Global Deepwater Capex $B 500 400 +15% CAGR 372 386 465 372 443 496 2007 2008 0 10 20 30 40 50 60 70 300 200 100 0 120 140 151 191 248 2001 2003 2005 2007 2009 2011 2009 2010 2011 E&P Companies: 2012 Capex Expectations 2012 Only 7% of survey respondents planned to decrease Capex in 2012 18% Significantly Increase 48% Somewhat Increase 2% Stay the Same 5% Somewhat Decrease Significantly Decrease 27% 2013 2014 2015 2016 Source: IHS Herolds for historical global E&P capex, Economist Intelligence Unit 2012 Survey for Capex expectations, adjusted to remove n/a, Douglas Westwood: World Deepwater Market Forecast for deepwater capex 7
2 Growing Development-Driven Offshore Workload Deepwater Wells Drilled 2005 59% 41% 438 2006 55% 45% 470 2007 52% 48% 560 2008 49% 51% 565 2009 49% 51% 545 +8% 2010 49% 51% 631 2011 47% 53% 729 2012 46% 54% 763 2013 46% 54% 805 Growing number of ultradeepwater wells drilled These wells are becoming more complex and time-consuming Development wells growing as a proportion of total wells drilled Absolute number of exploration wells continues to rise % Exploration % Development Source: Data Monitor; Data Monitor defines deepwater as >1,500 ft (427 m) in the US and >500m (1,640 ft) internationally 8
3 Exploration Success in Frontier Regions in Addition to Golden Triangle 9
4 Heightened Technical Requirements Drives Demand for New Drillships New Capabilities Address Industry Challenges and Operator Needs Demand Driver Deeper Operating Requirements with Longer Offsets Greater Drilling Efficiency to Reduce Total Well Costs and Critical Path Activities Technical Response Water Depth Capability 10,000 + ft. with Enhanced Load Paths and Mud Systems Dual Derricks with Ability to Take Critical Path Activities Offline Address Needs of Remote Drilling Sites and Advanced Well Construction Projects More Accommodation Space and Deckload Capacity Redundant Safety Systems Meeting Latest Regulations for More Demanding Downhole Environments Advanced DP-3 Systems, 6 Ram BOPs, Redundant Mud Pumps, MPD / DGD 10
Characteristics of this Cycle Supply Factors for New Floaters A More difficult for financial speculators to enter market B Significant advances in technology over the last 10 years to enhance offshore drilling capabilities C Technical advances and preference for drillships in recent newbuild cycle narrows shipyard availability D Significant portion of current floater fleet nearing retirement age 11
A More Difficult for Financial Speculators to Enter Market Newbuild Financing 2005-2008 Newbuild Financing 2010- Highly leveraged financing of purchase price Equity More restrained financing of purchase price Equity Payment schedules backweighted to defer payment obligations Debt Payment schedules correspond more closely to expenses accrued during construction process Debt Lessons learned: Even with these economics, most speculators and their lenders generally did not achieve expected level of returns Current financing context does not deliver sufficient speculative upside to surpass risked investment hurdle rates 12
B Significant Advances in Technology over the Last 10 Years 5 th Generation 6 th Generation 7 th Generation Load Path (tonnage) 750 1,000 1,250 Water Depth (ft) 10,000 7,500 12,000 10,000 12,000 Drilling Depth (ft) 30,000 35,000 40,000 13
C Constrained Shipyard Availability Floater Deliveries per Year 19 16 15 17 5 3 11 11 11 11 10 10 2 4 New Ultra-deepwater rigs gravitating almost entirely to major Korean shipyards 2008 2009 2010 2011 2012 2013 2014 Korean "Big 3" Other Source: ODS-Petrodata as of April 2012 for both historical data and expected future delivery dates 14
D Significant Portion of Floater Fleet Nearing Retirement Age 50% Of Floaters Greater than 10 Years Old 48% 40% A substantial number of rigs in the fleet are reaching retirement age 2% 10% Rig Age in Years (1) Over 20 11 to 20 6 to 10 5 or Under Source: Floater age data from ODS-Petrodata as of April 2012. Analysis by Pacific Drilling. Includes rigs under construction 15
UDW Demand Expected to Exceed Supply Through 2014 Supply and Demand Forecast Projected current unmet demand 150 152 170 167 15 185 111 129 18 23 111 111 129 152 Supply Demand Supply Demand Supply Demand Supply Demand Dec 31, 2011 2012 2013 2014 Newbuild Rigs Existing UDW Fleet Source: Supply data from ODS-Petrodata as of April 30, 2012, for rigs with water depth capability of 7,500 ft or greater. Supply and demand analysis by Pacific Drilling. 16
What Is Different about the Ultra- Deepwater Market This Time? Chris Beckett, CEO Pacific Drilling May 2, 2012