EURASIA DRILLING COMPANY LTD Cowen s Ultimate Energy Services Conference New York, USA 3-4 December, 2013 1
Disclaimer The materials contained herein (the Materials ) have been prepared by Eurasia Drilling Company Limited (the Company ) and its subsidiaries and associates (the Group ) solely for use at presentations in December 2013. By accepting the Materials or attending such presentation, you are agreeing to maintain absolute confidentiality regarding the information disclosed in the Materials and further agree to the following limitations and notifications. The information contained in the Materials does not purport to be comprehensive and has not been independently verified. The information set out herein is subject to updating, completion, revision, verification and amendment and such information may change materially. The Company is under no obligation to update or keep current the information contained in the Materials or in the presentation to which it relates and any opinions expressed in them are subject to change without notice. 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Agenda 1. Russian Drilling Market 2. History 3. Results 4. Outlook 3
Steady Market Oil & gas industry is ca. 50% Country revenues 7-10% drilling growth to sustain oil production Growth of Horizontal wells (2012: 12% 2013 YTD: 19%) Greenfield sites: complex operations, logistics and geology Offshore opportunities in Caspian Sea and Arctic Russian Oil Production versus Drilling Oil Production Growth by Region m bpd 11 10 9 8 7 m metres 30 25 20 15 10 5 000 s bpd 800 KhantyMansisk 600 YamalNenets TyumenTomsk 400 Volga-Urals Timan-Pechora Eastern Siberia 200 0 6 2005 2007 2009 2011 2013F 2015F Crude Oil Production (lhs) Development Drilling (rhs) Source: REnergyCO 2013 0-200 2013F 2014F 2015F 2016F 2017F 2018F Source: REnergyCO 2013 4
Aging Rigs Deeper Wells 60% rigs >20 years (dead at 25) EDC Avg Age 12 16 Rigs for deeper complex wells EDC Total Russian Fleet Total Russian Fleet Avg drill depth 3,500 m 3,100 m Massive investment requirement in next 5 years Avg Depth of Wells in Russia, m Russian Rig Fleet by Age >20y 59% 15-20y 4% Source: Douglas Westwood 2012 Additions to Russian Rig Fleet <5y 24% 5-10y 10% 10-15y 3% 2005 2006 2007 2008 2009 2010 2011 2012 300 No. of rigs 250 200 150 2,410 100 2,610 2,650 Source: REnergyCO 2013 2,730 2,690 2,850 2,930 3,220 50 0 1987 1990 1993 1996 1999 2002 2005 2008 2011 Source: Douglas Westwood 2012 5
What s different in Russia? Russia Long Term contract model Lower volatility of pricing and margins Historically Turnkey Optimal for simple drilling solutions Static, basic and ageing rig fleet Low efficiency and low utilisation Mostly small independent players, c40% of market are in-house EDC can sustain leadership for longer Rest of World Spot market Higher pricing & demand volatility Dayrate Optimal for more complex solutions Versatile, mobile rigs Transition will increase utilisation All independent, for-profit More competitive market Historically Full service Integrated project management model Discrete service providers Specialisation 6
Agenda 1. Russian Drilling Market 2. History 3. Results 4. Outlook 7
2014 2013 2012 2011 2010 2009 2007 2006 2004 EDC s History Lukoil s Drilling Department Russia Lukoil s ASTRA Jackup Caspian Sea Schlumberger 28 Workover rigs Russia IPO on London Stock Exchange Lukoil s 213 Workover rigs Siberia Drilling operations on Korchagina Caspian Sea Meridian s 23 Workover rigs Komi Republic Ordered NEPTUNE Lamprell Super 116E jackup Lukoil s 4 rigs in Kaliningrad Transocean s Jackup in Caspian SATURN Schlumberger (19 rigs, 23 sidetrack & 34 W/o) Ordered MERCURY jackup for Caspian Romfor 2+2 rigs in Northern Iraq 2013 NEPTUNE starts working Turkmen Waters 2014 MERCURY deploys to Turkmen waters 2014.. 8
EDC s Business 9M 2013 Russia Land Drilling & Sidetracking (255 rigs) Russia Land Workover (415 rigs) Caspian Sea (3 jackups & 1 platform) Northern Iraq (4 rigs) 9
Agenda 1. Russian Drilling Market 2. History 3. Results 4. Outlook 10
Russian Drilling Market Growth Drilling Volumes in Russia 30 mn m CAGR +11% CAGR +7% 25 22.6 24.2 25.9 20 15 12.9 15.1 16.2 15.4 18.1 19.2 21.1 10 10.2 5 0 2005 2007 2009 2011 2013F 2015F West Siberia Volga-Urals Timan-Pechora East Siberia Others Source: REnergyCO 2013 11
Russian Horizontal Metres Growth Horizontal Drilling in Russia mn m 4.5 CAGR +14% 4.0 CAGR +14% 4.0 3.6 3.5 3.0 2.8 3.1 2.5 2.2 2.0 1.5 1.2 1.5 1.5 1.6 1.4 1.8 1.0 0.5 0.0 2005 2007 2009 2011 2013F 2015F Source: REnergyCO 2013 12
Russian Drilling Market 3Q 2013 Total metres drilled 16.5 million +5.5% Horizontal metres 3 million +61.5% Rosneft (27% market): Total metres drilled 4.4 million -1.1% Horizontal Metres 0.98 million +45.2% SurgutNeft (24% market): Total metres drilled 4.0 million +7.8% Horizontal Metres 0.30 million +66.8% Lukoil (17% market): Total metres drilled 2.9 million +8.0% Horizontal Metres 0.64 million +26.1% Gazpromneft (13% market): Total metres drilled 2.2 million +14.1% Horizontal Metres 0.24 million 13.2% EDC core customers (57% market) Total metres drilled 9.5 million +4.8% Horizontal metres 1.85 million +33.4% Customer Non-customer Source: CDU TEK 13
EDC Results 9M 2013 The largest drilling company in Russia and the CIS 9M 2013 Change Revenues* EBITDA margin* US $ 2.6 billion 26.9% +9.5% +1.3 pp Market share c. 29% by meters drilled (Russia onshore) no change Operating 4,731,754 meters drilled 893,651 horizontal meters drilled 187 sidetracks +3.3% +35.3% +15.4% Production Assets 259 Drilling & sidetracking rigs 415 Workover Rigs 3J/U rigs +1 J/U rigs under construction +0.8% (v. 30 June 2013) -1.0% (v. 30 June 2013) Key customers *- Unaudited 14
Agenda 1. Russian Drilling Market 2. History 3. Results 4. Outlook 15
2013 Guidance Revenue US$ 3.55 billion EBITDA margin 26.9% Capital Expenditure US$ 550 million 16
Offshore developments - Caspian Sea LUKOIL 8 discoveries Russian Kazakh Turkmen Exploration 3% of world oil reserves Potentially 7-8 JUs ASTRA SATURN Russian Turkmen Development 4x JU rigs currently operating Source: The Economist, Company data LSP-1 Platform on Yuri Korchagin field Barriers to entry (rig builds) NEPTUNE and MERCURY new-builds Potentially 7-8 JUs 17
Rig Fleet EDC is to maintain a competitive drilling fleet EDC Drilling Rig Fleet EDC Rig Fleet by Type Type Draw works Total % of total Mechanical 44 17.0% Mobile Electric 2 0.8% All types 46 17.8% Mechanical 39 15.1% Stationary Electric 22 8.5% All types 61 23.6% Mechanical 3 1.2% Pad / Cluster Electric 149 57.5% All types 152 58.7% Mechanical 86 33.2% Total Electric 173 66.8% All types 259 100% Russian drilling rig fleet is static, low-tech and ageing, which results in low utilization and low efficiency EDC fleet average age is well below Russia s average rig flleet age Source: Company Notes: (1) source: Company, (2) source: Douglas Westwood, 2012 18
EDC Rig Strategy EDC fleet spread now. And expected in the future EDC Rig Fleet by age (current) EDC Rig Fleet by age (by 2015) 19% 33% Up to 5 years 5-10 years 10-15 years 15-20 years >20 years 12% 15% 34% 3% 13% Up to 5 years 5-10 years 10-15 years 15-20 years >20 years 38% 6% 27% EDC s fleet modernisation programme: 1. Refurbishment of Medium Pad/Cluster rigs Workhorses of West Siberia far into the future 2. Replacement of Light Stationary rigs with Mobile units Sidetracks, smaller field development & brownfield in-fill 3. Replacement of Heavy Stationary rigs with predominantly Heavy Pad/Cluster rigs Deeper plays, ERD & complex wells 19
Capital Expenditures Capex program focused on evolving fleet to meet the most demanding and complex customer needs Сapex, $ mn Capex/ 21% 16% 8% 16% 14% 19% 11% revenues 620 150 EDC s CAPEX programme: 1. Acquisition of new rigs both Russian and imported 2. Since 2002 the Company acquired and put into operation c. 90 rigs spreading from 200 to 450 tons 320 327 284 400 97 295* Rig manufacturers UralMash, Bentec, HongHua, Forpetro, Lewco 3. The Company has signed contracts to build 22 new rigs for 2014/2015 delivery 107 50 234 303 470 67 228 (1) Starting from 2010 EDC s capex includes payments to Lamprell for the construction of two new-build jack-up rigs: ~$235mn per rig NEPTUNE is delivered in Q3 2013 MERCURY due for delivery in Q4 2014 2007 2008 2009 2010 2011 2012 9M 2013 Source: Company Onshore incl.offshore *- Unaudited (1)- 9M 2013 offshore CAPEX was adjusted for the change in restricted cash in the amount of US $45 million. 20
Northern Iraq (Kurdistan) Pipeline & metering in place, 1 st oil Q1 2014 Potential to double number of rigs 21
Bazhenov Tight Oil 1 million sq. klms 22
EURASIA DRILLING COMPANY LTD Thank you! 23