Ahead of the Curve Challenge and Opportunity in the Global Oilfield Services Industry Contents

Ahead of the curve Challenge and opportunity in the global oilfield services industry Contents 03 Foreword 04 Acknowledgments 04 About Pinsent Masons 05 Methodology 06 Survey analysis 06 Executive summary 08 Horizon watching 12 Spotlight on the UK 15 Playing the field: geographical hotspots 21 Strategic imperatives 26 Raising and optimising capital 30 Perspective: The view from the banks 32 Perspective: Jon Clark, Partner and EMEIA Leader Oil & Gas Transaction Advisory Services at EY 34 Perspective: Axel R. Gustavsen, Senior Vice President and Chief Legal Counsel, Aker Solutions ASA 36 Conclusion 02 Pinsent Masons Ahead of the curve: Challenge and opportunity in the global oilfield services industry Foreword Foreword ‘Lower for longer’ is the mantra many people in oil and gas circles are now adopting, as we look through 2016 and beyond. The current landscape is very different from other There will be opportunities for those who have downturns. We live in an ever-more complex world, with always understood that the oil and gas industry is Bob Ruddiman significant geopolitical events and sustained unrest in not a one-way bet. many oil-producing territories creating uncertainty. Supply There will be opportunities currently exceeds demand, but there is evidence to suggest Those that are involved in production efficiency and for those who have there will ultimately be an upturn in the price of crude. operations, those that can genuinely do things differently, and those whose vision encompasses a broader horizon always understood that There is no doubt, though, from speaking to the ‘large face a brighter future. Cost control, innovation, and much the oil and gas industry is operators’ and ‘big players’ in the supply chain that greater collaboration are the watchwords. not a one-way bet. we engage with globally, that times of change are also Bob Ruddiman recognised as times of opportunity. The same can be said of lawyers and other professional Global Head of Energy at advisers. The day when deals could be done ‘the way international legal firm The consequences of price volatility will be severe in they always have been’ are gone. At Pinsent Masons, our Pinsent Masons some quarters. The current level of price instability is pursuit of greater innovation and efficiency to maximise perhaps unprecedented – in the few short weeks between value in dealmaking is relentless. The industry could and our survey being completed and the research published, should expect no less. oil price has fluctuated between $50 to $27/bpd. That level of unpredictability will only serve to accelerate and As we work together with the industry to look ahead, one exacerbate the change envisaged in this report. thing is certain – there will be winners and losers from the current cycle. And, while there can be no guarantees For some – particularly those operating with large levels of success, sitting on one’s hands and ignoring strategic of debt – there will be undoubted pain. I fear that there choices is simply not an option. are still some individuals, and some companies, thinking ‘this is a temporary blip…we should be ok’. That mindset will not promote survival. Even if prices do bounce back, the industry will have transformed. 03 Acknowledgments We would like to thank all respondents for their participation About Pinsent Masons in the survey, including the following companies who have given their consent to be named: With over 2,600 people operating from 20 offices across four continents, Pinsent Masons is not just one of the world’s largest law firms, but also an organisation which puts excellence in the energy sector ACE Alfred Cheyne Engineering Ltd, Aker Solutions ASA, at the heart of its vision and strategy. Archer Ltd, ARKeX Ltd, Awilco Drilling Plc, CETCO Energy Services, CIRCOR International, Inc., Crondall Energy Oil & Gas is in our DNA and our international team is renowned for its sector expertise. This has been Subsea Ltd, Dando Drilling International, Diamond gleaned through decades of exposure to all facets of the industry, significant experience of cross-border Offshore Drilling, Inc, DOF Subsea Group, Dolphin Drilling project delivery, and the development of a global team which encompasses all legal disciplines and AS, EnerMech Ltd., Ensco Plc, Expro International Group, includes a number of former in-house counsel. Flexlife Group Ltd, FoundOcean Limited, Geoquip Marine AG, Gulf Marine Services, Hunting Plc, KD Marine Ltd, This, combined with an innovative mindset, is what truly marks our firm out. Our clients – which MacDermid Offshore Solutions, Maersk Drilling Norge include NOCs, oil majors and independents through to a wide variety of lenders, private equity funders, AS, MRC Global Inc, Noble Corporation Plc, N-Sea Group, investment banks, oil service companies and major international contractors – use us because we are Ocean Rig UDW Inc, Oilfield Solutions Ltd, PD&MS Energy, not afraid to do things differently. That’s just one of the reasons why we were recently named the Most Petroleum Geo-Services ASA, Petroleum Technology Innovative Law Firm in Europe by the Financial Times. Company, Prosafe SE, ROVOP Ltd, Saab Seaeye Ltd, Saipem Ltd, Saltire Energy Ltd, Sand Monitoring Services Ltd, Winner – Energy & Natural Resources Team of the Year Award, 2014 Legal Business Awards. Schlumberger, Scientific Drilling Controls Ltd., Sembmarine S L P, Technip S.A., Welltec UK Limited, Wood Group. No. 1 law firm by number of Stock Market clients in Oil & Gas sector (Adviser Rankings, Feb 2015). and private equity firms: More Band 1 rankings in Chambers & Partners UK than any other law firm. Advent International Corporation, Cinven Limited, More Tier 1 entries in Legal 500 UK than any other law firm. EQT Partners AB, Equistone Partners Europe Limited, Investcorp. Top rankings in Chambers Asia and Legal 500 Asia Pacific. 04 Pinsent Masons Ahead of the curve: Challenge and opportunity in the global oilfield services industry Prelims Methodology Where is your company headquartered? In H2 2015, Mergermarket surveyed 200 senior-level Nordic executives, drawn from 150 corporates and 50 private UK equity firms. 9% Russia 1% 52% of respondents are headquartered in the UK, and the 52% remaining 48% are headquartered outside of the UK but maintain offices in the UK – 26% in North America, 9% in the Nordic countries, 9% in other European countries, 2% in MENA, 1% in Australia and 1% in Russia. All of the respondents have operations or investments in the UK oilfield services sector. Australia 1% Corporate revenues of respondent companies are split 9% between $1bn+ (31%), $101m-1bn (30%) and $20m-100m 26% Europe other North America 2% (39%). The survey included a combination of qualitative MENA and quantitative questions and all interviews were conducted over the telephone by appointment. Results What is your company’s annual turnover? Which is the most important industry segment your were analysed and collated by Mergermarket and all company offers support services to? responses are anonymised and presented in aggregate. Oilfield services definition 2% Companies that provide support services to the oil 23% and gas industry throughout its cycles of exploration, appraisal, development and decommissioning. This includes: reservoir/seismic exploration, exploration 30% drilling, well construction/completion/stimulation, 75% fabrication, production, maintenance and optimisation, 39% $101m-$1bn ancillary services and companies that focus on project 31% engineering, procurement, construction and installation (EPCI) as well as offshore support vessels/subsea building $1bn+ Offshore/ Near shore/ $20m-$100m deep water Onshore shallow water and design. 05 Executive summary Oil & Gas in figures Having enjoyed nearly five years of continuous upward movement in the oil and gas sector, with prices anchored mainly above $100 per barrel, the oilfield services industry is now adjusting to a volatile outlook where ‘lower for longer’ is becoming a reality. Significant changes have taken place in technology and engineering, as well as on the political and Most attractive Most attractive economic front, over the past decade. Drilling technology and capability has developed significantly. Wells segments features of targets now reach further horizontally and vertically – going deeper under water than ever before. Energy supply and demand patterns have shifted across the globe. OPEC is no longer the only producer on the block, and the International Energy Agency (IEA) is not just an organisation of energy consuming countries, with North America now an exporter. Factors most likely to Amid the uncertainty in the outlook for oil and gas prices, a ‘low for longer’ environment is on the cusp of 33% jeopardise driving transformative changes for players across the board. The overarching sentiment among industry Rigs/drilling deals equipment 13% professionals is that consolidation will take place in the oilfield services sector in 2016. This sentiment is Political stability 47% say UKCS will recover96% to 'peak' levels reflected in the 86% of respondents who expect global oilfield services M&A activity to increase over the Offshore/ 27% subsea technology Fully integrated of proﬁtability, with a quarter next 12 months – out of those, 30% expect a significant increase. A vast majority, 74%, expect much of the business 43% Strong order 12% expecting it within three years Strong balance activity to be driven by cross-border deals into new territories. book/ pipeline sheet 23% Denied or delayed

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