How We Create, Distribute and Sustain Value

OUR BUSINESS MODEL AN OVERVIEW HOW WE CREATE, DISTRIBUTE AND SUSTAIN VALUE OIL AND GAS EXTRACTION CYCLE STRATEGIC FOCUS ON THE WELLBORE (SEE PAGE 14) 1 2 3 RESOURCES OUR BUSINESS OUR PRODUCTS WE USE ACTIVITIES AND SERVICES FINANCIAL HEALTH, SAFETY AND ENVIRONMENT (“HSE”) INTELLECTUAL MANUFACTURING OIL COUNTRY TUBULAR GOODS (“OCTG”) OPERATIONAL EQUIPMENT RENTAL PERFORATING SYSTEMS EMPLOYEES TRADING ADVANCED MANUFACTURING GROUP (“AMG”) RELATIONSHIPS QUALITY AND OPERATIONAL EXCELLENCE PAGES 15 TO 19 PAGES 19 TO 21 PAGES 22 TO 25 Hunting PLC 2016 Annual Report and Accounts 12 STRATEGIC REPORTSTRATEGIC CORPORATE GOVERNANCE CORPORATE 4 5 OUR CUSTOMERS AND SUSTAINABLE VALUE CHANNELS TO MARKET CREATION FOR OUR: FINANCIAL STATEMENTS FINANCIAL SHAREHOLDERS DRILLING TOOLS OPERATORS EMPLOYEES OTHER INFORMATION OTHER INTERVENTION TOOLS SERVICE COMPANIES CUSTOMERS AND SUPPLIERS SUBSEA STEEL MILLS & OTHER COMMUNITIES GOVERNMENTS PAGE 26 PAGE 27 Hunting PLC 2016 Annual Report and Accounts 13 OUR BUSINESS MODEL CONTINUED OIL AND GAS EXTRACTION STRATEGIC FOCUS ON THE WELLBORE WELL CONSTRUCTION WELL COMPLETION WELL INTERVENTION The well construction phase Well completion is the process Well intervention occurs while a well includes all activities related of initiating the flow of hydrocarbons is in production to enable the flow to setting up the infrastructure of the to the surface. Hunting supplies to be maintained and to operate wellbore. Hunting supplies OCTG, OCTG and Perforating Systems and efficiently. In this segment Hunting AMG and Drilling Tool products accessories from supplies intervention tools to be from this segment. this segment. used downhole and provides hydraulic subsea equipment. REVENUE UNDERLYING LOSS AVERAGE NUMBER FROM OPERATIONS OF EMPLOYEES 3 3 1 3 1 1 2 2 2 1. WELL CONSTRUCTION 1. WELL CONSTRUCTION 1. WELL CONSTRUCTION $105.5m $24.2m loss 568 2015 – $211.4m 2015 – $1.9m profit 2015 – 866 2. WELL COMPLETION 2. WELL COMPLETION 2. WELL COMPLETION $295.1m $45.9m loss 1,291 2015 – $488.6m 2015 – $14.2m profit 2015 – 1,877 3. WELL INTERVENTION 3. WELL INTERVENTION 3. WELL INTERVENTION $52.2m $19.5m loss 356 2015 – $106.3m 2015 – $4.6m profit 2015 – 499 Hunting PLC 2016 Annual Report and Accounts 14 1 STRATEGIC REPORT RESOURCES WE USE FINANCIAL GOVERNANCE CORPORATE Financial capital is provided to the Group The Group has $219.2m of debt facilities NET DEBT through equity invested by shareholders available of which $200m are committed. and debt facilities, principally provided The committed facilities include a $179.5m by the Group’s banking syndicate. The mutli-currency revolving credit facility, $1.9m balance of debt and equity is managed which expires in 2020, and a multi- with due regard to the respective cost of currency overnight money market line. The ANNUALISED 5 YEAR TSR funds and their availability. committed facilities were amended during 2016 with total committed facility limits Hunting PLC is quoted on the London reduced from $350m to $200m and -1.5% Stock Exchange and has a premium security provided over selected trade listed status. As such, the Company receivables, inventories and principal has to meet the highest standards of properties. Profit-based covenants have MARKET CAPITALISATION regulation and corporate governance been suspended up to and including the (AT 31.12.16) FINANCIAL STATEMENTS as published by the Financial Conduct 30 June 2018 covenant test date and have Authority. Equity shareholders receive been replaced by asset-based covenants, $1.27 billion returns in the form of dividends and minimum cash flow requirements, through capital appreciation, which can limitations on capital investment and a be measured as total shareholder return. suspension of dividends. NET BANK FEES AND INTEREST PAID $4.3m INTELLECTUAL OTHER INFORMATIONOTHER With low oil prices likely to impact the Jointly developed technology PATENTS market for some time, there is a strong Some innovations involve collaborating focus in the industry on technological with other industry partners. For example, improvement and process innovation, Hunting is working with ExxonMobil to 428 which can help deliver cost efficiencies create an autonomous perforating gun for customers whilst maintaining system with on-board navigation thereby NEW PATENTS or improving margins for suppliers. eliminating the need for a wireline crew. IN THE YEAR The use of technology in our business This represents potential cost savings for illustrates the different ways we partner the operator and improves efficiency with participants in the supply chain: of the operation. 31 Hunting proprietary technology Third party technology Developing our own proprietary In some cases, we make use of third party PATENTS PENDING technologies has been a strategic focus proprietary technologies in our operations. for the Group. Through developing our own For certain product lines we are engaged 166 technologies and proprietary know-how, as a specialist manufacturer using our we are well positioned to secure market customers’ IP. In other areas we license share by protecting our intellectual technologies from third parties, such as property (“IP”). Our substantial IP portfolio non-Hunting thread forms for OCTG. is a significant barrier to entry for competitors and allows us to enjoy better margins and more operational flexibility. In 2016 we registered one patent on the H-1 Perforating System and made a further 10 patent applications, bringing the number of pending patents for the H-1 Perforating System to 23. In 2016 we also developed three additional sizes for the WEDGE-LOCK™ premium connection range. Hunting PLC 2016 Annual Report and Accounts 15 OUR BUSINESS MODEL CONTINUED 1 RESOURCES WE USE CONTINUED OPERATIONAL OPERATING SITES Operating footprint In Hunting’s rental businesses it is critical We have an established global network that an appropriate range of equipment of operating sites and distribution centres is stored and maintained. Generally this 40 located close to our customers and near must be configured to meet specific the main oil and gas producing regions customer requirements. DISTRIBUTION CENTRES (see pages 20 and 21). In certain product lines, particularly OCTG, Business activities and Hunting holds goods for trading to support 25 development of know-how customer service and to take advantage of Over many years we have refined our particular market opportunities. operating processes, building considerable MANUFACTURING FOOTPRINT know-how as our business evolves to Our distribution centres are primarily (SQ FT) meet changing customer needs. used in the Perforating Systems and Drilling Tools businesses where close 3.1m Our operating sites are used for the proximity to drilling operations is important. manufacture, rental or trading of products. The manufacture of goods and the MACHINES provision of related services is, by far, the main source of income for the Group. The bulk of our manufacturing occurs in 1,228 high-end specialist facilities utilising sophisticated CNC machines. NET BOOK VALUE OF PPE $419.0 m Management approach DEVELOP EMPOWER OUR OUR PEOPLE BUSINESS UNITS People are at the heart of our business. The oil and gas industry is a fast-paced Our broad product portfolio demands sector where product requirements and experienced engineering and production customer demands can operate on short staff across many manufacturing lead times. Our business leaders are disciplines. empowered to react quickly to local market conditions as and when opportunities arise. APPLY UNIFIED OPERATING MAINTAIN A STRONG STANDARDS AND PROCEDURES GOVERNANCE FRAMEWORK Demanding health, safety and quality The Group’s leaders and their teams policies are developed centrally and then operate within a tight framework of applied locally. We continually monitor controls, monitored and directed at both and raise our operating standards. a regional and central level but ultimately under the direction of the Board. Hunting PLC 2016 Annual Report and Accounts 16 STRATEGIC REPORT EMPLOYEES GOVERNANCE CORPORATE Hunting’s employees are a key driver in Hunting complies with all relevant regional EMPLOYEES fulfilling the Group’s strategic objectives. laws covering employment and minimum Hunting’s reputation is underpinned by our wage legislation. As a responsible highly skilled workforce, which has been employer, full and fair consideration is 2,107 built over many years. given to applications for positions from disabled persons. The Group’s ethics At 31 December 2016, the Group had policies support equal employment YEAR END EMPLOYEES 2,107 employees (2015 – 2,784) across opportunities across all of Hunting’s its global operations. The reduction in operations. The Group’s diversity profile the Group’s workforce has been for 2016 is shown below. Employees are 5 6 necessitated by the global downturn in the offered benefits on joining the Group, 4 oil and gas market, however, efforts have including healthcare cover, post-retirement 3 FINANCIAL STATEMENTS been made to retain employees across all benefits and, in certain instances when disciplines, in readiness for the anticipated Group outperformance in terms of industry recovery. The chart opposite operational or financial targets has been illustrates the geographic split of our delivered, participation in bonus 2 1 workforce. arrangements. Responsibility for our employees lies with Employees are encouraged to further local management, to enable local cultural their development and network of differences to be taken into account, with

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