Title: UH BAUER COLLEGE OF BUSINESS: MARCH 30, 2006 PRESENTATION
1 UH BAUER COLLEGE OF BUSINESS MARCH 30, 2006
PRESENTATION Rowan Companies, Inc. John Buvens,
General Counsel
Ted Gobillot, Associate General Counsel
2Emma
Lindsay
Joe
3- Overview of Rowan Companies, Inc.
- Emerging Trends in the Offshore Drilling Industry
- How is an offshore well drilled?
- Oilco/Drillco Relationship Who provides what?
- Risks What can happen?
- What is an indemnity agreement?
- How do the parties allocate risk?
4- Overview of Rowan Companies, Inc.
-
- Founded in 1923 by Arch and Charlie Rowan
- Two units Drilling and Manufacturing
- Total workforce 4,500 employees
- HQ at Williams Tower (ex-Transco Tower)
- On NYSE and publicly-owned since 1967
- 2005 Revenue of over 1B 4.5B market cap
5- DRILLING DIVISION
- HQ in Houston operations onshore in Texas,
Louisiana, Mississippi and Oklahoma offshore in
the U.S. GOM, east coast of Canada, North Sea,
Persian Gulf and Trinidad - 20 offshore rigs 17 land rigs
- Accounts for 75 of RCI's revenue
6Land Rig Locator Map
Land Rig Locator Map
LR-53
MISS
LR-9, 29, 35
LOUISIANA
LR-18
TEXAS
LR-33
LR-34
LR-15
LR-12
LR-26, 30, 31, 51
LR-14
17 Land Rigs Operating Currently 100 Utilized
9- Texas 7- Louisiana 1- Oklahoma
LR-41
LR-52
Current Average Well Depth 15,980 ft.
LR-54
7(No Transcript)
8MANUFACTURING DIVISION
- Acquisitions LeTourneau (1994), Ellis Williams
(1999), OEM (2001) - HQ in Longview, TX manufacturing facilities in
Vicksburg, MS and Houston, TX - Manufactures jack-up rigs, land rigs and rig
component parts, equipment for the timber and
mining industries - Accounts for 25 of RCIs revenues
9LeTourneau Products
10Worlds Largest Front-End Loader
11Manufacturing Division
3000 HP Mud Pump
Drawworks
Rotary Table
12- ROWANS RIG CONSTRUCTION PROGRAM
- Large Fixed Capital Investment
- Purchase LeTourneau
- Restore Vicksburg, MS Facility
- Hire and Train Workers
- Rig Construction Cost 180-500 Million
- Ongoing Maintenance and Labor Cost
- Volatile Revenue Stream
- Dayrates Track Commodity Prices
- Boom-and-Bust Business
- Gorilla V Experience
13Worldwide Jack-up Newbuilds and Attrition
1950-2005
Average Age of Retired Rigs 30
years Number of Retired Rigs per year (20-year
average) 6 rigs
55 Rigs Under Construction 2006 - 10 2007
20 2008 - 20 2009 - 5
2009
Additions to the fleet
Scheduled Construction / On Order
Attrition
Source ODS-Petrodata
14Land Dayrate History 1998-2005
Current Average Dayrate 22,559
17,242
Dayrates through March 27, 2006
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16CONSTRUCTION OF THE HANK BOSWELL DECEMBER 2004
17March 2005
18 June 2005
19 August 2005
20September 2005
21 October 2005
22November 2005
23December 2005
24January 2006
25February 2006
26March 2006
27Following Construction, Rig Walks into
Mississippi River
28Rig Travels Down Mississippi River
29Rig Crosses Under Four Bridges En Route to U.S.
GOM
30Bob Palmer (2003) vs. Rowan-Texas (1973)
31Under Tow To Location
32Jacked Up on Open Location
33Jacked up on Location and Cantilevered out over
Platform
34Heavy-Lift Rig Hauler
35Rig Floats Onto Submerged Deck
36Transport of Rigs Overseas
Single-Rig Dry Tow
Double-Rig Dry Tow
37Triple-Rig Dry Tow
38Rowan Fleet Migrates to Saudi Arabia
- 35,000 Tons
- 12,300 miles
- 60 days
39Sharjah Roads
40Jacked up in Halifax Harbor, Nova Scotia, Canada
41- Emerging Trends in the Offshore Drilling Industry
- Current Status
- Global Supply and Demand
- Saudi Arabia as swing producer
- Declining Production in GOM
- The Moratorium
- The Stakeholders in GOM
- Extending Life of GOM
- Evolving Technology
- Deep Shelf and Deep Water
- Royalty Relief by MMS
- Emergence of Liquified Natural Gas
- Law of the Sea Treaty
- Fallout from Hurricanes Katrina and Rita
42Worldwide Jack-up Supply / Demand
Worldwide Utilization 92
2
0
32
E. Canada 100
0
85
North Sea 100
US GOM 82
19
Mexico 100
80
2
27
0
25
0
Middle East 98
14
Indian Ocean 100
3
31
C S America 82
21
0
1
SE Asia 97
West Africa 100
Total Number of Jack-up Rigs Worldwide 390
Source ODS Petrodata
43Houston Chronicle March 23, 2006 DEEP-WATER
EXPLORATION, DRILLING FLOURISH IN THE GULF NEW
ORLEANS - Petroleum operators announced 10 new
deep-water discoveries in the Gulf of Mexico in
2005 and the number of drilling rigs exploring in
deep water has increased sevenfold in a year, a
federal agency is reporting. Deep water is
considered to be 1,000 feet or deeper. The
deepest discovery reported last year was by BP in
9,576 feet of water. "Last year continued to be
a strong year for deep-water activity in the Gulf
of Mexico," said Chris Oynes, the agency's Gulf
of Mexico regional director. "There is intense
interest in oil and gas potential in the deep
water." In March, there were 42 rigs drilling or
working on development wells in deep-water areas,
including 10 rigs in 5,000 feet or more, the
agency said. A year ago, there were six rigs in
ultradeep water. On March 15, petroleum
exploration companies put 588.3 million in high
bids for 405 offshore tracts off Louisiana,
Mississippi and Alabama. The figure far exceeded
last year's auction by the agency, when 342
million in high bids were accepted for 403 tracts
that exploration firms are betting on to produce
in the central Gulf of Mexico.
44Houston Chronicle March 2, 2006
GLOBALSANTAFE WINS CONTRACT DEEP-WATER RIG WILL
COST 590 MILLION
GlobalSantaFe Corp., the worlds second-largest
offshore driller by market value, said Thursday
it reached an agreement with an unidentified
customer to provide a new deep-water rig that
would generate about 1 billion in revenue over
seven years. Keppel Fels, a unit of Keppel
Corp., has been contracted to build the rig at
its Singapore shipyard at a cost of about 590
million, Houston-based GlobalSantaFe said.
Delivery of the rig, to be named GSF Development
Driller III, is expected in early 2009, the
company said. The new rig may generate an
average of about 390,000 a day for
GlobalSantaFe, based on the total revenue and
duration of the agreement.
45Houston Chronicle March 11, 2006 LOST LANGUAGE
DRAINS BILLIONS MYSTERIOUS ERROR TO COST
GOVERNMENT ENERGY ROYALTIES
WASHINGTON How it happened or whos responsible
is a mystery eight years after the fact. But
what may have been a simple error or perhaps
something more ominous has given a
multimillion-dollar windfall to a group of oil
and natural gas companies and could cost the
government billions of dollars more in the years
to come. The Interior Department disclosed this
week that a provision was mysteriously deleted
from hundreds of federal drilling leases in the
late 1990s that would have required producers to
pay royalties, once prices reached a certain
level, on oil or gas taken from deep waters of
the Gulf of Mexico. In 1995, Congress exempted
deep-water oil from royalty payments to spur
development. But a price threshold was included
in leases issued in 1996 and 1997 and again in
leases sold in each year since 2000 that
reinstates the royalties if market prices reach a
certain level. For some reason the language was
inadvertently dropped from an addendum attached
to more than 1,100 leases the Interior
Departments Minerals Management Service issued
for 1998 and 1999, Walter Cruickshank, the
agencys deputy director, told a House Government
Reform subcommittee Wednesday. He said officials
have not been able to determine who made the
change. It is clear that there is no record
telling people to take the language out, he
said, and it was widely known that the department
wanted the price threshold restriction in any oil
and gas leases as a matter of policy. In the late
1990s, when oil prices were well below the
threshold, the issue may not have attracted
attention. Rep. Darrell Issa, R-Calif., the
subcommittee chairman, called the whole matter
suspicious. This is a 7 billion word
processing error, Issa told reporters. He said
some of the leases issued during those two years
could remain in effect for as long as 85 years,
so the government will be unable to collect
royalty payments from oil and gas taken from
those leases because they lacked the threshold
language. If prices remain high, lost royalties
will be in the billions of dollars, he
acknowledged.
46Houston Chronicle March 5, 2006 TRANSOCEAN HAS
NEW DRILL SHIP IN THE WORKS TRANSOCEAN, the
world's largest offshore oil and natural gas
driller, has been awarded contracts from Chevron
Corp. that will lead to construction of a new
deep-water rig and generate as much as 1.7
billion in revenue. The contracts include a new
drillship that will cost an estimated 650
million to build and will be used by Chevron for
five years, Houston-based Transocean said
Wednesday in a prepared statement. The drillship
will be Transocean's first new deep-water rig
since 2001 and will be among the most expensive
ever built. Chevron also extended agreements to
use two other deep-water rigs. Transocean and
other drillers have been reluctant to build new
rigs without first having multiyear contracts in
place for their use. With the most prized
deep-water rigs in short supply and producers
racing to capitalize on soaring energy prices,
rents have climbed to unprecedented highs. The
new drillship, to be named Discoverer Clear
Leader, will be built at the Daewoo Shipbuilding
and Marine Engineering Co. shipyard in South
Korea, Transocean said. Construction is expected
to take 30 months, and the contract with Chevron
is scheduled to start in the second quarter of
2009. The rig may generate revenue of 493
million for Transocean during the first three
years, or an average rate of about 450,000 a
day, company spokesman Guy Cantwell said. Rates
during the final two years are linked to oil
prices and are expected to range from 400,000 to
500,000 a day, he said. The Discoverer Clear
Leader will be capable of operating in waters as
deep as 12,000 feet and will be able to drill
wells as deep as 40,000 feet, the company said.
47Less than 200m
Greater than 1,000 m
48Cretaceous Shelf Edge
DEEPWATER
FLEX TREND (Shelf Edge)
SHELF
N
S
ST172
Thunder Horse
Typical Shelf
Llano
Jason
Hickory
Conger
Tahiti
Pleistocene
Pliocene
10,000
Miocene
Mid. Miocene
20,000
Low. Miocene
Paleogene
30,000
Mesozoic
Salt
Salt
Basement Rock
Source Newfield Exploration
49- How is an offshore well drilled?
- The Basic Rig Systems are
- Power System
- Hoisting System
- Rotating System
- Circulating System
- Well Control System
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51Making a Drillstring Connection
52Land Rig Substructure
53Derrick
54TYPES OF OFFSHORE RIGS
- Drilling from beach (1890s)
- Drilling from wharves (1910s)
- Platform rig and barge (1920s)
- Submersible barge rig (1940s)
- Jackup rig (1950s)
- Semi-submersible rig (1970s)
- Drillship (1980s)
55Drilling from Wharf Oil Rock City in Caspian
Sea, Baku, Russia
56Submersible Barge Rig
57Jackup Drilling Rig
58Semi-Submersible Drilling Rig
59Drillship
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61Drillco Personnel
62Roughnecks
63Men Working on Well
64Driller
Derrickman
65 OILCO PROVIDES
- Lease rights and drilling permits
- Well program
- Transportation of rig to Oilcos wellsite
- Company man aboard rig 24/7
- Mud Engineer aboard rig 24/7
- Specialized services
- Air and/or sea transportation for all personnel
and equipment - Fuel
- Drilling mud
- Well evaluation services
- Production equipment (platforms, pipelines,
compressors)
66- THE EXCHANGE
- Oilco pays Drillco a dayrate charge
- Drillcos dayrate charges account for 40-60 of
Oilcos total well costs - Oilco expects delivery of well in compliance with
Oilcos well program and in a safe and timely
manner - Oilco gets 83.3 of production
67- Risks
- WHAT BAD STUFF CAN HAPPEN?
- Boat accidents
- Crane accidents
- Equipment defects and malfunction
- Lightning strikes
- Hurricanes
- Pipeline strikes
- Platform strikes
- Punchthroughs
- Blowouts
- Helicopter accidents
- Sabotage
- Nationalization/confiscation
- War Risk/Terrorism
68Lightning Strike
69Hurricane Lili (October 2002)
70Rowan-Houston following Hurricane Lili
71Salvage Operation Re Rowan-Houston
72Salvage Operation Re Rowan-Houston
73Seminal Spindletop Blowout (1900)
74Derrick Collapse
75Land Rig Blowout
76Offshore Egypt August 2004
77Rig sinks and Platform is destroyed
78New Risk Icebergs and Ice Flows
79Ivan, Katrina and Rita
Three of the worst hurricanes to ever hit the
U.S. Gulf of Mexico. Struck within a 13-month
period, devastating the offshore oil and gas
industry
80IVAN SCORECARD (September 2004)
- Approximately 33,000 miles of pipeline, 4,000
platforms, 135 drilling rigs and 30,000 offshore
workers in GOM. - Approximately 10,000 miles of pipeline, 1,500
platforms and 40 drilling rigs in Ivans direct
path. - Total Damage
- Platforms 31 destroyed or damaged
- Pipelines hundreds of miles of pipelines buried,
snapped and/or damaged due to mudslides
production shut-in for months - Drilling Rigs 6 damaged
- No one injured or killed due to evacuations
81Hurricane Ivan September 2004
82Hurricane Katrina 2005
83Path of Katrina
Path of Rita
84Hurricane Damage
Refinery Damage in Pascagoula, MS
85Aviation Base in Venice, LA
Marine facility in Fourchon, LA
86Shell Mars Platform
Before
After
87Chevron Typhoon Platform
Before
After
88GSF Adriatic VII
Diamond Ocean Warwick
89GlobalSantaFe High Island III
90NOBLE THERALD MARTIN OFF COAST LOUISIANA
RIG DRIFTED 125 MILES DRAGGING 6 ANCHORS BEFORE
BEACHING ITSELF IN VERMILLION
91- ROWANS LOSSES
- Rowan-New Orleans (capsized and found)
- Rowan-Halifax (capsized and found)
- Rowan-Odessa (capsized and found)
- Rowan-Fort Worth (capsized and not found)
- Rowan-Louisiana (beached and destroyed)
Before
After
92This 10-ton anchor was racked on the exterior of
the hull 50 feet above the sea before the storm
93Ex-President Clinton hard at work on a rescue
mission
94Hurricanes Katrina/Rita Scorecard
- Platforms 167 destroyed or damaged
- Drilling Rigs 8 destroyed 22 extensively
damaged 19 knocked off station and adrift - Pipelines and Refineries extensive damage
- No one injured or killed in offshore industry
- Fallout (1) tight rig supply and price
increases - (2) increase in oil and gas
prices - (3) government intervention
- (4) increase in insurance
costs
95Katrina/Rita Fallout Dayrate Increases
Source ODS - Petrodata
96Katrina/Rita Fallout Insurance
- Big Losses Hurricane Katrina results in the
largest insured loss in history. Hurricane Rita
is the most devastating storm to hit the offshore
drilling industry and particularly Rowan. - Higher Premiums The losses due to Hurricanes
Katrina and Rita has caused an increase of
between 300 and 500 in insurance premiums. - Less Coverage Insurers are requiring drillers
to accept more risk in the form of higher
deductibles and maximum aggregate windstorm
coverages.
97 POTENTIAL DAMAGES
- Injury and death to Oilcos and Drillcos
personnel - Damage to Oilcos property
- Damage to Drillcos rig
- Third-party damage (beaches, fishermen, reefs,
oysterbeds, adjacent pipelines and reservoirs) - Loss or damage to the hole
- Well control costs
- Pollution control costs
- Reservoir loss or damage
- Debris removal
98- Indemnity Agreements
- Following an accident, management has
- three questions
- What happened?
- What does the contract say?
- Do we have insurance?
99What is an indemnity agreement?
- American system of liability is fault-based
- Contract-based allocation vs. fault-based
allocation - Indemnity agreement is only as good as the
financial resources of party who gives it and
that partys insurer - Prepare management for the possibility of a harsh
result - If used, the indemnifying party, its insurers and
eventually the courts will closely scrutinize the
indemnity agreement - Carefully read, review and re-review indemnity
language - Know the law
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105 WHY ALLOCATE RISK?
- Tailor risk to insurance coverage, but you should
protect your coverage, loss-history and insurer - Avoid insuring the same risk twice
- Possibility of acquiring insurance for an assumed
but uninsured risk - Preserve customer relationships
- Avoid company-breaking risks
- Avoid biased courts and unpredictable jury
verdicts - Avoid litigation expenses
- Market conditions may dictate risk allocation
- Take advantage of unsuspecting party
- Assume risks that you can control through
operations and avoid risks that you cannot
control - Allocation of risk should reflect value of
contracted services
106- Risk Allocation in Offshore Drilling Contracts
A. Injury and Death
- Industry Norm knock-for-knock
- Oilcos Indemnity Oilco shall be responsible
for and hold harmless and indemnify the Drillco
Group from and against all claims, demands and
causes of action of every kind and character on
account of injury, illness or death of Oilcos
employees, subcontractors or invitees. - Drillcos Indemnity Drillco shall be
responsible for and hold harmless and indemnify
the Oilco Group from and aginst all claims,
demands and causes of aciton of every kind and
character on account of injury, illness or death
of Drillcos employees, subcontractors or
invitees. - Drillco assumes vast majority of personal injury
risk because Drillco has more personnel on rig.
107A. Injury and Death Knock-for-knock B. Property
Damage
- Industry Norm Qualified knock-for-knock
- Oilcos Indemnity Oilco shall be responsible
for and hold harmless and indemnify the Drillco
Group from and against damage to or loss of the
property and equipment of Oilco, its parent,
subsidiary and affiliated companies, its partners
and co-venturers, and their respective
subcontractors. - Drillcos Indemnity Drillco shall be
responsible for and hold harmless and indemnify
the Oilco Group from and against damage to or
loss of the property and equipment of Drillco,
its parent, subsidiary and affiliated companies,
and their respective subcontractors provided,
however, that Oilco shall reimburse Drillco 75
of the repair or replacement cost for damage to
or loss of any drillpipe, drill collars or other
in-hole equipment when such equipment is being
used in the hole below the rotary table.
108A. Injury and Death Knock-for-knock B. Property
Damage Qualified knock-for-knock C. Third-party
damage
- Industry Norm Not addressed in contract so
liability is allocated on a fault basis
109- A. Injury and Death Knock-for-knock
- B. Property Damage Qualified knock-for-knock
- Third-party damage Fault-based
- Loss of Hole
- Industry Norm Oilco assumes risk with a
fault-based redrilling discount - Indemnity In the event of loss or damage to the
hole Oilco shall be responsible for and hold
harmless and indemnify the Drillco Group from
such damage to or loss of the hole provided that
in the event such loss or damage is caused by
Drillcos gross negligence or willful misconduct,
Drillco shall upon Oilcos request and as Oilcos
exclusive remedy for such loss or damage, repair
the damaged portion or redrill to the depth at
which the loss or damage occurred at 85 of the
dayrate.
110- A. Injury and Death Knock-for-knock
- B. Property Damage Qualified knock-for-knock
- Third-party damage Fault-based
- Loss of Hole Oilco assumes
- Well Control Costs
- Industry Norm Oilco assumes risk
- Indemnity Oilco shall be responsible for and
hold harmless and indemnify the Drillco Group for
the cost of regaining control of any wild well.
111- A. Injury and Death Knock-for-knock
- B. Property Damage Qualified knock-for-knock
- Third-party damage Fault-based
- Loss of Hole Oilco assumes
- Well Control Costs Oilco assumes
- Reservoir Loss or Damage
- Industry Norm Oilco assumes risk without
qualification - Indemnity Oilco shall be responsible for and
hold harmless and indemnify the Drillco Group
from and against all claims on account of injury
to, destruction of, or loss or impairment of any
property right in or to oil, gas or other mineral
substance and for any loss or damage to any
formation, strata or reservoir beneath the seabed.
112A. Injury and Death Knock-for-knock B. Property
Damage Qualified knock-for-knock C. Third-party
damage Fault-based D. Loss of Hole Oilco
assumes E. Well Control Costs Oilco
assumes F. Reservoir Loss or Damage Oilco
assumes G. Pollution
- Industry Norm Drillco assumes pollution
emanating from rig, and Oilco assumes wellbore
pollution with qualification. - Drillco's Indemnity Drillco shall be
responsible for and hold harmless and indemnify
the Oilco Group for control and removal of
pollution or contamination which originates above
the surface of the water from spills of fuels,
lubricants, motor oils, paints, solvents and
garbage wholly in Contractor's possession and
control and directly associated with Contractor's
equipment and facilities. - Oilco's Indemnity Oilco shall be responsible
for and hold harmless and indemnify the Drillco
Group for control and removal of all pollution or
contamination other than that assumed by Drillco
above, including all pollution or contamination
resulting from fire, blowout, cratering, seepage
or any other uncontrolled flow of oil, gas, water
or other substance provided, however, that in
the event any such pollution or contamination is
caused by the gross negligence or willful
misconduct of Contractor, Contractor shall assume
the first 1,000,000 of such pollution or
contamination.
113- A. Injury and Death Knock-for-knock
- B. Property Damage Qualified knock-for-knock
- C. Third-party damage Fault-based
- D. Loss of Hole Oilco assumes
- E. Well Control Costs Oilco assumes
- F. Reservoir Loss or Damage Oilco assumes
- Pollution Split risk
- Debris Removal
- Industry Norm Each party will pay the costs to
raise and remove its own equipment. - Oilcos Indemnity Oilco shall at all times be
responsible for and hold harmless and indemnify
the Drillco Group for the cost of removal of
debris that is the property or equipment of the
Oilco Group. - Drillcos Indemnity Drillco shall at all times
be responsible for and hold harmless and
indemnify the Oilco Group for the cost of removal
of debris that is the property or equipment of
the Drillco Group, but only to the extent removal
of such debris is required by governmental
authority or impedes Oilcos ongoing operations.