Presentation on theme: "NOBLE DRILLING CORP Project Windmill"— Presentation transcript:
1NOBLE DRILLING CORP Project Windmill The Central Role of Health, Safetyand Operational Excellence inInternational Expansion
2What are the risks inherent to drilling oil? Financial Risks:Boom and Bust Cycles in the Oil IndustryUnpredictable Oil Supply & Steadily Increasing Demand for OilOver-Supply of Drilling AssetsPhysical Risks:Health and Safety of Rig Workers…especially in harsh deepwater locationsSource: ODS PetrodataJackup SupplyJackup DemandRecent Peak DemandHistorical Attrition – 6 rigs per yearThere are significant financial and physical risks inherent in oil drilling that must be managed in order to maximize shareholder value.Three key factors have a significant impact on the financial performance of oil drilling companies:The volatility of the oil industry itself (subject to government regulations and global foreign policy issues)The unpredictability of oil supply in the face of steadily rising demand for oil impacts prices and oil drilling activitiesThe over-supply of drilling assetsIn conjunction with the large financial risks associated with oil drilling, the business’ operations involves significant physical risks:As workers strive to achieve high drilling day rates in often remote locations, they are often subject to potentially fatal health and safety issues on a daily basis.They are performing hard labor under extreme conditions, and their productivity directly impacts the company’s bottom line.Additionally, the recent demand for harsh environment deepwater drilling augments the physical risks involved in oil drilling.
3Noble’s Strategy: Risk Reduction $90K per dayDay Rates necessary to earn 11% ROCE on $125 M cost to build a new rig$201K per day:Day Rates necessary to earn 11% ROCE on $350M cost to build a new rigAchieve Industry-Leading ROCE by Acquiring and Refurbishing Used AssetsThis chart depicts the distinct financial advantage to acquiring used assets at good prices.The yellow line depicts the average day-rates (i.e. production per day) of semi-submersibles worldwideThis dotted yellow line shows the average day rate necessary for a drilling company to earn an 11% return on building a new semi-submersible rig, at the average cost of $350M per rig constructed.This indicates that it is impossible, on average, to earn a decent return if all operations are supported by new rigs.The same is true for jackup rigs (in green), which cost $125M to construct, on average.Hence Noble’s strategy: acquire and refurbish used assets to maximize returns.US Gulf of Mexico 300’ ILC jackup average dayratesWorldwide 6,000’ and greater semisubmersible and drillship average dayratesReplacement dayrates - $125 million jackup; $350 million floater – ROCE of 11% over 25 years
4Noble’s Strategy: Risk Reduction Achieve Operational Excellence, by:Reducing Financial Risks:Acquiring and buying during downturns to avoid overpaying and to boost ROCEGrowing into high-margin drilling markets (first offshore, now deepwater)Minimizing debtReducing Physical Risks:Investing in HSE (Health, Safety and Environment)Systems, processes, and top-of-the-line assetsNoble has achieved operational excellence by managing and reducing these risks in the following ways:The company manages the financial risks it faces largely by acquiring and buying companies and assets during downturns. This behavior is made possible by the overcapacity of drilling assets in the industry and the volatility of oil demand.By doing this, they reduce their cost of capital (over buying or constructing new) and boost their return on capital expenditures.Noble further reduces the financial risks they face in the oil industry by:Growing into high-margin sub-markets – the most recent of which is deepwater drilling. It is important to note that these new ventures are often high-risk… Noble is able to pursue these opportunities profitably due to their high HSE standards.And by minimizing their debt – this is key because debt often confers control to other parties.Noble focuses sharply on reducing the physical risks associated with drilling by investing heavily in HSE initiatives.Their HSE-centric systems and processes, and their top-of-the line drilling assets come together to make them the safest drilling company in the industry. This capability (as we will discuss) is at the heart of their growth and profitability.
6The Tactics Behind Noble’s Strategy Noble aligns its 7 Ss well, around HSE(Strategy, Style, Skills, Staffing, Structure, Shared Values, Systems)HSEInvestmentFinancialPerformanceNoble is safe and therefore profitableNoble is profitable and can therefore afford to be safeREPUTATIONThe common misconception about Noble is that they are profitable and can therefore afford to invest in HSE.BUT THIS IS FALSE. (mouse click)The reality is that Noble is safe and THEREFORE profitable. (safety is the means not the end)(mouse click)Noble aligns its 7Ss well, around HSE. This investment and commitment to safety is at the heart of its superior financial performance and operational excellence… which collectively help to form one of Noble’s most key assets: its reputation.Noble is known worldwide as a company that can drill the fastest, the deepest, and the safest. This helps the company to win key contracts, new clients and the enter into new markets early - they are the lowest risk, highest reward drilling contractor in the eyes of customers because:They are less likely to have accidents, disruptions, bad PR, or regulatory problems. As a result, their insurance costs are lower, as are their operational costs, and their yield is high.Noble is also seen as the lowest risk, highest reward company for experienced employees: they know they will be treated the best and are on board with a winning company, so Noble is able to attract to most skilled talent… in turn enabling greater operational excellence.Noble has similarly become a low-risk, high reward option for investors. As the safest drilling company performing well financially, Noble is able to secure better financing for deals – they don’t pay premiums for financing.OVERALL, due to its strong focus on safety, Noble attracts the best employees, contracts, and financing… perpetuating their industry-leading performance and their reputation.(fastest, deepest, safest)Best employeesBest contractsLow-rate financingOperationalExcellence
7Enabled by HSE Noble’s Shared Values Core Values that Serve as Guiding Principles:People = most important assetCode of Business ConductOperational ExcellenceSocial ResponsibilityDrilling InnovationBuild Long Term ValueEnabled by HSEFrom the Will of Lloyd Noble…“My hope is that when into other hands are placed the responsibility for the management of our mutually built enterprise, those in command will not lose sight of the fact that no individual builds anything worthwhile by his effort alone; that, though none of us can be totally fair, as we are human, our companies will continue down through the years to attempt to give to people associated with them an equitable portion of the fruits of their labor which, of course, bears with it the like responsibility on the part of the management to weed out those who do not want to make a sincere contribution, in order that room may be made for those who do. It has been my further belief that it was the duty of management, and to that end my mind has been constantly surcharged, to so build the organization that when men evidenced capabilities to give them a part of my work and find other tasks to do which might result in increased benefits to the organization, or step aside; and, on the other hand, should death intervene, to have matters so arranged that I would be missed personally, while the machinery continued to function smoothly.”Noble’s strategy is founded on its shared values, which guide the organization on a daily basis and form its culture. These include:People – first and foremost, the company’s most important asset (evident in the company’s code of business conduct and the Will of company founder, Lloyd Noble.Operational ExcellenceSocial ResponsibilityDrilling InnovationAnd a focus on Building Long Term ValueALL of these are enabled through Noble’s focus on health and safety, and together help create the company’s unique culture.This culture is a source of competitive advantage for Noble in that it:is based on a long history and is hard to mimic.
8Noble’s Management Style Senior Management Style provides strong visual leadership founded on:Integrity and Honesty“Code of Business Conduct”Commitment to HSE and Operational ExcellenceIncreased HSE spending as % of NI (8.5% in 2003)Quarterly safety meetings & weekly world-wide conference callsEnvironmental Steering CommitteeShared operational learning and best practiceCommitment to their EmployeesThe company’s strategy is supported by its Senior Management Style:Noble’s management provides strong leadership that is made visible at every level of the organization, through:their code of business conduct andtheir strong commitment to HSE:as they continually increase their HSE spendingMeet regularly to ensure they are on track with HSE objectivesGovern the company’s environmental steering committeeAnd encourage sharing of operational learning and best practicesTheir realization that people are their greatest asset… (lead in to next slide)
9Noble’s Management Style “People are our mostimportant assets –Their safety ourgreatest responsibility.”Noble seeks to hire and keep the best employees, in order to maintain the highest HSE standards and operational excellence. This commitment to people is deeply engrained in the company culture and very difficult to imitate.– James C. DayChairman of the Boardand Chief Executive Officer
10Noble’s Skilled StaffHighly Skilled Staff maintains operational excellenceSelective recruitingPersonality and behavioral assessments -> right people, right jobsTesting process incorporates mental alertnessConstant monitoring -> continuous improvementHiring and promotion based on competenceBeyond training, Noble has built a highly skilled staff to maintain its operational excellence, through:Personality Behavior Assessments to help employees understand their strengths and match them to jobs that help them develop into more productive and happier employees.Constant Monitoring that enables continuous improvement (lead in to next slide)…
11Noble Develops Staff Skills Continuous Training Focused on SafetyEntry-level trainingCompetency assurance programSafety-leadership trainingCommunication & Management skillsGroup safety exercises and case studiesHSE policy awarenessLeadership skillsPersonal DevelopmentTraining is extensive – both when initially hired and continually (on-the-job)Safety Leadership Workshops teach communication and management skills, group safety exercises and case studies, HSE policies, leadership skills, and personal development.
12Noble’s HSE-centric Structure HSEQ Dept is a critical to organizational structure:Determining and implementing policySetting performance goalsMeasuring key performance indicatorsProviding feedback to continually improve performanceSTS (Safety Training Supervisor) positionBeyond their capable staff (discussed earlier), Noble has industry-leading skills enabled through its advanced technology fleet, capable of drilling deeper and faster than their competitors.
13Systems: Noble’s formalized processes Noble’s HSEQ Management Systems – achieving operational excellence by driving:Senior Management Commitment to HSEQQuarterly safety meetings & weekly world-wide conference callsEnvironmental Steering CommitteeInvestment in HSE Systems – integrated in the capital budget process:ISO 9001 & CertificationInternational Safety Management CodeLean Six SigmaRig Standardization TeamOrganizational HSE-FocusShort Term Incentive Plan“Right to Refuse Work” PolicyJSAs (Job Safety Analyses) – hazard identification and mitigationCompetency Assurance ProgramNoble’s systems are designed around HSEQ - set up to enable the entire organization to drive toward improving safety and achieving operational excellence by:Encouraging and promoting a commitment to HSE at all levels of management:Regular meetings are held by all levels of management to ensure that the organization is focused on HSE initiatives.The environmental steering committee includes members of top managementA heavy investment in HSE systems is encouraged throughout the organization, and is evidenced in the implementation of the following critical formalized HSE management systems:ISO – environmental management system standard. **IN 2001, Noble’s European Division became first drilling contractor in the world to earn ISO Certification**Lean Six Sigma – a statistical approach for employees to find areas for improvement, find causes of downtime, and generate ideas for improving efficiency.Rig Standardization team – sets and communicates equipment standards company-widePromoting an organizational focus on HSE with such systems as:Short term incentive plan – rewards employees for achieving specific goals that contribute to building shareholder value. Safety results have the highest weight (50%)Right to refuse work – any employee can refuse work that he/she sees as dangerous w/out repercussions.JSAs – for any potentially hazardous work, analysis is done to determine safest course of action.Competency Assurance Program – formally documents the competency of Noble operations employees.Noble is structured in a way that enables HSE to reach across all functions and levels in the organization:A centralized HSEQ department provides a common framework that enable each group to achieve clear and measurable HSE goals.The company’s safety training supervisor positions create a stronger link between front-line operations and corporate safety goals.
14Systems: Noble’s formalized processes Noble’s HSEQ Management Systems – achieving operational excellence by driving:On-going HSE and Performance MonitoringHSE CommitteeRobust audit plan where auditors are welcomedNDOR (Noble Daily Operations Report) and I.D.E.A.S (Improved Drilling Efficiency Accountability System)Dashboard ReportsContinual Performance Monitoring and AdjustingSAP purchasing and accounting system tracks all medical claims to monitor case histories and trends and DEVELOP preventative programs.HSE Committee includes the chairman and CEO and senior management throughout Noble – meets quarterly to review HSE results.Internal Audits are done regularly and informally.NDOR and IDEAS – establish operations performance benchmarks based on past performance, track performance against these benchmarks, and improve performance through pre-planning, critical path analysis and personnel training.Dashboard Reports – summarizes all HSE-related key data by division…(lead in to next slide)
15Systems: Noble’s formalized processes Dashboard Reports: Leading and Lagging HSE Metrics are Reported to CEO and Board of DirectorsLeading IndicatorMetric that is generated proactively with the goal of preventing an undesired eventaudits, job safety analysis, STOP observations etc.Lagging IndicatorMetric that provides a historical baseline for tracking performance and identifying trends in incidents, emissions & turnover.The dashboard reports enable managers and employees to continually monitor key leading and lagging HSE metrics in order to proactively manage toward improving HSE day after day.
16Noble HSE Management System All Noble Divisions & Engineering are now participating in the Noble HSE Intranet / CDStandardization:HSE PolicesEngineering StandardsSafety SuppliesMedical SuppliesRigging and Lifting Best PracticesAlertsPublications
17ISO CertificationIn 2000 Noble’s European Division became the first drilling contractor in the world to become ISO certified.
18HSE Improvement as well as Growth Conversions/UpgradesAcquisitionsDispositionsGross Book ValueRig CountNote: Replacement value of fleet was $6.3 billion per Jefferies’ November/December 2003 report$ MillionsNeddrill/Other Int’lWesternChilesJoint VenturesGE/BawdenTransworldLand/Barge Rigs SaleMat Rigs SaleEVA’sMid East jackups,2 Semi’s & 2 Bingo hullsSemi upgradesMid East jackups(600)6001,2001,8002,4003,0003,600'85'86'87'88'89'90'91'92'93'94'95'96'97'98'99'00'01'02'03(0.5)0.00.51.01.52.02.53.0Their superior safety performance has enabled them to drastically reduce the number of lost time incidents while expanding rapidly.Noble’s alignment of its 7Ss around HSE leads directly to improving their shareholder value.To begin with, Noble’s superior safety performance and resulting financial success have enabled it to continually grow in its size and capabilities:This slide depicts Noble’s continued focus on premium assets and expanding our presence in deepwater.Since 1985, they have acquired 6 drilling companies, and 20 individual rigs.Their EVA upgrade program has transformed 5 acquired rigs that were limited to working in up to 70’ of water or less, to units capable of operating in water depths of 6,000’ and greater (again boosting their ROCE).As they grow, they continue to increase the earnings capacity of their fleet by selling non-core assets and reinvesting the proceeds in assets with higher earnings profile.
19Alignment of 7S’s Shareholder Value Claims < $10kClaims > $10k, < $100kClaims > $100kClaim CountNot only are the number of incidents reducing, but so are their magnitude. The company has been steadily driving down the number of the highest cost and most serious injuries.This improves their performance, boosts their reputation, and directly improves their bottom line.
20Post-Acquisition Results: HSE Neddrill Rigs,0.511.522.533.544.5519941995199619971998199920002001200220032004Noble acquires rigs from NeddrillPrior to Noble’s acquisition of Neddrill, Neddrill’s safety performance was less than stellar.While they did have deepwater capabilities and a strong name in the new deepwater market, they were excluded from a key North Sea market – the UK(mouse click)Noble was able to apply its 7Ss to drastically improve Neddrill’s assets’ HSE performance and leverage its good relations with the UK to expand its market and improve its returns on these new assets.LTI RateRecordable Rate
21Post-Acquisition Results: HSE Lost Time Incident (LTI) Rate Noble vs. IADC(per 200,000 man-hours)6Acquired Neddrill543Noble remained a well-respected and highly capable deepwater drilling contractor who could outperform all of its leading competitors in safety:Continued to consistently beat industry average LTI rates and continue reducing LTIs year-over-year211985198619871988198919901991199219931994199519961997199819992000200120022003NobleIADC
22Post-Acquisition Results: Financial Leader in ROCE - (compared to direct competitors)NobleDiamondENSCO200220032004 (1)GlobalSantaFeUltimately, Noble has achieved industry leading financial results:Noble’s ROCE increased despite its entry into the high-risk deepwater drilling marketRowanTransoceanSource: Noble Corporation, SEC Filings(1) Year-to-date September 30, 2004 annualized, except Noble, which is actual full year 2004.
23Post-Acquisition Results: Financial Leading Margins and EPS - (compared to direct competitors)Their margins were among the highest in the industry and EPS #1 in the industry.Source: 2004 Form 10-K’s
24Post-Acquisition Results: Financial $ per Share Remained Steady through Industry CyclesTheir superior operational capabilities, focus on HSE, and long-term financial strategy enabled them to continue to grow and earn stable returns per share for their investors through cycles in the drilling industry (through which their competitors floundered)…Source: Noble Corporation, SEC FilingsNote: Excludes nonrecurring items reported by competitors1 - Based on First Call estimates as of February 28, 2005
25Post-Acquisition Results: Financial Noble: Real Long-Term Value CreatorsDec. 31,2004StockPrice2004Return3-YearReturnCumulative Return(1)(based on $100 invested)…translating into long term real value increases for Noble’s shareholders.(1) Since February 20, 1997 – beginning of OSX Index
26When Noble came into Neddrill, within 3 months Cees Van Diemen got 8 new anchors chains for his rig.
27Safety ResultsWinner of the inaugural National Safety Council Robert W. Campbell AwardInternational Award for Business Excellence through Safety, Health & Environmental Management.