oil and gas service

OIL AND GAS SERVICE

Isaac NelsonAndrie LesmanaGreg Alexander

Wilson Xiao

Overview

• Precision Drilling Trust

• Transocean Inc.

• Major Drilling Group

Oilfield Services• Provide 45% of the

industry revenue• Prepare wells for

production• Maintain and enhance

output• Exploration

Contract Drilling• Provide 35% of the industry revenue• Among the first on the scene • Get contracts from big oil companies• Specialize in drilling• Employ trained staff

Value ChainOil & Gas Industry

Upstream:ExplorationProduction

Downstream:Refining

DistributionMarketing

Overview

TerminologyDirectional Drilling

OnshoreDrilling

Deep WaterDrilling

Jackups Midwater Semisubmersible

Drillship

Deepwater Semisubmersible

Floaters

Fleet

Jack Ups• Mobile self-elevating drilling• platforms. • Equipped with legs that are• lowered to the ocean floor for• foundation.• Jacked up above highest waves.• Suited for water depths of 400 ft

and less.

Drillships• Self-propelled and extremely mobile.• Dynamically positioned (High-spec only), does not

require anchors.• Great load capacity, ideal for remote locations.• Limited to calmer water conditions.• Dual-activity technology (on recent models). • Midwater, Deepwater, Ultra-deepwater

Semisubmersibles• Floating vessels that can be submerged by water

ballast system so that lower hulls are under water during drilling operations.

• Maintain position through anchors or computer controlled dynamic positioning thrusters.

• Moved by propellers or tugging. • Suited for rough water conditions.• Midwater, Deepwater, Ultra-deepwater.

Contract Drillers

Transocean Ltd. Deepwater drilling

Precision Drilling TrustOnshore drillingDirectional drilling

Major Drilling Corp.Onshore drilling Directional drilling

Competitive Landscape

Capital-intensive, Highly Skilled, Highly Regulated Bounded by federal, provinces, state, foreign and local laws.

OPEC - Control 75% of the world’s proven reserves and account for 33.3% of the oil production

Proven Oil Reserves

www.bp.com

Proven Crude Oil Reserves

Proven Natural Gas Reserves

Proven Natural Gas Reserves

Oil Production By Country

Competitive Landscape•Biofuel•Unconventional fossil fuel Oil shale and oil sand•Crude oil and natural gas relationship

•Estimated to be 1.57 trillion barrels•How to get all that oil out? •Oil sands are a mixture of bitumen, carbon-rich sludge, sand, water, and clay.•The majority of oil still will come from conventional extraction methods in the foreseeable future.

Canada Oil sands

Canada Oil sands

Crude Oil and Natural Gas

Oil and Gas Price Volatility

Rotary Rig Count

The rotary rig count is the average number of drilling rigs actively exploring for oil and gas.

Rig count is one of the primary measures of the health of the exploration segment.

It is a measure of the oil & gas industry’s confidence in its own future.

Precision Drilling Trust

Stock Price Snap Shot

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

50

100

150

200

250

300Tr

ust u

nits

(mill

ions

)

•Traded on NYSE under ticker PDS• Mkt cap: 2.05B• # of units: 275.52M

•Full-time employees: 7,200

•Number of trust units outstanding: 275.64M

5-yr Stock Price Snap Shot

5-yr Stock vs. S&P/TSX Capped Energy Trust Index

5-yr vs. S&P/TSX Index

1-yr Stock Price Snap Shot

1-yr Stock vs. S&P/TSX Capped Energy Trust Index

1-yr vs. S&P/TSX Index

Company Info

History• Founded as a private land drilling contractor in Canada in 1951.• Entered a period of high-growth in the 1980s.

• Diversification era of 1990s.• Conversion into an open-ended income trust in 2005• Changed focus towards organic growth and global expansion.

Business• Onshore contract driller - one of the

largest onshore drilling rig fleets in the world. Second largest contract driller in North America.

• Holds about 26% of the onshore drilling rig market in Canada, 7% in the US and about 20% of the Canadian service rig market.

• Precision’s fleet can drill virtually all types of onshore conventional and unconventional oil and natural gas wells in North America.

Business

Business• Vision: Precision will be recognized as the

high performance, high value provider of services for global energy exploration and development• Precision delivers high performance through

passionate people supported by superior systems and equipment designed to maximize and reduce risks; and

• Precision creates high value by lowering customer costs, operating safely, developing people, generating financial growth and attracting investment.

• Precision provides contract drilling, well servicing and strategic support services to customers.  Precision supplies on-the-ground expertise - people, equipment and knowledge - to provide value to our customers on a daily basis.

Business units

Precision Drilling Trust

Contract Drilling Services

Precision Drilling

LRG Catering

Rostel Industries

Columbia Oilfield Supply

Grey Wolf Supply

Completion and Production Services

Precision Well

Servicing

Live Well Servicing

Precision Rentals

Terra Water Systems

Business units

On average, the contract drilling segment generates 70% of the revenue, and the completion and production segment generates the remaining 30%.

ManagementDoug StrongChief Financial Officer

Background:•Bachelor of Commerce degree from University of Calgary.•Chartered Accountant.

Previous positions:•Spent 6 years in public accounting after earning his degree before joining a contract drilling company as International Controller.•Joined Cactus Drilling as Controller in 1994, which was later acquired by Precision.•Became Chief Financial Officer on November 7, 2005.

ManagementRobert L. PhillipsChairman of the Board

Previous positions:•President and Chief Executive Officer of Dreco Energy Services Ltd. (1994 – 1998).•President and Chief Executive Officer of PTI Group Inc. (1998 – 1999).•Executive Vice President at MacMillan Bloedel Limited (1999 – 2001).•President and Chief Executive Officer of BCR Group of Companies (2001 to 2004).•Appointed as a Director of Precision in May 2004.•Appointed as Chairman of the Board of Directors in August 2007.

External risks• Seasonality

Activity level is highly seasonal and dependent upon the severity and duration of winter months. Typically, Q1 has the highest activity level and therefore the most prosperous as winter ground conditions are suitable for moving equipments to otherwise inaccessible drilling sites.

MuskegSummer:

Winter:

External risks• Energy prices

• Typically when energy prices are high, demand for Precision’s services increases.

• Markets for oil and NG are becoming more separate.

External risks

Q4 2008 Q4 20090

1020304050607080

West Texas Intermediate Crude Oil

Price

(per

bar

rel)

AECO NG spot

Henry Hub NG spot

WTI crude oil spot

012345678

Natural Gas Spot Prices

Q4 2008Q4 2009

Price

(per

MM

Btu)

Q4 2008 Q4 200902468

10121416

1-yr Forward North Amer-ican NG Price

Price

(per

MM

Btu)

Weak overall demand for oilfield services in North America due to:

• Uncertain capital markets

• Uncertainty regarding future natural gas prices

• Weak USD

Performance - Contract Drilling

24.5% 24.9%23.5 23.3

24.9 21.3

24.5% 24.9%24.3 23.0

26.6 24.7

5.93% 1.21%

Performance•Precision currently has 213 rigs out of 352 operating (60.5%) – 133 in Canada, 78 in US, 2 in Mexico.

• Improvement over Q3: 106 rigs active out of 390 (27.2%)

•Expects to have 75 rigs active in North America under term contract in Q1 2010, and 71 in Q2.

•For 2010, Precision expects 34 rigs in Canada under term contract, 31 in US, and 1 in Mexico.

•For 2011, Precision expects 19 rigs in Canada under existing term contracts, and 17 in US.

Strategy•“Precision’s high performance, high value strategy is focused on best people, best equipment and best technology to deliver value, diversification and growth.”•Growth:

• Globalizing its business and pursuing opportunities outside Canada

• Invest in asset growth that generates value for customers

• Continue developing its directional drilling market•Diversification:

• Developing a broad customer base, and at the same time complementing its core business

• Expanding to market outside Canada to reduce seasonality effect and capitalize on drilling opportunities beyond WCSB (unconventional natural gas wells)

Strategy•Value

• High-degree of vertical integration allows Precision to reduce costs and improve margins, attract investment capital

• Reputation is evident in financial and operational performance, employee retention, safety and environmental performance, and market share in directional drilling and horizontal applications

• Target Zero

Rec. Frequency =# of injuries x 200,000 Man hours worked

Future•Precision is expecting an improvement in the market demand for drilling rigs as the global economy improves.•They will be reporting their financial results in accordance with IFRS starting Jan 2011.•Conversion from Trust to Corporation. Estimated to be completed by May 2010.

Financial Statements

Consolidated Balance sheet

Statements of Earnings and Retained Earnings

Segment Review of Contract Drilling Services

Segment Review of Completion and Production Services

Statements of Cash Flow

FCF = 311,294K

Fisher analysis

Superiority in production, marketing, research and financial skills

People factor

Investment characteristics of some businesses

Price of the investment

Recommendation

$ Buy $

EIA short term forecast for Henry Hub natural gas average spot price in 2010 is $5.17 per MMBtu ($1.22 increase over 2009), $5.65 in 2011.

Crude oil is expected to rise to $82 per barrel by the end of the year, and hitting $85 per barrel by 2011.

Oil and gas consumption will be tied to the state of the global economy. The faster the economic recovery, the faster we can see oil and gas consumption increase.

World’s largest provider of offshore contract drilling services for oil and gas wells

“Our mission is to be the premier offshore drilling company providing worldwide rig-based, well-construction services to our customers through the integration of motivated people, quality equipment and innovative technology, with a particular focus on technically demanding environments.”

• Provides: oil and gas drilling management services, engineering, and project management services.

• Contract out drilling rigs, equipment and work crews to drill oil and gas wells.

• Participates in oil and gas exploration, and production activities.

• focuses on deepwater and harsh environment drilling services.

Business model

1 year Rig

5 year Rig

Rig 10 year

Price of Rig to Price of Crude Oil

ManagementSteven L. Newman

President and Chief Executive Officer

Before beginning his current position in March 2010, Mr. Newman served as President and Chief Operating Officer from mid-2008 to late 2009 and subsequently as President. Mr. Newman’s prior senior management roles included Executive Vice President of Performance, Executive Vice President and Chief Operating Officer, Senior Vice President of Human Resources, Information Process Solutions, and Treasury, and Vice President of Performance and Technology. He also has served as Regional Manager for the Asia and Australia Region and in international field and operations management positions, including Project Engineer, Rig Manager, Division Manager, Region Marketing Manager and Region Operations Manager. He joined the company in 1994 in the Corporate Planning Department. Mr. Newman holds a Bachelor of Science degree in Petroleum Engineering from the Colorado School of Mines and an MBA from the Harvard University Graduate School of Business

ManagementRicardo H. RosaSenior Vice President and CFO

Before being named to his current position, Mr. Rosa served in management positions, including Senior Vice President of the company's Europe and African Unit, Senior Vice President of the Asia and Pacific Unit (APU), Vice President and Controller and in a variety of international positions in finance for 19 years. Mr. Rosa graduated from Oxford University in the United Kingdom with a Master of Arts degree and subsequently qualified as a Chartered Accountant with the Institute of Chartered Accountants in England and Wales.

ManagementEric B. Brown Senior Vice President, General Counsel

Mr. Brown served as Vice President and General Counsel since February 1995 and Corporate Secretary since September 1995. He was named a Senior Vice President in February 2001. Prior to assuming his duties with the company, Mr. Brown worked at Coastal Gas Marketing Company and served as its General Counsel. He earned a Bachelor of Arts degree from Hope College in Michigan and a J.D. degree from Indiana University law school.

Firsts and Records

History of MergersTransocean

Global SantaFe

Global Marine Santa Fe Int’l

Transocean

Transocean Sedco Forex

Transocean

Offshore

Transocean ASA

Offshore Drilling

Southern

Productions

Southern

National Gas

Dacinger

International Drilling

Sedco Forex

Sedco

Forex Neptune

R&B Falcon

History1964 Global Marine first to drill in North Sea.

1966 The Offshore Company designs jackup with year-round capabilities.

1969First semisubmersible rig built by Forex Neptune.

1985Schlumberger combines Sedco and Forex into single company.

1986-1992Global Marine files for Ch. 11 bankruptcy. Reemerges in 1989 with BOD, management and fleet intact; deleveraged by 1992.

1996The Offshore Company (now called SODI) acquires Transocean ANA, doubling its fleet size.

History1999 Transocean Offshore merges with Sedco Forex (sold by Schlumberger).

2001Transocean Sedco Forex merges with R&B Falcon Corp. and form world’s largest offshore drilling company.Santa Fe Int’l and Global Marine merge and form world’s second largest drilling company.

2003-2007Transocean breaks several records for depth drilling (10,000 ft of water) and well depth (35,000 ft).

2007Transocean and GlobalSantaFe merge to become the world’s largest offshore driller.

2008Moves to Switzerland from Cayman Islands for geographic centrality and tax benefits.

Major Clients

Worldwide operations

Worldwide operations

Jackups Midwater Semisubmersible

Drillship

Deepwater Semisubmersible

Floaters

Fleet

Fleet• Mobile self-elevating drilling platforms. • Equipped with legs that are lowered to the ocean floor for foundation.• Jacked up just above highest waves.• Suited for water depths of 400 ft and less.

Jack ups

Fleet• Dynamically positioned in that it does not require anchors.• Great load capacity, ideal for remote locations.• Limited to calmer water conditions.• Self-propelled and extremely mobile.• Dual-activity technology (on recent models). • Midwater, Deepwater, Ultra-deepwater

Drill ships

Fleet• Floating vessels that can be submerged by water ballast system so that

lower hulls are under water during drilling operations.• Maintain position through anchors or computer controlled dynamic

positioning thrusters. • Moved by propellers or tugging. • Suited for rough water conditions.• Midwater, Deepwater, Ultra-deepwater

Semisubmersibles

Financial Statements

Operating Revenues and Long-Lived Assets by Country

Recommendation

BUY

“The Company is well positioned to face the challenges and opportunities ahead ”

• Based in Moncton, New Brunswick , Canada• One of the world’s largest drilling service

companies serving the mining industry• It maintains field operations and offices in

Canada, the United States, South and Central America, Asia, Africa and Australia.

• Major Drilling provides all types of drilling services including surface and underground coring, directional, reverse circulation, RAB, geotechnical, environmental, water-well and coal-bed methane and shallow gas.

About MDI

Stock Quote

Current Price as of Mar 19, 2010 24.60

Day low 24.41

Day high 25.63

Volume 111,308

Market Cap 583.51M

EPS -0.37

P/E N/A

Forward P/E 20.28

Annual Dividend 0.40

Yield 1.60

Beta 2.01

Source from www.theglobeandmail.com/

1 Year Chart

5 Year Chart

5 year MDI vs. Oil & Gas Index

Corporate Strategy

• Dominate specialized drilling and expand effective capacity

• Modernize conventional fleet • Keep debts at minimum levels• Be the best of class in safety and human

resources

Services

Specialized drilling

• Defined as any drilling project that , by virtue of its scope, technical complexity or location, creates significant barriers to entry for smaller drilling companies

• It includes deep-hole drilling, directional drilling, and mobilizations to remote locations or high altitudes

Conventional drilling

• It is much more affected by the industry cycle• This part of the industry is highly fragmented

and has numerous competitors• Since MDI offers only limited differentiation in

this sector, it is not its priority for investment

Underground Drilling

• It takes on greater importance in the latter stages of the mining cycle as clients develop underground mines

• Growth is relatively flat

Acquisitions-1

• Forage à Diamant Benoît Ltée• Based in Val-d’Or, Québec• Acquired on August 1, 2008• Acquired 19 drills rigs• It fits with MDI’s strategic focus on specialized

drilling• Purchase price was CDN$23.1 million,

financed by cash and debt

Acquisitions -1

Acquisitions -2

• Paragon del Ecuador S.A.• Acquired On October 25, 2007• It was the largest mineral exploration drilling

contractor in Ecuador• Acquired 7 drill rigs• Purchase price was CDN$ 5.8 million, financd

with cash and debt

Acquisition -2

Acquisitions -3

• Harris y Cia Ltda.• On September 1, 2007• Acquired 11 drill rigs conducting mainly

specialized drilling in Chile• Also acquired Harris’ existing contracts and

retained key management personnel• Purchase price was CDN$25.2 million,

financed with cash.

Acquisition -3

Drilling Operations in the world

Acquisition- 1

Acquisition- 2

Acquisition- 3

Revenues by Areas

Top management

Francis P. McGuire

•Director, President & Chief Executive Officer•served as Vice President, Business Development of MITI Information Technology Inc. from 1998 to August 2000•served as Deputy Minister of the Department of Economic Development and Tourism of New Brunswick. •He holds a Masters of Arts in International Studies, Trade and Economics from Johns Hopkins University, a diploma in European Politics from the Institut d'Etudes Politiques in Paris and a Bachelor of Arts from Dalhousie University.

Top managementDenis Larocque

• Chief Financial Officer

• He was involved in the acquisition and branch office setup in countries like Australia, Argentina, Chile, Mongolia and many more. 

• Prior to joining Major Drilling in September 1994, Mr. Larocque worked for an accounting firm affiliated with BDO Dunwoody. 

• Mr. Larocque is a Chartered Accountant and holds a Bachelor of Business Administration, major in Accounting from Laval University.

Top managementRobert Morgan

• V.P. - Business Development and Latin American Operations

• Bachelor of Science degree

Rob Newburn• V.P.- North American and African Operations

Ray Baldry• V.P.- Australian and Asian Operations

Financial Statements

Consolidated Statements of Operations

Consolidated statements

Consolidated Balance Sheets

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Foreign Currency Risks

Historical Summary

Recommendation

• Buy• In the long run, mining companies continue to deplete the more easily accessible mineral reserves around

the world and attractive deposits will be in increasingly remote locations, areas difficult to access and/or deep in the ground

• Excellent financial position and remained debt-free, net of cash• With rising rig utilization levels industry-wide, its contract pricing power will return in the near future.