Corporate Presentation

Transcription

1 TSX: STEP Corporate Presentation May 08

2 Disclaimer The information contained in this presentation does not purport to be all-inclusive or to contain all information that prospective investors may require. Readers are encouraged to conduct their own analysis and review of STEP Energy Services Ltd. ( STEP or the Company ) and of the information contained in this presentation. Without limitation, prospective investors should read the entire record of publicly filed documents relating to the Company, consider the advice of their financial, legal, accounting, tax and other professional advisors and such other factors they consider appropriate in investigating and analyzing the Company. In this presentation, unless otherwise indicated, all dollar amounts are expressed in Canadian dollars. Certain capitalized terms and abbreviations not otherwise defined herein have the meaning assigned to them in the prospectus. This presentation does not constitute an offer or solicitation in any jurisdiction or to any person or entity. No representations or warranties, express or implied, have been made as to the accuracy or completeness of the information in this presentation and this presentation should not be relied on in connection with, or act as any inducement in relation to, an investment decision. Certain statements contained in this presentation constitute forward-looking statements or forward-looking information within the meaning of applicable securities legislation (collectively, forward-looking statements ). These statements relate to management s expectations about future events, results of operations and the Company s future performance (both operational and financial) and business prospects. All statements other than statements of historical fact are forward-looking statements. The use of any of the words anticipate, plan, contemplate, continue, estimate, expect, intend, propose, might, may, will, shall, project, should, could, would, believe, predict, forecast, pursue, potential, objective and capable and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. No assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this presentation should not be unduly relied upon. These statements speak only as of the date of this presentation. In addition, this presentation may contain forward-looking statements and forwardlooking information attributed to third-party industry sources. In particular, this presentation contains forward-looking statements pertaining to the following: future commodity prices; anticipated market recovery; projections of market prices and costs; supply and demand for oilfield services and industry activity levels, including the Company s integrated services offerings; benefits to the Company of increased fracturing intensity; future estimates of industry experts of the daily active drilling rig count, proppant consumption and the number of horizontal wells drilled in Canada and the U.S. and the effects of such trends on the Company; the Company s objectives, strategies and competitive strengths; future development activities; the Company s ability to refurbish and deploy its idle capacity; the Company s ability to increase Canadian and U.S. coiled tubing units by 08; the Company s ability to retain existing clients and attract new business; the Company s growth strategy; expectations with respect to future opportunities; the Company s capital expenditure programs and future capital requirements; the Company s current 07/08 capital plan; and debt and industry conditions pertaining to the oilfield services industry. With respect to forward-looking statements contained in this presentation, assumptions have been made regarding, among other things: future oil, natural gas and natural gas liquids prices; the Company s ability to market successfully to current and new clients; the Company s ability to utilize its equipment; the Company s ability to obtain qualified staff and equipment in a timely and costefficient manner; the regulatory framework governing royalties, taxes and environmental matters in the jurisdictions in which the Company conducts its business and any other jurisdictions in which the Company may conduct its business in the future; levels of deployable equipment; future capital expenditures to be made by the Company; future sources of funding for the Company s capital program; the Company s future debt levels; the impact of competition on the Company; and the Company s ability to obtain financing on acceptable terms. Actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors set forth in the Company s Annual Information Form dated March 0, 08 (the AIF ), which is available on SEDAR at The forward-looking statements included in this presentation are expressly qualified by the foregoing cautionary statements and are made as of the date of this presentation. The Company does not undertake any obligation to publicly update or revise any forward-looking statements except as required by applicable securities laws. For additional information, including with respect to the assumptions, expectations and risks applicable to such forward-looking information, see Forward- Looking Statements in the AIF. Non-IFRS Measures In addition to using financial measures prescribed by IFRS, references are made in this presentation to Adjusted EBITDA, in respect of both STEP and Tucker, which is a measure that does not have any standardized meaning as prescribed by IFRS. Accordingly, the Company s use of such term may not be comparable to similarly defined measures presented by other entities. For further details on this non-ifrs financial measure as it relates to STEP, see IFRS and Non-IFRS Measures in the Company s Management s Discussion and Analysis for the year ended December 3, 07 (the MD&A ). For further details on this non-ifrs measure as it releates to Tucker, see Non-IFRS Financial Measures in the short-form prospectus of the Company dated March 5, 08 (the Prospectus ). These non-ifrs measures should also be read in conjunction with the financial statements of Tucker (the Tucker Financial Statements) which are included in the Prospectus. The MD&A and the Prospectus are available on SEDAR at Additionally, this presentation makes use of the following abbreviations: MM millions HP horsepower TTM trailing twelve months

3 Key Investment Highlights High-Quality Coiled Tubing and Fracturing Asset Base Combined asset base of 490,000 HP and 3 deep capacity coiled tubing spreads creates scale in some of the highest-growth resource basins in North America Focus on technology: largest bi-fuel fracturing fleet in Canada, 3,000 HP Thunderpumps, integrated electronic platforms, proprietary STEP-PLEX diverter solutions, fiber optics, e-coil, SandCan systems Positioned for Growth: Completions Demand Remains Strong Plans to reactivate remaining fracturing equipment, exiting 08 with 5 spreads (eleven in Canada and four in the U.S. representing 497,500 HP) Targeting shallow oil formations with fit-for-purpose equipment Demand for deep capacity coiled tubing continues to support equipment additions 3 Experienced Leadership Team with Track Record of Strategic Growth Senior management team in place to enable ongoing growth Track record of growth both organically and through multiple acquisitions History of strategic growth without risking the balance sheet 4 Strategic North American Footprint Established presence with blue-chip clients in active basins in North America (Montney, Duvernay, Permian, Eagle Ford, SCOOP / STACK) Efficient with rigorous preventative maintenance program, modern fit-for-purpose assets, robust quality and procurement systems and management support systems Sophisticated logistics and supply chain network

4 Leading Specialized Coiled Tubing and Fracturing Service Provider Company Overview Headquartered in Calgary, STEP is an award-winning oilfield service company providing specialized and fully integrated coiled tubing and fracturing solutions Canadian Coiled Tubing and Fracturing Markets Fit-For-Purpose Equipment One of North America s largest and newest fleets of deep-capacity coiled tubing equipment Canada s third-largest fracturing company Significant fracturing presence in Oklahoma High Performance Culture High-performance, engaged culture with experienced professionals Passionate focus on safety - STEP Head Office U.S. Coiled Tubing and Fracturing Markets Comprehensive Business Model STEP s comprehensive business support model enables flawless field execution - STEP Service Centre - Tucker Facility STEP has been the recipient of several business and safety awards, including the EY Entrepreneur Of The Year Award in the Emerging Entrepreneur and Oil and Gas categories (04, 07), and Canada s Best Managed Companies program in (05, 06). As measured by fracturing horsepower of publicly traded Canadian peers. 3

5 Tucker Acquisition Highlights Strategic Entry into the U.S. Fracturing Market in High-Growth U.S. Basins Tucker operates primarily in the SCOOP/STACK and Woodford plays in Oklahoma The SCOOP/STACK is the second fastest growing play in the U.S., based on drilling rig activity Significant Value Expected for STEP Shareholders Acquisition represents a valuation of 4.x Tucker s annualized Adjusted EBITDA Well Positioned to Capitalize on U.S. Growth U.S. fracturing demand is expected to increase with horizontal drilling activity and fracturing intensity Financially Strong, Active and Growing Clients Tucker s large cap exploration and production client base controls expansive acreage positions with multi year drilling inventories Performance & Safety Driven Culture Aligned with STEP Tucker s commitment to safety, and its focus on operational excellence, aligns well with STEP s culture Tucker s experienced, senior leadership team which built the business has joined STEP See Non-IFRS Measures. Transaction value used for the acquisition multiple is based on the US$75 million acquisition price less US$4 million representing the new-build cost of the fourth fracturing spread and annualized Adjusted EBITDA of US$56.4 million (annualized net income of US$7.6 million) for the nine-month period ended Sep 30, 07. Based on data compiled by management from Baker Hughes North American Rotary Rig Count as of February 6, 08 with SCOOP/STACK data based on the rig count for Cana-Woodford, which includes the SCOOP/STACK play. 4

6 Tucker Overview Tucker Is a Growing Completion Solutions Service Provider in the U.S. Expanded operations in 0 by providing fracturing and completion services to the U.S. oil and gas industry, primarily in the SCOOP/STACK and Woodford plays in Oklahoma Loyal client base is comprised of supermajor and large independent oil and gas companies Tucker owns and operates equipment in the following three segments: Fracturing: four fracturing spreads consisting of 9,500 HP Coiled Tubing: two coiled tubing spreads: one unit and one -3/8 unit Wireline Services: 5 wireline units: five cased-hole units and 0 open-hole units Approximately 450 professionals Tucker has strict quality control, environmental and occupational health and safety standards, including ISO 900 and OHSAS 800 certifications, with an ISO 400 certification currently pending 9,500 Fracturing HP Two Coiled Tubing Units 5 Wireline Units 5

7 STEP Pro Forma the Acquisition of Tucker Potential Fracturing Horsepower (HP) 490,000 Geographic Breakdown of Q-Q3 07 Revenue (%) Current Pro Forma Canadian Fracturing and Coiled Tubing Markets 97,500 9,500 9% 38% 6% 9% Current Pro Forma Canada U.S. Acquired Increase of ~65% Canada U.S. U.S. Pro Forma Revenue Growth of 48% Coiled Tubing Spreads (#) As of April-8 Segment Breakdown of Q-Q3 07 Revenue (%) 3 U.S. Fracturing and Coiled Tubing Markets 3 Current Pro Forma 7 33% 6% 3 67% 74% -Plays Current Canada U.S. Increase of ~0% Pro Forma U.S. Acquired Coiled Tubing 4 Fracturing Fracturing Pro Forma Revenue Growth of 60% - Tucker Facility - STEP Head Office - STEP Service Centre Includes Tucker s fourth fracturing spread with 50,000 HP anticipated to come online in Q 08 and the additional 7,500 HP that STEP has available for deployment (some of which will require capital for maintenance, refurbishment and rebranding). Based on US$39.0 million revenue for the nine months ended September 30, 07 in the Tucker Financial Statements converted to Canadian dollars at an exchange rate of.3 CAD/USD and STEP's revenue of $36.4 million and $37.5 million in its Canadian and U.S. segments, respectively, during the same period. 3 Based on management estimates. 4 Coiled tubing includes wireline and ancillary services. 6

8 Proven Ability to Grow Successfully Grew the Company and Gained Market Share Canadian Coiled Tubing one coil spread in 0 to 3 coil spreads today; 6 coil spreads by year end 08 U.S. Coiled Tubing zero coil spreads in 04 to ten coil spreads today; 3 coil spreads by year end 08 (includes two Tucker spreads) Canadian Fracturing total of 97,500 HP today (5,000 HP currently operating); 305,000 active HP in spreads by year end 08 U.S. Fracturing total of 9,500 active HP today (four spreads) STEP s Coiled Tubing Fleet STEP Fracturing Capacity U.S. Canada Active Canadian HP Available Canadian HP Active U.S. HP Total Coiled Tubing Fleet (#) Current 08YE As of June 30, 0. As at May 8, Forecast 07 and 08 based on the current capital program Total Canadian Fracturing Capacity (000s HP) Current 08YE 7

9 Appendix 8

10 Recent Quarterly Highlights Actual Company Results for Q 08 ($000's except per day, units, days and HP) Three Months Ended Mar 3, 08 Three Months Ended Dec 3, 07 Revenue $87,593 $54,53 Net Income $8,46 $7,548 Adjusted EBITDA $4,780 $35,96 Adjusted EBITDA % % 3% Total fracturing operating days Fracturing revenue per operating day $47,779 $59,866 Fracturing capacity (HP): Average active HP 4,333 87,500 Exit active HP 5,000 09,000 Total HP 3 97,500 97,500 Quarterly Highlights Working capital of $8. million (incl. cash of $40.3 million) Canadian Fracturing Services: Eight active fracturing spreads at the end of the first quarter, pumped ~09,000 tonnes of proppant over 5,000 stages in Q/8. Canadian Coil: 3 coiled tubing spreads active throughout the quarter. U.S. Coil: Eight coiled tubing spreads active in the Permian, Eagle Ford and Haynesville at the end of the quarter. Tucker Transaction & Financing: Closed the U.S.$75 mm acquisition of Tucker on April, which was funded with cash, gross proceeds from a $56 mm equity offering and borrowings under new credit facilities. Upon closing, management estimated the Funded debt to TTM Adjusted bank EBITDA ratio will approximate.30 to. 4 Total coiled tubing operating days,330,37 Coiled tubing revenue per operating day $45,0 $45,90 Coiled tubing capacity: Average active coiled tubing units 0 9 Exit active coiled tubing units 9 Total coiled tubing units 9 High utilization, fracturing intensity growth and an expanded fleet have positively impacted Q See "Non-IFRS Measures". An operating day is defined as any coiled tubing and fracturing work that is performed in a 4 hour period, exclusive of support equipment. 3 Represents total owned HP, of which 5,000 HP is currently operating and the remainder of which requires certain maintenance, rebranding and refurbishment. 4 The estimated ratio was calculated incorporating the trailing months of Tucker s historical results, which have not been audited nor reviewed as Tucker was previously a private company. 9

11 Tucker Transaction Overview Overview STEP acquired Tucker Energy Services Holdings, Inc. ( Tucker ) for US$75 million in cash (the Acquisition ), before closing adjustments Tucker provides fracturing and completion solutions to the U.S. oil and gas industry and the Acquisition included four fracturing spreads (9,500 HP), two coiled tubing spreads and 5 wireline units Acquisition Rationale Tucker provides STEP with a strategic entry into the U.S. fracturing market with immediate exposure to high-growth plays such as the SCOOP/STACK and Woodford in Oklahoma Ability to leverage and build upon the existing client relationships with STEP s U.S. coiled tubing business in the Permian and Eagle Ford plays and Tucker s fracturing and coiled tubing clients in Oklahoma Tucker s clients include supermajors and large independents with existing service agreements and two right of first refusal agreements Transaction Consideration & Financing Cash consideration of US$75 million (the Acquisition included four fracturing spreads representing 9,500 HP) In connection with the Acquisition, STEP completed a bought-deal equity financing raising approx. $56 million by issuing 6,055,000 subscription receipts for $9.30 each The remainder of the cash consideration is paid from cash on hand and borrowings under New Credit Facilities Valuation Tucker s Adjusted EBITDA 3 and net income for the nine months ended September 30, 07 were US$4.3 million and US$3. million, respectively Financial performance was generated with an average of approximately 0,000 HP during the 9-month period, two fracturing spreads (totaling 95,000 HP) during H7, and three fracturing spreads (totaling 4,500 HP) during 3Q7 Excluding the capital cost of the fourth fracturing spread of US$4 million from the purchase price, the Acquisition of Tucker represents a valuation of 4.x Tucker s annualized Adjusted EBITDA of US$56.4 million for the nine months ended September 30, 07 3 Includes 675,000 subscription receipts issued pursuant to the partially exercised over-allotment option. New credit facilities consist of a $330 million revolving syndicated facility, $0 million operating facility and a US$7.5 million operating facility (collectively, the New Credit Facilities ). These facilities replaced STEP s existing credit facilities. 3 See Non-IFRS Measures. Transaction value used for the acquisition multiple is based on the US$75 million acquisition price less US$4 million representing the new-build cost of the fourth fracturing spread. 0

12 Tucker Facilities and Operations Tucker s Facilities Are in Close Proximity to Key, High-Growth Oil and Gas Basins Tulsa, OK (R&D Facility) 3. acres; 34,000 square feet Seven open-hole wireline units Abilene, TX 3 acres;,00 square feet office space; 3,900 square feet shop/warehouse space Wireline shop with three bays Three open-hole wireline units McAlester, OK 3.6 acres;.0 million square feet Three fracturing spreads Two coiled tubing spreads Five cased-hole wireline units Sand warehouse with 8 million pounds of flat storage served by the UP and KCS railways Acid dock - Active Fracturing Spreads

13 Mid-Continent Region Strong Growth is Being Projected in the Mid-Continent Region Geographic Positioning of the Anadarko and Arkoma Basins Anadarko Basin Proppant Consumption (millions of tons) Estimates Tucker Service Centre Anadarko Basin Average Active Rigs E 09E 00E 0E 0E Anadarko Basin New Wells Drilled Estimates Estimates ,55,049,5,5,03,50,843 3,03 3,7 3,30 3,343 67, E 09E 00E 0E 0E E 09E 00E 0E 0E IHS Connect, ProppantIQ 8Q, Anadarko Basin; includes sand, resin coated sand and ceramic sand. Spears & Associates, North American Rig Count by Region, March 08; includes the Ardmore Woodford, Cana Woodford, Granite Wash and Other Mid Continent.

14 Completions Intensity Continues to Trend Higher Industry Data Continues to Support Higher Completions Intensity Thematic Average Proppant Placed per Well, TTM Average Fluid Pumped per Well, TTM 8,000 50,000 7,000 45,000 Average Tonnes per Well, TTM 6,000 5,000 4,000 3,000,000,000 Average Fluid per Well, TTM 40,000 35,000 30,000 5,000 0,000 5,000 0,000 5, Q4 Q5 Q5 3Q5 4Q5 Q6 Q6 3Q6 4Q6 Q7 Q7 3Q7 Q47 0 4Q4 Q5 Q5 3Q5 4Q5 Q6 Q6 3Q6 4Q6 Q7 Q7 3Q7 Q47 Montney Deep Basin Duvernay Montney Deep Basin Duvernay Average Stages per Well, TTM Average Lateral Length, TTM 45,800 40,600 Average Stages per Well, TTM Average Lateral Length, TTM,400,00,000,800,600,400,00 0 4Q4 Q5 Q5 3Q5 4Q5 Q6 Q6 3Q6 4Q6 Q7 Q7 3Q7 Q47,000 4Q4 Q5 Q5 3Q5 4Q5 Q6 Q6 3Q6 4Q6 Q7 Q7 3Q7 Q47 Montney Deep Basin Duvernay Montney Deep Basin Duvernay Based on data compiled by management from geologic Systems and its Frac Database module as of February 6, 08. 3

15 Corporate Headquarters 00, 05 5 th Avenue S.W. Calgary, Alberta (403) Investor_relations@step-es.com