Hi-Crush Partners LP Company Overview. September 2012

Transcription

1 Hi-Crush Partners LP Company Overview September 2012

2 Forward Looking Statements This presentation contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this presentation are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "anticipate," "estimate," "expect," "project," "plan, "intend," "believe" and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. These forward-looking statements are based on assumptions that we have made in light of our industry experience and on our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you consider this presentation, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (some of which are beyond our control) and assumptions. These risks include but are not limited to risk factors detailed in our Form S-1 filed in connection with our initial public offering and other filings with he Securities and Exchange Commission. Although we believe that these forwardlooking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual financial results and cause them to differ materially from those anticipated in the forward-looking statements. Because of these factors, we caution that you should not place undue reliance on any of our forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us. Except as required by law, we have no duty to, and do not intend to, update or revise the forward-looking statements in this presentation after the date of this presentation. 2

3 High Growth, Stable Cash Flow Shale Play Compelling Industry Fundamentals Growth fueled by rapidly increasing raw sand usage in horizontal completions Increasing pressure on supply growth, particularly in coarse product High Quality Product, Low Cost Operations Market favors API spec, Northern White frac sand 48.4 million ton reserve base with significant cost structure advantages vs. competitors Long-Term Contracted Cash Flow Stability Fixed price / volume contracts with 4.6 year weighted average life Blue-chip, investment grade market leader customer base Substantial Growth Opportunities Significant near-term drop-down opportunity with Augusta facility Numerous additional development prospects in hand and 3 rd party acquisition possibilities Experienced and Incentivized Management Team Vast expertise in developing sand mining and processing facilities Substantial management ownership rewarded by distribution growth 3

4 Proppants are Critical to Shale Revolution Hydraulic Fracturing Illustration 2011 Proppant Market Share (Tons) FISSURES Other 0.4% Ceramics Oil or Gas High Pressure Sand and Fracturing Fluid 9.0% 13.4% Resin-Coated Sand Well Oil or Gas Oil / Gas Flows Out WATER TABLE IMPERVIOUS ROCK SHALE Fracturing fluid water, sand and chemicals pumped into well at high pressure WELLBORE Raw Frac Sand 77.2% Shale drilling has revolutionized U.S. energy supply U.S. recently reversed 40 year domestic oil production decline as a result of unconventional oil development SHALE Proppant volume demand growing faster than shale drilling activity Increasingly important due to evolving completion FISSURES techniques Source: The Freedonia Group. 4

5 Rapidly Growing Proppant Industry Million Tons Proppant Consumed by Volume Raw Frac Sand Resin-Coated Sand Ceramics Other Raw sand projected to remain ~3/4 of proppant market, by volume Source: The Freedonia Group. 5

6 Industry Trends Drive Continued Demand Growth Demand Drivers Targeting of Shale Reservoirs X Increased Use of Horizontal Drilling X More Wells Per Rig X US Land Rig Count Active Rigs % Horizontal Rigs 3, % 2,250 57% 2,220 2,590 75% 1,500 1,646 1,871 50% 750 1,156 25% 0 7% 17% 0% Active Rigs Horizontal Drilling Rigs More Feet of Wellbore X More Fracs per Foot X Wells Drilled 60,000 40,000 Wells and Proppant Intensity Tons / Well 1, More Proppant per Frac = Growing Proppant Market Opportunity 20, Wells Drilled Tons of Proppants / Well Source: The Freedonia Group. 6

7 New Entrants Face Multiple Hurdles Scarcity of Reserves Limited supply of high quality sand in large, contiguous deposit Most sites not on rail Customer Relationships Ability to meet quality & reliability expectations Contracts/market share with largest buyers Barriers to Entry Cost Structure Onsite rail loadouts; proximity of operations Modern plant efficiencies; scale Construction/Start-up Challenges Limited design/build expertise Delays and overruns are common Regulatory Hurdles 1-3 year approval process; Federal / state / local Increasing local opposition; moratoria 7

8 Hi-Crush Partners LP

9 Hi-Crush Management: Experience in Key Areas Major Oilfield Service Companies 9

10 Crush Resistance (lbs / in 2 ) (lbs/in 2 / ($/ton) The Right Product Hi-Crush Northern White: Superior Performance, Superior Value Proppant Price and Crush Resistance Indicative Ranking: Crush Resistance vs. Price 15,000 14,000 $1, ,500 12,500 $ , ,000 7,500 $600 $400 Price ($/ton) ,000 5,000 $ ,500 Ceramics (1) Resin Coated (2) Hi-Crush Brady Brown (4) Northern White (3) Crush Resistance Average Sales Price $0 0 Hi-Crush Brady Brow n Resin-Coated Ceramics Notes: Please find relevant pricing and crush strength data under Proppant Industry Overview Our Industry Type of Proppant Comparison of Key Proppant Characteristics in the prospectus relating to our initial public offering filed with the SEC on August 16, ) Represents midpoint of $640 - $980 per ton and crush strength average of 10,000-18,000 psi range. 2) Represents midpoint of $390 - $620 per ton and crush strength average of 10,000-15,000 psi range. 3) Represents 2012 average price per ton for Wyeville FOB at the mine site under our long-term take-or-pay contracts. Crush strength represents average of 9,000-12,000 psi range. 4) Assumes midpoint of $35 - $80 per ton for Brady Brown raw sand and crush strength of 5,000 psi. 10

11 Wyeville: The Right Initial Asset Overview Newly built facility on 561 acres Asset Overview Dry Plant Silos High quality Northern White sand Extensive coring program with third party fracspecialized lab testing (StimLab and PropTester) 48.4 million tons of proven recoverable reserves Implied 33-year reserve life On-site rail facilities accommodate unit trains (80+ cars) for superior logistics Current plant output capacity of 1.6 million tons per year Modern Wet Plant Large, Contiguous Deposit Access to Rail Line 11

12 Critical Logistics Capabilities Logistics Capabilities Union Pacific mainline bisects Wyeville Three on-site 5,000 foot rail spurs allow for direct loading of unit trains from storage silos connected to dry plant No sand trucks on public roads Collaborative relationship with Union Pacific U.S. rail network provides Hi-Crush with access to all major domestic oil and gas basins Geographic Exposure Wyeville Rail Loading Capability Wyeville Unit Train-Capable Rail Spur North Dakota 4.8% Ohio 4.8% Other 1.5% Oklahoma 9.2% Arkansas 7.7% Texas 40.6% (Eagle Ford and Permian) Colorado 11.7% Pennsylvania 19.7% (Marcellus and Utica) Percentage Delivered by Destination as of 6/30/12 12

13 Our Cost Advantage State of the art facility leads to low operating costs of $15-20/ton Wyeville facility characteristics which lead to lower costs: High quality deposit Plant proximity to main rail line Contiguous deposit (no need to truck sand) with low overburden State-of-the-art, efficient and modern plant design Production Cost Per Ton (1) Other New Frac Sand Plant Wyeville Facility vs. Other New Frac Sand Plant $2-4 / ton Nature of Deposit $2-4 / ton Deposit Adjacent to Plant $4-8 / ton Modern Plant Efficiencies and Operations of Scale $10-14 / ton Rail Loadout Adjacent to Plant NTM Production Costs / Ton Sold ~$17.50 Wyeville Source: Company estimates. 1) Excludes delivery costs. 13

14 Long-Term Take-or-Pay Contracts Fixed price, fixed volume contracts Most recent multi-year contract executed May 2012 Weighted average contract life of ~4.6 years No more than one contract expires in any one year Blue chip, investment grade market leaders comprise a majority of customer base: Baker Hughes (A2 / A) Halliburton (A2 / A) Weatherford (Baa2 / BBB) FTS International Services (Ba3 / B) Downside protection Contracts comfortably below current spot market Make-whole payment provides floor 1) Northern white pricing per KELRIK, LLC and PropTester, Inc. as of May Contracted Volumes Tons 1,600,000 1,200, , , Contracted Volumes (tons) Contracted Sales and Make-Whole Prices Recent Spot Market High: $140 / ton (1) $ per Ton Average Sales Price Average Make-Whole Price 14

15 Financial Overview

16 Positioning Hi-Crush Within the MLP Universe Hi-Crush Partners Gas Storage E&P Natural Gas Gathering & Processing Contract Life ~4.6 Years ~3 Years Hedge 3+ Years Varies 1 Year or Greater Coal Volume Risk None for 5 Years: Positive Macro Trends On Hub Services Yes Yes Yes Pricing Risk Minimal (Fully Contracted) On Hub Services Yes Yes Yes Reserve Life (1) 33 Years (No Decline Curve) N/A 18 Years (1) (Declining Production) N/A (Tied to Declining Fields) 39 Years (1) Median Yield 7.2% 8.5% 6.5% 9.2% Notes: Median yields as of 8/3/2012. Gas Storage MLPs include PNG and NRGM. Coal MLPs include ALRP and NRP. Natural Gas Gathering & Processing MLPs include ACMP, APL, DPM, EXLP, MWE, NGLS, and PVR. E&P MLPs include LGCY, LINE, MCEP, PSE, and VNR. 1) Median reserve life of comps. 16

17 Estimated Cash Available for Distribution Cash Available for Distribution Forecast for Twelve Months Ending September 30, 2013 ($ in millions) Net income $62.4 Add: Depreciation, depletion and amortization 1.7 Interest and debt expense, net 0.5 EBITDA $64.6 Less: Cash interest expense 0.4 Maintenance and replacement capital expenditures 2.0 Costs associated with inventory buildup 2.4 Plus: Accretion on asset retirement obligations 0.0 Costs allocated to inventory drawdown 2.4 Estimated cash available for distribution $62.2 Cash reserve ($10.4) Estimated Cash Distributions $51.8 Distribution per Unit $1.90 Provides 1.20x Coverage Ratio Note: For more information, please read Cash Distribution Policy and Restrictions on Distributions Estimated Cash Available for Distribution for the Twelve Months Ending September 30, 2013 Assumptions and Considerations in the prospectus relating to our initial public offering filed with the SEC on August 16,

18 Corporate Structure: Incentive to Grow Distributions Avista Capital Partners and Co-Investors Management 61% Ownership 39% Ownership Hi-Crush Proppants LLC (Sponsor) 100% Ownership Public Unitholders Hi-Crush GP LLC (the General Partner) Operating Subsidiaries (including Augusta and other facilities) 47.4% Common LP Non-Economic GP Interest Hi-Crush Partners LP (the Partnership) 2.6% Common LP 50% Subordinated LP Incentive Distribution Rights 100% Ownership Operating Subsidiaries (including Wyeville facility) 18

19 High Growth, Stable Cash Flow Shale Play Compelling Industry Fundamentals Growth fueled by rapidly increasing raw sand usage in horizontal completions Increasing pressure on supply growth, particularly in coarse product High Quality Product, Low Cost Operations Market favors API spec, Northern White frac sand 48.4 million ton reserve base with significant cost structure advantages vs. competitors Long-Term Contracted Cash Flow Stability Fixed price / volume contracts with 4.6 year weighted average life Blue-chip, investment grade market leader customer base Substantial Growth Opportunities Significant near-term drop-down opportunity with Augusta facility Numerous additional development prospects in hand and 3 rd party acquisition possibilities Experienced and Incentivized Management Team Vast expertise in developing sand mining and processing facilities Substantial management ownership rewarded by distribution growth 19

20 Appendix

21 Proppant Overview Product and characteristics Hi-Crush Wyeville Natural resource: Northern White sand Considered highest quality raw frac sand Monocrystalline in nature, exhibiting crush strength, turbidity and roundness and sphericity in excess of API Specifications Types of Proppant Other Raw Sand Natural resource Primary types include Northern White, Brady Brown Quality of sand varies widely depending on source Resin-Coated Raw frac sand substrate with resin coating Coating increases crush strength Bond together to prevent proppant flowback Ceramics Manufactured product Typically highest crush strength Proppant Mesh Size Mesh size is used to describe the size of the proppant and is determined by sieving the proppant through screens with uniform openings corresponding to the desired size of the proppant Generally, larger mesh sizes are used in wells targeting oil and liquids-rich formations, and smaller mesh sizes are used in wells targeting primarily gas bearing formations The mesh number system is a measure of the number of equally sized openings there are per square inch of screen through which the proppant is sieved For example, a 30 mesh screen has 30 equally sized openings per linear inch. Therefore, as the mesh size increases, the granule size decreases 30/50 Proppant Northern White Brady Brown Resin-Coated Ceramics 2011 Proppant Market Share 77.2% 13.4% 9.0% (MM Tons) (1) 30 Mesh Screen 50 Mesh Screen 1) Source: The Freedonia Group. Note: Remaining 0.4% of market comprised of other proppants. 21

22 Wyeville Facility Excavation Process Low Cost Surface Excavation Sand Moved from Mine to Plant Wet Plant Removes Impurities and Begins Sorting Process Dry Plant Dries and Sorts Finished Product Finished Product Storage Silos Silos Load Unit Trains at Onsite Rail Facility 22