TSX:CFW. CALFRAC WELL SERVICES LTD. Investor Presentation June 2016

Transcription

1 TSX:CFW CALFRAC WELL SERVICES LTD. Investor Presentation June 2016

2 Forward Looking Statement Certain information contained within this presentation and statements made in conjunction with this presentation constitute forward-looking statements. These statements relate to future events or the future performance of the Company. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as seek, anticipate, plan, continue, estimate, expect, may, will, project, predict, potential, targeting, intend, could, might, should, believe, forecast, can and similar expressions. In particular, forward-looking statements in this presentation include, but are not limited to, statements with respect to future capital expenditures, future financial resources, anticipated equipment utilization levels, future oil and gas well activity, projections of market prices and costs, outcomes of specific events and trends in the oil and gas industry. The forward-looking statements within this presentation and made in conjunction with this presentation are derived from certain assumptions and analyses made by the Company based on its experience and perception of historical trends, current conditions, expected future developments and other factors that it believes are appropriate in the circumstances, including assumptions and analyses relating to: the economic and political environment in which the Company operates; the Company s expectations for its customers capital budgets and geographical areas of focus; the effect unconventional oil and gas projects have had on supply and demand fundamentals for oil and natural gas; the Company s existing contracts and the status of current negotiations with key customers and suppliers; the effectiveness of cost reduction measures instituted by the Company; and the likelihood that the current tax and regulatory regime will remain substantially unchanged. Forward-looking statements are subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from the Company s expectations. Such risks and uncertainties include the items discussed under the heading Business Risks in the Company s 2015 Annual Report and under the heading Risk Factors in the Company s most recently filed Annual Information Form. Consequently, all of the forward-looking statements contained within this presentation and made in conjunction with this presentation are qualified by these cautionary statements and there can be no assurance that actual results or events anticipated by the Company will be realized or that they will have the expected consequences or effects on the Company or its business or operations. Other than as required by applicable securities laws, the Company assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise. Calfrac Well Services Ltd. 2

3 Number of Onshore Rigs Number of Offshore Rigs Number of Rigs Number of Active WCSB Land Rigs Active Rig Counts: North America & International 2,000 1,800 1,600 1,400 1,200 1, /4/2013 1/4/2014 1/4/2015 1/4/2016 Lower 48 Active Land Rig Count Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec ,100 1,050 1, U.S. land rig count down ~80% from peak - WCSB active rig count down ~50% Y/Y - International rig count down ~30% from peak International Land Rig Count International Offshore Rig Count Source: Baker Hughes Calfrac Well Services Ltd. 3

4 000's Bbls/d Global Supply/Demand Global oil demand growth continues U.S. oil production declines accelerating and expected to continue into 2017 U.S. inventories remain at record highs, will need to see a sustained drawdown to move prices higher 4,000 1/6/2012 1/6/2013 1/6/2014 1/6/2015 1/6/2016 Global oversupply overstated unreliable data Market rebalancing still possible (and likely more sustainable) without OPEC intervention Expect a more balanced market in H2/16 driven by price 10,000 9,000 8,000 7,000 6,000 5,000 Weekly Lower 48 Oil Production Source: Bloomberg Calfrac Well Services Ltd. 4

5 North American Pressure Pumping Supply Number of competitors decreasing through both bankruptcies and consolidation Supply of horsepower decreasing as a result of cannibalization of equipment, lack of R&M and fleet retirements Fracturing Operation (2015) Calfrac Well Services Photo Expect ~5-6 million horsepower to permanently exit the U.S. pumping market (~30% of peak supply) Expect Canadian supply to decrease by ~200k HHP Calfrac Well Services Ltd. 5

6 Company Snapshot TSX Stock Symbol: CFW Share Price* $ Day Average Volume* 1,040,000 Market Capitalization* $366.4 million Enterprise Value* $1.2 billion Shares Outstanding* million Insider Ownership ~25% * As at 16:00:00 ET on 6/15/ On February 24, 2016 Calfrac s Board of Directors suspended the dividend until further notice Canada Frac Crew Operator (2012). Calfrac Well Services Photo Calfrac Well Services Ltd. 6

7 Full Service Pressure Pumping Canada Fleet: 410,000 Horsepower 13 Coiled Tubing Crews As at March 31, 2016 U.S. Fleet: 615,000 Horsepower 11 Cementing Crews 5 Coiled Tubing Crews Russia Fleet: 70,000 Horsepower 7 Coiled Tubing Crews Latin America Fleet: 131,000 Horsepower 14 Cementing Crews 7 Coiled Tubing Crews Calfrac Well Services Ltd. 7

8 Committed To Safety, Quality And Flawless Execution GLOBALLY DIVERSE OPERATIONS Calfrac Well Services Ltd. 8

9 Canadian Operations Canada Fleet: 410,000 Horsepower 13 Coiled Tubing Crews Calfrac Well Services Ltd. 9

10 Canada Market Update Calfrac Market Positioning Positioned in key areas of frac demand: Montney, Duvernay, Deep Basin, Cardium and Viking Diversified customer base gives us exposure to all key areas of the world-class Montney resource play Greater proportion of 24-hour operations Pricing & Utilization Pricing fell ~10-15% sequentially in Q1/16, potential for further pricing decreases but largely stabilized ~50% of horsepower parked 9 of 13 coil units idled Market Trends Stages per well increasing Frac spacing tightening Operators refocusing on highest quality plays and assets Market Outlook Rig count down ~50% Y/Y Q2/16 quarterto-date Minimal activity throughout spring break-up Visibility for H2/16 is limited Customer capex is expected to be meaningfully lower than 2015 Calfrac Well Services Ltd. 10

11 United States Operations U.S. Fleet: 615,000 Horsepower 11 Cementing Crews 5 Coiled Tubing Crews Calfrac Well Services Ltd. 11

12 United States Market Update Calfrac Market Positioning Focus on customers that are financially strong and intend to remain active in key plays across the U.S. Target an equal mix of oil/gas exposure Positioned in key areas of frac demand: Bakken, Marcellus, Rockies, Utica, Eagle Ford (temporarily suspended) ~90% of work is 24-hour operations Pricing & Utilization Pricing largely stabilized but remains down ~40% from peak ~65% of horsepower parked Temporarily suspended coiled tubing and cementing operations Market Trends Stages per well increasing Frac spacing tightening Market Outlook U.S. land rig count continues to decrease Visibility for H2/16 is limited Customer capex is expected to be meaningfully lower than 2015 Calfrac Well Services Ltd. 12

13 Managing The Downturn Service Line Strategy Equipment has been idled when operating margins do not meet the company s return requirements Canada - 50% of horsepower and 9 of 13 coiled tubing units idled U.S. - 65% of horsepower idled and all coiled tubing units and cementing units idled Optimized completion methods Utilization and Maintenance Planning More efficient equipment utilization and maintenance schedules Unnecessary discretionary spending has been eliminated Logistics and Supplier Initiatives Transload facilities in key locations and increase in rail car fleet Supplier costs have been reduced Proppant costs down ~40%, chemical costs down ~10%-40% and third-party subcontractor rates down ~25% Working Capital Focus has been on improving working capital management We are appropriately managing and maintaining lower levels of inventory (sand, chemicals and spare parts) Calfrac Well Services Ltd. 13

14 Workforce & Fixed Cost Optimization Canada Reduced field workforce by ~60% from January 1, 2015 Fixed costs down ~50% Y/Y Further compensation reductions as of January 1, 2016 Transportation group and the majority of frac and coiled tubing groups transitioned to variable pay structure Closed Medicine Hat District U.S. Reduced field workforce by ~70% from January 1, 2015 Fixed costs down ~60% Y/Y Closed district in Arkansas Temporarily suspended fracturing operations in San Antonio Suspended all coiled tubing and cementing operations Calfrac Well Services Ltd. 14

15 Latin America Operations Neuquén, Argentina Frac Operation (2014). Calfrac Well Services Photo Calfrac Well Services Ltd. 15

16 Argentina Market Update Calfrac Market Positioning One of the largest pressure pumping companies in Argentina Customer expansion to IOCs and domestic players First company to complete 12 fractures in under 8 hours on a horizontal well Contracts based in USD Argentina Fleet: 108,250 Horsepower 13 Cementing Crews 7 Coiled Tubing Crews Market Outlook Country focused on reducing reliance on imported energy Third fleet added in Q1/16 Shift towards gas-focused activity Medium-to-longer term upside potential following reforms by new President Macri Calfrac Well Services Ltd. 16

17 Mexico Market Update Calfrac Market Positioning Long-term opportunity due to Mexican energy industry reforms Low oil prices will limit immediate impact Round One tenders are ongoing Market Outlook Limited near-term activity Right-sized business to reflect current activity levels Mexico Fleet: 22,500 Horsepower 1 Cementing Crew 1 Coiled Tubing Crew Calfrac Well Services Ltd. 17

18 Russia Operations Siberia, Russia Frac Crew (2006). Calfrac Well Services Photo Calfrac Well Services Ltd. 18

19 Russian Operations Russia Fleet: 7 Fracturing Spreads 70,000 Horsepower 7 Coiled Tubing Crews Calfrac Well Services Ltd. 19

20 Russia Market Update Calfrac Market Positioning Horizontal fracturing in conventional reservoirs is a significant amount of Calfrac s activity Rouble devaluation has negatively impacted reported financial results Market Outlook 2016 activity expected to be down modestly from 2015 Change in customer mix Introduction of multi-stage annular fracture treatments is a market differentiator Russia Fracturing Crew (2015). Calfrac Well Services Photo Calfrac Well Services Ltd. 20

21 Committed To Safety, Quality And Flawless Execution LICENSE TO OPERATE Calfrac Well Services Ltd. 21

22 Our License to Operate HSE QUALITY TECHNOLOGY SUPPLY CHAIN Plan Do Assess Adjust Monitor Refine Execute Improve Research Develop Test Refine Evaluate Negotiate Finalize Implement Calfrac employee on a Canadian hydraulic fracturing job. Calfrac Well Services Photo Calfrac sand terminal in Whitecourt, Alberta. Calfrac Well Services Photo Calfrac Well Services Ltd. 22

23 FINANCIAL HIGHLIGHTS Calfrac Well Services Ltd. 23

24 The Balance Sheet Term Debt US$600 mm with an interest rate of 7.5% Matures in 2020 Second Lien Term Loan $200 mm with an interest rate of 9% Matures in 2020 Credit Facilities Recently renegotiated facility structure and covenants Loan facility $300 mm Matures in 2018 Capital Program 2016 capital budget set at $40 million Includes $30 mm of carryover Neuquén, Argentina Frac Operation (2014). Calfrac Well Services Photo Calfrac Well Services Ltd. 24

25 Relaxation Of Covenants (Credit Facility) Funded Debt/EBITDA covenant amendments including two periods of waivers Introduction of Equity Cure: Applicable up to December 31, 2017 Not to exceed the greater of 50% of total EBITDA over the prior twelve month period or $25 million per cure Positively impacts both EBITDA and Funded Debt Can be utilized twice during period of covenant relief Can not be utilized in consecutive quarters The Total Debt to Capitalization ratio removed Funded Debt to Capitalization ratio introduced - 30% (does not include Calfrac s unsecured senior notes or second lien term loan) Calfrac Well Services Ltd. 25

26 Second Lien Term Loan On June 10, 2016, AIMCo provided Calfrac a $200 million second lien senior secured term loan facility maturing in September % interest rate paid quarterly with option to pay interest in kind at 12% rate (8 quarters max) ~6.9 mm warrants were issued to AIMCo priced at $4.14/share exercisable prior to June 10, 2019 The proceeds of the term loan will be used by Calfrac for working capital needs and general corporate purposes, including: Repayment of all of Calfrac s current bank indebtedness under its syndicated revolving credit facility and all borrowings of Calfrac Well Services (Argentina) S.A. Positions Calfrac to assess opportunities to repurchase some of its unsecured senior notes due 2020 Currently limited to $200 million Subject to a minimum liquidity requirement of $100 million Repurchase of notes must result in a reduction of annual net interest costs (dollar for dollar basis) Following this financing, Calfrac still has $200 million of second lien capacity. Overall, this financing leaves Calfrac well-positioned to navigate this period of market weakness and capitalize on the opportunities expected to arise as market conditions recover. Calfrac Well Services Ltd. 26