Snubbing - High Arctic Energy Services

Report
High Arctic Energy Services
Corporate Presentation
Symbol: HWO
Disclaimer
This presentation may contain information which is forward-looking and is subject to important risks and
uncertainties. The results or events predicted in this information may differ from actual results or events.
Actual results may differ materially from management expectations, as projected in such forward looking
statements for a variety of factors, including market and general economic conditions and the risks and
uncertainties detailed in the most recent Interim Financial Statements along with the Corporation’s
Management Discussion and Analysis and the Annual Information form for the year ended December 31,
2011. These documents can be found on SEDAR (www.sedar.com).
Due to the potential impact of these factors, the Corporation disclaims any intention or obligation to
update or revise any forward looking statements, whether as a result of new information, future events, or
otherwise, unless required by applicable law.
Page 2
Corporate Profile
High Arctic Energy Services Inc. (“HWO” of the “Company”) is a growth oriented,
dividend paying company whose principal focus is to provide contract drilling and
specialized well completion services, equipment rentals and related services to the oil
and gas industry in Western Canada and Papua New Guinea (“PNG”)
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Shares outstanding :
Share Price (as at Aug 13, 2013):
Market Cap :
Net Debt*:
Enterprise Value:
Trailing 12 Month EBITDA:
EV / EBITDA Multiple:
Annual Dividend:
Canadian Tax Losses:
Average Trading Volume:
Insiders’ Ownership:
49,798,852
$2.69
$134.0 million
($19.7) million
$114.3 million
$39.3 million
2.91x
$0.15
~$90.0 million
42,756
75.1%
*(Bank debt net of cash)
Page 3
Investment Highlights
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Deep value investment opportunity – currently trading at 2.91 x trailing EV/EBITDA
Proven management team and board of directors who have redirected the
operations of the Company from near insolvency to a financially strong entity
Industry leading net income margin (15.1%), return on PP&E (33.8%) and return
on equity (23.0%) [all TMT]
Very strong cash position and balance sheet for continued growth
Sustainable monthly dividend (5.6% yield) and conservative basic pay-out ratio
(21.7%)
The Company has Canada’s largest fleet of stand alone snubbing units, in a high
growth service subsector
Service contracts with large international producers in prolific, undeveloped and
underserviced market - PNG
Page 4
Corporate Strategy
High Arctic Energy Services looks to be the market leader in chosen specialty
niche markets – defined by either location or service offerings
Papua New Guinea
Canada
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Leading oil field service provider in
the country
Services include;
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Drilling services & camp management
Mat, camp and equipment rentals
Strategically positioned to capitalize
on the rapidly expanding capital
investments being made in the
country
Is the preferred service vendor to Oil
Search Ltd. – with opportunities to
leverage services into new markets
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Leading provider of snubbing services
in the Western Canadian
Sedimentary Basin (WCSB)
Leading provider of low rate nitrogen
services in the WCSB
Strategically positioned to capitalize
on servicing longer horizontal high
pressure wells – both gas & oil
Looking to expand service offerings
and/or service locations
Page 5
Canadian Operations
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Snubbing units – 15 stand alone units and 5 rig assist units
3 underbalanced workover rigs – UB 250k
1 high rate and 11 low rate nitrogen pumpers
5 nitrogen transporters
Stand Alone/Rig Assist
UB 250k Units
High Rate N2 Pumper
Nitrogen Pumpers
Nitrogen Transport
Page 6
Canadian Service Offerings
1. Snubbing
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See slides 8 and 9
2. Underbalanced Workover Rig (UB 250k)
– Many multi-fracked horizontal well bores in excess of 5,000 meters cannot be completed
with coil tubing due to frictioning out. The UB 250k can be utilized to mill out bridge plugs in
excess of 6,000 meters requiring a single trip
– Many SAGD wells require some sort of pushing or pulling of the production string
– Potential new market for existing technology
3. Nitrogen
– Nitrogen is a non-hydrocarbon inert gas commonly used on the same wellbores as snubbing
– Common uses for nitrogen in the drilling process include:
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coiled tubing cleanouts, frac cleanouts, wellbore pressure testing, vessel purging, hydrocarbon blanketing
Page 7
What is Snubbing?
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Snubbing is the use of hydraulic force to push pipe against the snub force created by the well
pressure. The push force is required until the total tubing weight is greater than snub force excreted
on the tubing
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The pushing capacity of the snubbing unit is also useful on long horizontal legs where the
gravitational weight of the pipe decreases as the horizontal length increases. This is due to
increased friction of metal on metal
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Unlike coiled tubing – snubbing uses jointed tubing. The stronger jointed tubing allows the
snubbing unit to rotate the tubing/drill string, decreasing friction in wellbores and ultimately
reaching depths that coil cannot attain
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Snubbing permits live operations without killing the well, saving on unnecessary services, mud
fluids, well stimulations and avoid formation damage bringing the well on stream much quicker
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Required on multi stage frac completions and high pressure oil and liquids rich gas wells which are
fracked and completed under pressure
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Snubbing units are multipurpose – completion strings, fishing, milling, sidetracking, composite
bridge plug drill outs, plug and abandonment and tool movement
Page 8
Where is Snubbing Required?
Producing Wells
• Allows work over operations on live wells without the use of damaging kill fluids
• Recompletion of aged wells. Snubbing is the most common method to install smaller
diameter tubing strings under pressure to increase the flowing velocity in depleted wellbores
New Drills
• Directional drilling and multi stage fracking creates demand for snubbing services in North
America because wells are completed in underbalanced conditions
• High pressure liquids rich wells (Montney, Horn River, Duvernay, etc) and many high pressure
oil wells (Duvernay, Bakken, Cardium) may also require snubbing
• Sensitive well formations – working in an underbalanced state. No formation damaging fluids
required
Abandonments
• Whenever pressure may be present, cost effective mobilization and rig ups
Page 9
UB 250k vs. Coil Tubing Length
Page 10
Canadian Customers
Working with large domestic and multi-national producers provides stability
throughout oil and gas pricing cycles
Page 11
Papua New Guinea Overview
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Independent, established democracy and a stable business jurisdiction
Recognized as the 7th fastest growing economy in the world in 2011
Part of the Commonwealth (former territory of Australia)
Abundant in metals, hydrocarbons and minerals
Population: ~7.0 million
Underdeveloped infrastructure
Page 12
PNG Political Landscape
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Parliamentary system with Prime Minister
Recent political struggle over the Prime Minister resolved peacefully and within
the law
Open to foreign capital and investment
No restrictions on repatriation of foreign profits
Judicial and court system modeled after Australia since independence in 1975
Well defined tax system
High demand for local labour, wages are reasonable and unrest minimal
Community land owners permit access to operational sites, relationships well
managed and maintained
Page 13
Why PNG for High Arctic
PNG OSL / Exxon - LNG Project
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Commenced in 2010 with first LNG sales on track for 2014
Project budget: $19.0 USD billion
Exxon is the operator (33.2%) and partners include:
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OSL (29.0%)
PNG government (16.8%)
Santos Ltd. (13.5%)
Nippon Oil (Japan) (4.7%)
PNG landowners (2.8%)
6.9 million tonnes per annum (mtpa) of LNG are fully contracted to TEPCO, Osaka Gas, CPC
from Taiwan and Sinopec
Over the project’s expected 30 year timeframe, total forecast production includes 9.0 tcf of
natural gas and 200+ million bbls of associated liquids
Significant OSL/Exxon discovery on Pnyang lands was successfully drilled by HWO with rig
#103
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Who is Oil Search Limited (OSL)?
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Public oil and gas exploration company (OSH-A) headquartered in Sydney, Australia
Market capitalization of $9.5 billion ($USD)
Current net production ~18,500 boe/d (only oil)
Operating in PNG since 1929
PNG’s largest producer and most active operator
PNG government is one of OSL’s largest shareholders (15% of OSL’s outstanding
shares)
Operates all of PNG’s currently producing oil and gas fields
Currently commencing a significant growth phase
29% partner in the $19.0 billion OSL/Exxon LNG project
HWO is OSL’s exclusive drilling contractor in PNG
www.oilsearch.com
Page 15
PNG Operations
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Pynyang region – HWO rig 103
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Hides region – Nabors drilling rigs
Kutubu region (OSL operations )
HWO rig 104 and 102
Interoil – smaller rigs owned by
Interoil
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High Arctic in PNG
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Manage 2 heli-portable drilling rigs (rigs #103 and #104) for OSL, contracted through June
30, 2016
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Own and manage the only heli-portable hydraulic workover rig in the country (rig #102)
contracted until May 2014
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Exclusive provider of DuraBase Mats in PNG – exit 2012 with over 9000 mats under
contract at August 2013
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Camp services – 5 camps contracted
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HWO operates two 93 men drilling rig camps and two 32 men leap frog camps – under contract
HWO purchased a newly built 104 man rig camp in 2012, operations commenced January 2013
– under payout contract
All camps are heli-portable
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Other rental equipment owned by HWO includes a fleet of cranes (ranging from 30 ton to
160 ton), rig move trucks, forklifts, river pumps and light towers – under varying term
contracts
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Track record of 5+ years operations in PNG
Page 17
PNG Current Customers
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Working with large domestic and multi-national producers provides stability
throughout oil and gas pricing cycles
Page 18
Corporate Strategy Summary
1. Continue to invest free cash flow into organic growth opportunities with strong financial
returns
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expand PNG matting, equipment rentals and camp service offering
expand existing service offerings in nitrogen and equipment rentals in Canada
maintain leading edge snubbing technology through continuous investment
2. Deploy underutilized equipment
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UB 250k rigs
Snubbing equipment on shallow gas abandonments
3. Use our strong balance sheet and unutilized debt capacity, in conjunction with an increase
in share price, to capitalize on potential acquisition opportunities
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complementary services in Canada
increased exposure to oil (SAGD)
expanded North American footprint (Bakken, Permian)
Page 19
Historical Financial Summary
Financial Performance – LTM Trailing
(in $ CDN millions)
Sep, 2011
Dec, 2011
Mar, 2012
Jun, 2012
Sep, 2012
Dec, 2012
Mar 2013
Jun 2013
CDN Revenue
43.3
47.0
50.1
50.2
52.2
47.2
43.4
43.5
PNG Revenue
80.1
80.2
83.4
88.0
92.5
99.0
105.4
108.6
Total Revenue
123.4
127.2
133.5
138.2
144.7
146.2
148.8
152.1
EBITDA
32.4
33.4
37.2
38.5
40.6
39.6
37.9
39.3
CFFO
27.5
30.0
33.0
33.7
37.1
34.9
32.7
34.4
Net Income
14.9
18.0
21.4
27.2
30.7
28.8
26.5
22.9
Net Debt*
9.1
0.7
-6.5
-12.8
-7.8
-13.7
-9.7
-19.7
PP&E
53.7
51.9
50.6
54.2
60.9
61.3
65.3
67.7
Shareholders’ Equity
56.8
63.6
73.8
80.5
83.4
88.6
96.9
99.5
Shares Outstanding (mm)
49.6
49.6
49.6
49.7
49.8
49.8
49.8
49.8
*Net Debt: Bank debt - cash
Page 20
Appendix A – Management Bios
Bruce Thiessen, CEO/Director
Bruce Thiessen has been with High Arctic Energy Services for 18 years, serving as CEO since early 2009.
Prior to this he served as the Company’s VP of Marketing. Before joining High Arctic, Mr. Thiessen was
with a major oilfield services company, working from field sales to marketing manager. Mr. Thiessen has
been working in the oil and gas industry for 27 years and has over 36 years of sales and marketing
experience.
Dennis Sykora, Executive VP & General Counsel/Director
Dennis Sykora has been with High Arctic since April 2007 primarily in his role as Executive Vice President
and General Counsel. In addition to his duties as General Counsel, he provides executive support
primarily for the international operations and finance functions. Mr. Sykora has worked for 15 years in
the oilfield services industry, with a focus on international operations. Prior to joining High Arctic, he was
president of international operations for a Canadian-based drilling contractor. Prior to, he spent 15 years
as a lawyer and chartered accountant, specializing in tax planning for the oil industry. Mr. Sykora is a
member of both the Law Society of Alberta and the Institute of Chartered Accountants of Alberta.
Ken Olson, CFO
Ken Olson recently joined HWO as Chief Financial Officer. Mr. Olson has over 20 years of experience as a
senior executive in financial and management roles. Prior to joining High Arctic, Mr. Olson was in other
senior management roles including VP Finance at Sanjel Corporation and VP Finance at CSI Wireless Inc.
Prior to, Mr. Olson was a manager at PricewaterhouseCoopers. He is a member of the Institute of
Chartered Accountants of Alberta.
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Appendix A – Management Bios
Daniel Beaulieu , VP Canadian Operations
Dan Beaulieu joined High Arctic in January 2012 as VP of Canadian Operations. Prior to joining High
Arctic Energy Services, he held a position of region business unit manager at Weatherford where he
managed various integrated product lines throughout Canada. After spending 8 years in the service rig
industry, he started D-2 Oilfield Rentals which sold to a major competitor in 1998. Mr. Beaulieu has 35
years oilfield services experience.
Kevin Doran, President International
Kevin Doran joined High Arctic Energy Services in 2006 as the country manager for the PNG operations.
Following service in the British Royal Navy. Mr. Doran began his career at Deutag Drilling in 1979. He has
significant international experience in the North Sea, Gabon, Algeria, Nigeria, UAE, Saudi Arabia, Bahrain,
Qatar, Iran, Pakistan, India, Kazakhstan, Thailand, Australia and PNG.
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Appendix B - Directors Bios
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Michael Binnion, Chairman
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Daniel Bordessa, Independent
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Independent geophysical consultant.
Bruce Thiessen, CEO
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VP, Operations of Sylogist Ltd. (SYZ-V) since October, 2010.
Steven Vasey, Independent
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Partner of the law firm Warren Sinclair LLP in Red Deer, AB.
Simon Batcup, Independent
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Partner, Cyrus Capital Partners LP and Managing Director, Cyrus Capital Partners Europe, LLP since
March, 2005.
Christopher Warren, Independent
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President and CEO of Questerre Energy Corporation (QEC-T) since November 2000.
See slide 21.
Dennis Sykora, Executive VP & General Counsel
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See slide 21.
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PNG Images
Hydraulic Workover Rig 102
Rig 104
Rig 103 Leap Frog
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Contact Info
High Arctic Energy Services Inc.
8112 Edgar Industrial Drive
Red Deer, AB Canada T4P 3R2
Website: www.haes.ca
Bruce Thiessen, CEO
Ph: (403) 340-9825
Email: [email protected]
Ken Olson, CFO
Ph: (403) 340-9825
Email: [email protected]
Trading Symbol:
HWO - T
Banker:
Auditors:
Legal:
HSBC Bank of Canada
PriceWaterhouseCoopers LLP
Davis LLP
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