INVESTOR PRESENTATION - Trican Well Service · 2019-03-05 · CANADIAN INDUSTRY DYNAMICS...
Transcript of INVESTOR PRESENTATION - Trican Well Service · 2019-03-05 · CANADIAN INDUSTRY DYNAMICS...
INVESTOR PRESENTATIONMarch 2019
FORWARD LOOKING STATEMENTS
This document contains statements that constitute forward-looking statements within the meaning of applicable
securities legislation. These forward-looking statements include, among others, the Company’s prospects, expected
revenues, expenses, profits, expected developments and strategies for its operations, and other expectations, beliefs,
plans, goals, objectives, assumptions, information and statements about possible future events, conditions, results of
operations or performance. These forward-looking statements are identified by their use of terms and phrases such
as “anticipate,” “achieve”, “achievable,” “believe,” “estimate,” “expect,” “intend”, “plan”, “planned”, and other similar
terms and phrases. Forward-looking statements are based on current expectations, estimates, projections and
assumptions that involve a number of risks and uncertainties, which could cause actual results to differ materially from
those anticipated. These risks and uncertainties include: fluctuating prices for crude oil and natural gas; changes in
drilling activity; general global economic, political and business conditions; weather conditions; regulatory changes;
and availability of products, qualified personnel, manufacturing capacity and raw materials. If any of these
uncertainties materialize, or if assumptions are incorrect, actual results may vary materially from those expected.
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TRICAN & INDUSTRY OVERVIEW
INVESTMENT SUMMARY
▪ Largest Canadian pressure pumping company
• Industry-leading fracturing and cementing service lines
▪ Focused on top quartile return on investment capital above 10%
• Capital disciplined investments
• Investments must exceed ROIC hurdle rate
• Cash flow in 2018 used to repay debt and re-purchase shares
▪ Shareholder returns through NCIB
• Repurchased approximately 15 % of the Company’s shares from October 2017
to present
• Continue to invest into repurchasing shares into Q2-2019
▪ Very strong balance sheet
• Net debt of approximately 38 million at year end. (debt less cash)
• Non cash working capital balance of 108 million
▪ Focused on lowering costs in competitive environment
• Approximately 55 million of annualized cost savings since Canyon acquisition
in June, 2017
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INVESTMENT SUMMARY
▪ Existing idle equipment provides opportunity for
incremental returns upon a market recovery (minimal
investment required for reactivations – just staffing)
• Substantial leverage on existing infrastructure and fixed cost
structure
• Monetized 17.6 million of idle non-core assets in 2018
▪ Strong loyal customer base that supports the company
through the downturn
▪ Experienced and motivated work force supported by an
executive leadership team with extensive experience
managing oilfield services cycles
▪ Trading substantially below tangible book value and
replacement cost.
• Opportune time to invest in cyclical business.
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INVESTMENT SUMMARY
▪ Company valuation approaching cyclical low valuation – opportune
time to invest in a cyclical business
▪ Company has significantly improved asset coverage relative to 2015
cyclical low – exit 2018 debt lower than 15% of tangible equity value
0.0x
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Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/18 Q4/18
Price
to
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De
bt /
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uity
Price to Tangible Book Value vs. Leverage Profile
Debt to Tangible Equity (LHS) Price to Tangible Book (RHS)
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▪ Trican is a Canadian-
focused, energy
services company,
which provides an
array of specialized
products, equipment
and services for the
drilling and
completions cycle of
oil and gas
exploration and
development.Customer
Full Cycle Technical Expertise
Engineering Support
Reservoir Expertise
Laboratory Services
Drilling Cycle
Cementing Services
Completion Cycle
Fracturing
Coil Tubing
Nitrogen
Fluid Management
Acidizing
Production Cycle
Coil Tubing
Acidizing
Pipeline Services
Industrial Services
Chemical Services
Remedial Cementing
WHAT WE DO
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Market Leading Positions
▪ Canadian market leader in fracturing services (based
on adjusted EBITDA margin and market share)
▪ Canadian market leader in cementing services
(based on market share – no competitor margin data
available)
▪ Supporting service lines: coil tubing, nitrogen, acid,
water management services, pipeline and industrial
services
Strong Financial Position
▪ 2018 revenue of $900 million
▪ Market capitalization $440 million (February 22, 2019)
▪ Total debt of $46 million (net debt of 38 million) at year
ended 2018
OUR CANADIAN MARKET AND FINANCIAL POSITION
Trailing 12 Month Revenues:
Service Line Breakdown
Hydraulic Fracturing, 69%
Cementing, 16%
Coil, Nitrogen, Acid, 9%
Fluid Management,
4%
Industrial, 2%
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OUR FOCUS
To achieve top
quartile ROIC
in our sector
- Maintain market leading position in Fracturing and Cementing service lines
- Strengthen auxiliary service lines (Coiled Tubing, Nitrogen, Water Management)
- Growth in existing or complimentary, less capital intensive, less cyclical services lines (i.e. Production & Pipeline Services)
- Leverage strong technical expertise into additional markets or services
- Disciplined investment into future growth – ensure ROIC hurdle rates are met
- Return value to shareholders through Normal Course Issuer Bid (share buyback program)
- Reduce costs for ourselves and our clients through efficiency improvements and scale
Strengthen
Existing
Business
Growth
Share-
holder
Return
Cost
Control &
Efficiency
Gains
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FOCUSED GEOGRAPHIC COVERAGE
Horn River
Shale
Montney
Shale
Bakken
ShaleCardium
Tight Oil
Viking
Tight Oil
Lower Shaunavon
Tight Oil
GRANDE PRAIRIE
WHITECOURT
HINTON
FORT ST. JOHN
NISKULLOYDMINSTER
RED DEER
BROOKS ESTEVAN
British Columbia Alberta Saskatchewan
Deep
Basin
Duvernay
Shale
DRAYTON VALLEY
CALGARY
Manitoba
Spearfish
MEDICINE HAT
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CANADIAN INDUSTRY DYNAMICS – INCREASING WELL INTENSITY
▪ 2018 well count 37% below 2014 levels
▪ 7,000 – 8,000 wells today equates to 2014 well count levels in terms of fracturing equipment demand
▪ We expect well service intensity to remain flat in 2019 to 2018 levels;
• Tonnes of proppant placed per / meter grew by approximately 25% in 2018 relative to 2017;
- 1.5 tonnes/metre in 2018 vs. 1.2 tonnes/metre in 2017
• 2018 data weighted to higher well service intensity wells
Source: Canadian Discovery Source: GMP First Energy
10,924
5,376
3,963
6,959 6,940
5,600
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2,000
4,000
6,000
8,000
10,000
12,000
2014 2015 2016 2017 2018E 2019E
WCSB - Wells Drilled
647
813
1,329 1,384
1,855
2,851
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500
1,000
1,500
2,000
2,500
3,000
2013 2014 2015 2016 2017 2018
WCSB - Tonnes / Well
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CANADIAN INDUSTRY DYNAMICS – FRACTURING COMPETITIVE LANDSCAPE
Source: Competitor company reports, internal company data, and internal estimates
Hydraulic Horsepower (HHP) Capacity Idled Available Active Crewed
Trican 671,850 90,000 581,850 340,000
Competitor A 355,000 28,000 327,000 327,000
Competitor B 297,500 72,500 225,000 225,000
Competitor C 270,000 - 270,000 250,000
Competitor D 250,000 - 250,000 250,000
Competitor E 240,000 - 240,000 240,000
Competitor F 80,000 - 80,000 50,000
Competitor G 50,000 - 50,000 50,000
2,214,350 108,600 2,023,850 1,732,000
▪ Estimated industry demand of ~ 1,400,000 HHP in Q1 2019
▪ Internal estimate of 20% - 25% of equipment in Canada is not suited for higher
well service intensity plays (Montney and Duvernay)
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CANADIAN INDUSTRY DYNAMICS – TRICAN’S COMPETITIVE POSITIONING
▪ More than 50% of Trican’s fleet is continuous duty
pumps, most efficient style of fracturing pump, designed
for higher well service intensity plays:
• Positions Trican to service growing, higher well service
intensity plays
• Supports Trican’s continued leading Canadian fracturing
market position as measured by both market share and
margin
• Allows Trican to continue to efficiently operate in the highest
well service intensity resource plays: Montney, Duvernay
and Deep Basin (estimated to account for ~ 80% of the
required HHP demand in Canada)
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OPERATING ENVIRONMENT – PRICING, LABOUR & REPAIRS EXPENSE
Pricing:
▪ Q4 2018 pricing dropped slightly sequentially
as activity decreased in the quarter
▪ Experienced further pricing concessions in
the first quarter of 2019 relative to Q4 2018
▪ Demand improvements, or supply
contraction, will be required for pricing to
improve:
• Increased customer budgets
• Improvement in commodity prices and / or
Canadian commodity price differentials
• West Coast LNG Indexed to 2014 pricing levels. Based on equipment revenue per tonne of proppant pumped.
-80
-70
-60
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0
2014 2015 2016 2017 2018
Pricing Index
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OPERATING ENVIRONMENT – PRICING, LABOUR & REPAIRS EXPENSE
Labour Wage Rates for Field Staff:
▪ Labour wage rates in-line with
industry
▪ We have and will further adjust field
labour levels going forward to match
our utilization
▪ Variable pay for field staff in 2019
▪ Well size and operating efficiencies
allow more efficient labour ratesIndexed to 2014. Based on personnel expenses per tonne of proppant pumped (component of
‘cost of sales – other’ within the statement of income).
-60
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0
2014 2015 2016 2017 2018
Labour Index
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-100
-90
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-40
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0
2014 2015 2016 2017 2018
R&M Index
OPERATING ENVIRONMENT – PRICING, LABOUR & REPAIRS EXPENSE
Repairs and Maintenance Expense:
▪ Increased intensity equals increased
expense, built into our pricing models
▪ Stainless steel fluid ends are expensed,
not depreciated
• Reduced 2018 annual capital
expenditures by $22 million
• Decreases fracturing gross margins by
4%
• Only Canadian company expensing fluid
ends (estimate that > 80% of US listed
public pressure pumping companies
expense fluid ends)
Indexed to 2014. Based on repairs and maintenance expense per tonne of proppant pumped, a
component of ‘cost of sales – other’ within the statement of income.
Changed to cash expense
of fluid ends, previously
depreciation
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PERFORMANCE – ROIC and ADJUSTED EBITDA %
▪ Corporate Adjusted EBITDA margin of 18% or
greater supports corporate level ROIC hurdles
▪ To improve adjusted EBITDA margins:
• Continue to optimize costs
• Recovery in utilization of existing fracturing fleet:
adjusted EBITDA margin improvement when
utilization at >80%
• Generate revenue from idled equipment
• Improve coil profitability: added 2 coil crews in Q4/18
and plan to add 2 more in 2019
• Leverage existing IP and technology into new
opportunities: sell chemicals and technology in US
and internationally
• Modest pricing improvements
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OUTLOOK & TRICAN ADVANTAGE
Q1 2019
▪ Slower start to 2019
• Rig count approximately 30% below Q1-2018
• Uncertainty surrounding commodity prices, especially differentials,
and the impact of production cuts in late 2018 slowed customer
plans at start of the year
▪ Running 10 fracturing crews in quarter vs 11 crews in 2018
• 10 crews fully booked from mid January to mid March
• Crews smaller this year: running 340,000 HP in Q1 2019 vs.
455,000 HP in Q1-2018
• Utilization on active equipment this year approximately 75% per as
compared to 90% last year; more move and rig-up days
▪ Cementing activity is down approximately 30% from Q1 2018
levels correlating to the decrease in rig count
▪ Coil services is operating at comparable levels to 2018
▪ Pricing remains competitive in Q1 2019
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OUTLOOK – 2019
▪ Fracturing pricing recovered modestly from Q4 levels but is below
Q3 2018 levels; pricing has stabilized
▪ Pricing for other services in Q1 less affected than fracturing
▪ Visibility past Q1 is still limited as customers have not confirmed
second half budgets
• Approximately 70% of crewed fracturing equipment committed to clients
in second half of 2018
• Approximately 30% of crewed fracturing equipment currently committed
in April and May of 2018
▪ Slight leaning to increased spending by our clients if current
commodity prices hold
▪ Approximately 340,000 HP active but not staffed (6 large fleets)
▪ Will adjust active staffed equipment to meet customer demand as
second half programs are finalized
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CAPITALIZATION – POSITIONED FOR OPPORTUNITIES
▪ Strong balance sheet allows for opportunistic
investment:
• Keane Monetization: December 2018 monetization of
Keane for approximately $72 million further
strengthens our financial position
• Continued return to shareholders, active NCIB:
repurchased 50.4 million shares to date, approximately
15% of the outstanding Trican shares from October
2017 through February 20, 2019
• Fleet upgrades: can further strengthen our
market leading fracturing fleet through selective
upgrades
• Invest in supporting service lines: target increased
market share in coil and other supporting service lines
• M&A Opportunities: low leverage levels allow
cost effective funding options for
acquisition opportunities
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Q2/1
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Q3/1
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Q4/1
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Q1/1
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Q2/1
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Q3/1
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Q4/1
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Q1/1
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Q2/1
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Q3/1
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Q4/1
8
Debt / Tangible Capital
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COMPETITIVE ADVANTAGE – PERSONNEL DEVELOPMENT
▪ Over one third of employees with more than 5 years of experience
▪ Career progression is an attraction to entry level employees
▪ Employee experience key to training and customer service
Technical, Support or Administrative Position
Manager Level Position
Field Supervisor
Field Technical
Field Entry Level
0 to 1 Years18%
1 to 3 Years34%
3 to 5 Years10%
5+ Years37%
Employee Headcounts by Years of Service
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COMPETITIVE ADVANTAGE - PEOPLE AND CUSTOMER SERVICE
Leveraging more than 20 years of Canadian expertise:
▪ Safety: LTI rate of 0.14
▪ Efficiency: Working to increase fracturing pumping hours per day to 16-20 from 10-12 hours per day
▪ Development: Industry-leading training programs
• Total Training Hours;• 2017: 75,837• 2018: 101,656
▪ Canadian geographic focus: Canadian focus
allows potential for expansion of existing
service lines or adding services lines within
our current infrastructure
▪ Improving our operating leverage: Building
on our existing infrastructure and adding
operationally focused personnel while
maintaining G&A support levels
Dec-155.5
Dec-164.4
Dec-176.5
Dec-188.2
0
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Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18
Field and Shared Service / SG&A Employee
Field & Shared Service / G&A Yearly Avg Field & Shared Service / G&A Expon. (Field & Shared Service / G&A)
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COMPETITIVE ADVANTAGE – INNOVATION
Leveraging innovation for new opportunities:
▪ Scale allows targeted investment into internally developed
IP and new technologies
▪ Patented MVPTM fracturing fluids; case studies indicate:
▪ 30% increased production in the Montney
• 20% increased production in the Cardium
▪ Global technology reputation allows new markets for IP
and technology
• Initial licensing agreement signed in the US for MVP FracTM
• CleanTRACKTM patented dust control product field tested and
will be commercial in 2019
• 3rd party interest in customer facing applications platform
• International technical service agreement opportunities
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SUMMARY
▪ Capital disciplined company focusing on ROIC
▪ Strong financial position to:
• Withstand near-term cyclical weakness
• Evaluate opportunistic growth
• Return capital to shareholders
▪ Continued focus on reducing costs to gain a
competitive advantage
▪ Largest Canadian pressure pumping company
with broad range of services
▪ Existing equipment complement provides
opportunity for incremental returns upon a
market recovery
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APPENDIX
APPENDIX 1: EQUIPMENT AS OF DECEMBER 2018
Service Line Total
Equipment
Active,
Manned
Active,
Maintenance,
Unmanned
Idled ~ Market
Share
Fracturing (HHP) 672,000 340,000 242,000 90,000 30%
Cementing (trucks) 69 32 8 29 37%
Coil Tubing (units) 28 8 4 16 n/a
Nitrogen (units) 80 17 24 39 n/a
▪ Given the industry slow down, increased amount of fracturing hydraulic horse power is
expected to be parked
▪ We will explore opportunities to monetize equipment that is no longer anticipated to be
competitive in the WCSB
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INVESTOR PRESENTATIONMarch 2019