Q3 Investor Presentation - Nov 2016 [Read-Only]€¦ · Kumul Gobe Kopi Triceratops InterOil New...
Transcript of Q3 Investor Presentation - Nov 2016 [Read-Only]€¦ · Kumul Gobe Kopi Triceratops InterOil New...
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Investor PresentationNovember 2016
TSX : HWO
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DISCLAIMER
These statements are derived from certainassumptions and analyses made by theCorporation based on its experience andperception of historical trends, currentconditions, expected future developments andother factors that it believes are appropriate inthe circumstances. These statements orpredictions are subject to a number of knownand unknown risks and uncertainties that couldcause actual results to differ materially fromthe Corporation’s expectations. These risks anduncertainties include the items discussed underthe heading “Risk Factors” in the Corporations'most recently filed Annual Information Form aswell as the Corporation’s other publicdisclosure documents located on SEDAR(www.sedar.com). Consequently, all of theforward-looking information contained within
this presentation and statements made inconjunction with this presentation arequalified by these cautionary statements andthere can be no assurance that actual resultsor developments anticipated by the Companywill be realized or that they will have theexpected consequences or effects on theCorporation or its business or operations.
Other than as required by applicable securitieslaws, the Corporation assumes no obligation toupdate publicly any such forward-lookinginformation or statements, whether as a resultof new information, future events or otherwise.
Certain information contained within thispresentation and statements made inconjunction with this presentation, includinginformation and statements that contain wordssuch as “seek”, “anticipate,” “plan”, “continue”,“estimate”, “expect”, “may”, “will”, “project”,“predict”, “potential”, “targeting”, “intend”,“could”, “might”, “should”, “believe”, “forecast”,“can” and similar expressions, are forward-looking statements. In particular, forward-looking statements in this presentation include,but are not limited to, statements with respectto future capital expenditures, future financialresources, anticipated equipment utilizationlevels, future oil and gas well activity,projections of market prices and costs,outcomes of specific events and trends in theoil and gas industry.
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Executive Leadership ChangeExecutive Leadership ChangeExecutive Leadership ChangeExecutive Leadership Change
• Combined with the timing of the acquisition and the retirement of Tim Braun, Thomas Alford
was appointed the interim President & CEO by the Board of Directors
• Mr. Alford has over 35 years of experience in well servicing Western Canada, having held the
title of President and CEO at IROC Energy Services and Bonus Resource Services Corporation
Recent Developments
Tervita Corporation's Production Services Division Tervita Corporation's Production Services Division Tervita Corporation's Production Services Division Tervita Corporation's Production Services Division –––– 10 Weeks In10 Weeks In10 Weeks In10 Weeks In
• Acquisition of the third largest well servicing fleet in Canada which includes 85 high quality
service rigs (59 currently marketed) and a substantial inventory of rental equipment
• Key management and majority of employees from Tervita Production Services have joined
High Arctic, resulting in approximately 400 employees in Canada
• Expanded geographical coverage in Western Canadian with seven new geographical locations
in Cold Lake, Drayton Valley, Lloydminster, Blackfalds, Acheson and Whitecourt
• Larger client base that includes top tier exploration and production companies
• Rebranded the acquired service rig division to Concord Well Servicing
• Facing tight markets with utilization at historic lows and pricing continuing to be pressured
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Business
Overview
High Arctic Energy Services is
a market leader with
diversified operations in
Papua New Guinea (PNG) and
Canada
P N GP N GP N GP N G
• Dominant market position for contract drilling, well
completion and rental services in PNG
• Provides services in PNG to super majors and regional
energy companies under long-term contracts
• Strong track record of 9 years of operations in PNG.
• PNG’s developing LNG industry reduces the impact of
short-term oil & gas price volatility
C a n a d aC a n a d aC a n a d aC a n a d a
• Owns and operates Canada’s largest fleet of stand
alone snubbing units
• Recently acquired 85 high quality service rigs
• Flexibility to expand organically or through
acquisition
• Solid platform established for growth
2016 TTM Revenue
PNG $174.2 mm
Canada $29.5 mm
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Shares outstanding (Nov 11, 2016): 52.6 million
Share Price (Nov 11, 2016): $4.60
Market Cap (Nov 11, 2016): $242.0 million
Net Cash & Marketable Securities (Sept 30, 2016): $4.8 million
30 Day Average Trading Volume 110,005
Trailing 12 Month Adjusted EBITDA (Sept 30, 2016): $73.3 Million
Annual Dividend $0.198
Dividend Yield 4.30%
CORPORATE
SNAPSHOT
Cyrus Capital
42%
Insiders
9%
Public
49%
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Stable GrowthT R A C K R E C O R D O F
4
0
50
100
150
200
250
2010 2011 2012 2013 2014 2015 TTM
Canadian Revenue PNG Revenue
32 33
4042
49
64
73.3
27%
26%
27%
27%
29%30%
36%
10%
15%
20%
25%
30%
35%
20
30
40
50
60
70
80
2010 2011 2012 2013 2014 2015 TTM
Adjusted EBITDA Adjusted EBITDA (%)
REVENUE(as at September 30, 2016)
ADJUSTED EBITDA(as at September 30, 2016)
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Overview – Stable and Growing • Independent, established democracy and a stable business jurisdiction
• Part of the British Commonwealth with a parliamentary government
• Government working with industry to develop nation’s natural resources (even in the
current environment)
Papua New Guinea
Oil and Gas Activities – Long History, with New Growth • Oil exploration activities since 1920’s with OSL being established in PNG since 1929
• Long-term LNG development commenced in 2008
• Exxon’s pending purchase of InterOil confirms its position in PNG
Macro Drivers for Growth • Large un-explored resource base
• Low cost source of LNG to Asian markets
• High quality operators with financial strength
• High quality gas (i.e. high heating content)
• Domestic natural gas electricity development to support economic growth
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Overview – Stable and Growing • PNG’s LNG projects are advantageously situated to supply
Asian buyers
• Large natural gas reserves – current estimates PNG LNG: 9 tcf,
Papua LNG: 8.6 tcf, encourages long-term drilling
• Globally contracted LNG supply is expected to be short of total
anticipated demand by 2020
• Largest growth in demand for LNG is expected to come from
Asia resulting from changes in:
• Government policy
• Environmental strategy to replace coal
LNG DevelopmentTHE PNG ADVANTAGE
East Africa
$8.76
West Africa
$8.76
US Gulf Coast
$10.76
West
Australia
$8.73
East
Australia
$14.49
PNG
$7.59
Cost of LNG to Japan 10% return (US$/mmbtu)
Source: Wood Mackenzie
Proximity to growing Asian market’s provides incentive to
develop LNG projects despite industry downturn
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PNG Outlook & Development
P’nyang
Juha
Kutubu
Kumul
GobeKopi
Triceratops
InterOil New Discovery
PNG LNG
Operating
Papua LNG
Proposed
Port Moresby
Elk /
Antelope
Hides and
Angore
Valve and pigging station
Oil/gas fields
Oil export platform
LNG Facility
Oil / gas refinery
Proposed pipeline
Pipeline
PNG LNG: • Exxon is the operator
• Total forecast production includes 9.0 tcf of natural gas and 200+ million bbls of associated liquids over 30 years
• Shipments began Q2 2014
• Exploration to support expansion (e.g. P’nyang)
Elk / Antelope (Papua LNG):
• Ownership: TOTAL, InterOil / Exxon
and OSL
• Reserve confirmation test underway
to size LNG facility
• Development wells required to feed
LNG facility
OSL: • Targeting 4 to 6 exploration wells/yr
• Focusing investment in PNG to
support 10 year growth platform
Exxon:• Pending acquisition of InterOil
• Significant unexplored acreage
• Declared interest in expanding
LNG capacity in PNG
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NATURAL GAS + OIL PRODUCTION
Customer Base
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Dril l ing LandscapeP A P U A N E W G U I N E A
Rig Type Owner / Operator Details Classification
Heli Portable
OSL / High Arctic 2 Rigs (103 /104) Tier 1
High Arctic 2 Rigs (115 /116) Tier 1
Contractor A 1 Rig circa mid 1970's Tier 2
Contractor B 1 Rig modified for limited heli use Tier 2
Heli Portable
Work Over Rig High Arctic 1 Rig 102 Tier 1
Land RigsContractor C 1 Land based rig
Operator 1 Land based rig
High Arctic is the dominant Tier 1 drilling provider in PNG
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PNG Drilling and
Work Over ServicesRig 103 / 104 (leased from OSL)
• Drilling services and support contracts with OSL extended to Oct 31, 2016. Discussions ongoing for longer extensions
• Strong relationship with OSL with a history of two 3-year contract renewals
Rig 115 / 116 (High Arctic owned)
• AC self-erecting 1500 HP heli-portable triple
• Rig 115: contracted to June 17
• Rig 116: 2 year drilling services contract with commencing with spud of first well
Rig 102 (High Artic owned)
• Only hydraulic work over rig in PNG
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Matting • Inventory exceeding 10,000 rental mats in PNG
• High Arctic has PNG distributor rights
• The largest rental supplier of Dura-Base mats outside of the USA
• Possible expansion into other countries with similar challenging environments
PNG Equipment Rentals
Camp Services • Owns and manages two 103 man Heli-portable man camps
• Operates and manages two 93 man Heli- portable drilling rig camps
Other Rental Equipment • Cranes (ranging from 30 ton to 160 ton)
• Rig moving trucks
• Forklifts
• River pumps
Q4 2016 MATTING CONTRACTS
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42%
3%53%
Term Contract
Prospective
Idle
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Canadian
OperationsService RigsService RigsService RigsService Rigs
• Operating under Concord Well Servicing
• 85 Rigs & associated equipment
• 68 Rigs registered with CAODC
• Currently marketing 59 Rigs
SnubbingSnubbingSnubbingSnubbing
• 15 Stand Alone Units
• 3 Rig Assist Units
• Currently marketing 8 Units
• 2016 addition of fully guided 285k and 170k Units
NitrogenNitrogenNitrogenNitrogen
• 11 Low Rate Unit
• 1 High Rate N2 Pumper
• 5 Nitrogen Transport
RentalsRentalsRentalsRentals
• High pressure BOP’s
• Surface Equipment
OUR CUSTOMERS
Strong Western Canadian Service Rig and Snubbing
Presence Provides Platform to Expand
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• Operates the 3rd largest fleet of service rigs in WCSB
• Facing tight markets with utilization at historic lows and
pricing continuing to be pressured
• Strategically located to cover major plays in WCSB with
exposure to heavy and light oil
• Solid client base that includes international supermajors
major Canadian E&P companies
• Recorded 7,823 operating hours in the month of September
(38% utilization relative to Q3 industry utilization of 24%) 1
• Industry leading safety culture and record
Concord Well Servicing
GEOGRAPHICAL FOOTPRINTGEOGRAPHICAL FOOTPRINTGEOGRAPHICAL FOOTPRINTGEOGRAPHICAL FOOTPRINT
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1 Source: CAODC
Montney
Duvernay
Cardium
Blackfalds
Whitecourt
Acheson
Lloydminster
Cold Lake
Cold Lake Oil Sands
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• High Arctic is a market leader for stand alone snubbing in
Western Canada
• Jointed pipe snubbing allows rotation of pipe to over
come friction in extended reach horizontal wells
• Increasing number of high pressure horizontal wells has
resulted in additional demand for higher capacity units
• Recent capital additions have been directly aimed toward
higher capacity units
• Snubbing remains a necessary service for completions of
long-reach horizontal wells
Canadian Snubbing# OF SNUBBING
UNITS AVAILABLE
AVERAGE WELL DEPTH AVERAGE WELL DEPTH AVERAGE WELL DEPTH AVERAGE WELL DEPTH (WESTERN CANADA)(WESTERN CANADA)(WESTERN CANADA)(WESTERN CANADA)
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High Arctic Owns and Operates Canada’s Largest
Fleet of Stand Alone Snubbing Units
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8
6
2 2High Arctic
Precision
Quattro
Powerstroke
Northern
Snub Co.
60% 58%63%
70%20% 24%
21%19%
20% 18% 16% 11%
1,500
1,600
1,700
1,800
1,900
2,000
2,100
0%
20%
40%
60%
80%
100%
2012 2013 2014 2015
We
ll D
ep
th
We
ll T
yp
e (
%)
Horizontal Vertical Other Avg. DepthSource: Geoactivity
Sources: Company Reports, High Arctic
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Nine months ended September 30,
$58.5
$47.5
$0.0
$20.0
$40.0
$60.0
2015 2016
$18.7$15.6
$0.0
$10.0
$20.0
2015 2016
$14.3
$11.6
$0.0
$5.0
$10.0
$15.0
2015 2016
REVENUE
ADJUSTED EBITDA
FUNDS FROM OPS.
(1) The restricted shares held by a trustee under the Executive and Director Incentive Share Plan are included in the shares outstanding. The number of shares used in calculating the net
earnings per share amounts is determined differently as explained in the Financial Statements.
Q3
2016 YTD Results
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$ millions
(except per share amounts)
Revenue 145.7145.7145.7145.7 151.9 (4%)(4%)(4%)(4%)
Adjusted EBITDA 52.552.552.552.5 43.2 22%22%22%22%
Adjusted EBITDA % of revenue 36%36%36%36% 28% 27%27%27%27%
Net Earning per share
(diluted)(1)
Fund From Ops. per share
(diluted)(1)
Dividends per share(1) 0.150.150.150.15 0.15 0%0%0%0%
0.700.700.700.70 0.40 75%75%75%75%
0.820.820.820.82 0.59 39%39%39%39%
2016201620162016 2015%
Change
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0.0 x
1.0 x
2.0 x
3.0 x
4.0 x
5.0 x
6.0 x
7.0 x
8.0 x
9.0 x
10.0 x
2012 2013 2014 2015 TTM
Competitors…High Arctic
0%
50%
100%
150%
200%
250%
300%Competitors
High Arctic
Financial Performance
INDEXED SHARE PRICE PERFORMANCE ENTERPRISE VALUE / EBITDAHISTORICAL RETURN ON EQUITY
High Arctic’s share price has historically outperformed industry peers
High Arctic consistently delivers strong returns to shareholders
High Arctic is trading at the lower end of the industry valuation spectrum
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Sources: Lightyear Capital, Altacorp
Comps include AKT.A, ESN, TDG, PD, WRG, SVY, XDC
0%
5%
10%
15%
20%
25%
30%
35%
2012 2013 2014 2015 TTM
Competitors High / LowHigh Arctic
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$0.07
$0.15
$0.17
$0.20
$0.17
$0.01 $0.00
$0.10
$0.12
$-
$0.05
$0.10
$0.15
$0.20
$0.25
2012 2013 2014 2015 2016 YTD*
Dis
trib
uti
on
s p
er
sha
re (
$)
Dividends per share Repurchases per share
Shareholder DistributionsT R A C K R E C O R D O F
Disciplined distributions, without sacrificing capital resources to execute on growth opportunities
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DISTRIBUTIONS TO SHAREHOLDERS (per share) DISTRIBUTION TO SHAREHOLDER ($ Millions)
2016 YTD figure shown as at October 31, 2016
$3.5
$7.2
$9.1
$10.9
$8.8
$0.5 $0.2
$5.7
$6.5
0%
5%
10%
15%
20%
25%
30%
35%
40%
-
2.0
4.0
6.0
8.0
10.0
12.0
2012 2013 2014 2015 2016 YTD*
Pa
yo
ut
Ra
tio
(in
clu
din
g r
ep
urc
ha
ses)
Dis
trib
uti
on
s ($
)
Dividends Repurchases Payout Ratio
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Balance Sheet and LiquidityW E L L P O S I T I O N E D W I T H S O L I D
Balance Sheet
• Net Debt of $5.8M• Funded Debt / EBITDA ratio: < 0 .5x
Credit Facility
• Maturity Aug. 31, 2017 • On side with all covenants• In discussions with lenders to
expand and extend credit facility
LIQUIDITY
Credit Facility Available
$14.4 million
Cash
$24.8 million
Short-term Investments
$10.6 million
(as at September 30, 2016)
Total $69.1 Million
Non-Cash Working Capital
$19.3 million
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Growth Strategy
• Depressed North American activity levels may lead to attractive valuations for
additional acquisition targets
• Valuation gaps starting to narrow
• Focus on quality operations, consistent with High Arctic’s operating culture
• Potential for upward pricing pressure from low personnel & equipment availability
• Diversification is key to long-term strength of High Arctic
• Geographic – management team with strong North American and
International experience
• Complementary product lines – capture more of the customer value chain
• Exposure to light oil, heavy oil and natural gas production
• Organic growth
• Fit for purpose solutions to meet customer needs
• New opportunities arising for service rigs and snubbing units
• Solid operating base and strong balance sheet to support further accretive growth
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Contact usThomas Alford, CEO
Ph: (587) 318-3826
Email: [email protected]
Brian Peters, CFO
Ph: (587) 318-2218
Email: [email protected]
Analyst CoverageAcumen Capital Brian Pow
AltaCorp Capital Inc. Aaron MacNeil
Industrial Alliance Elias Foscolos
National Bank Greg Coleman
PI Financial Brian Purdy
Website
www.haes.ca
Head Office
700 – 2nd Street SW, Suite 500
Calgary, AB Canada T2P 2W2
TSX : HWO
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• Partner, Cyrus Capital Partners
• Managing Director, Cyrus Capital Partners Europe LLP
• Former President and CEO of IROC Energy Services Corporation
• President & CEO of High Arctic Energy Services Inc.
• Independent geological consultant
• Former Country Manager for Global Canada Geophysical Services
• Former VP of Operations Sylogist (a public consulting company)
• Past executive roles in IT, courier and distribution
Appendix A: Board of Directors
Daniel BordessaIndependent
Thomas Alford
Steven VaseyIndependent
Simon BatcupIndependent
Michael BinnionChairman of the Board
• President and CEO of Questerre Energy Corporation
• Chartered Accountant
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• Former Federal Member of Parliament (Minister of Natural Resources; Minister of Finance)
• Former senior investment banker with Merrill Lynch, Nesbitt Thomson and First MarathonJoe OliverIndependent
• Direct of Investor Relations at Cyrus Capital Partners
• Chartered Financial AnalystEmber ShmittIndependent
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Thomas AlfordInterim President & CEO
Board Member
Brian Peters, CACFO
Michael Maguire VP, International
Daniel BeaulieuCOO, Canada
• 35+ years of experience in well servicing in Western Canada
• Former President and CEO of IROC Energy Services Corporation and Bonus Resource
Services Corporation
• Former Board Member of Western Energy Services Corporation
• Over 15 years of experience in corporate finance, accounting and audit.
• Former CFO at IROC Energy Services, EnerMAX Services and Pure Energy Services
• Over 35 years of oilfield services sector experience.
• Former business unit manager at Weatherford.
• Over 20 years of oilfield experience, including 7 years at Easternwell
• Professional Engineer
Appendix B: Management Team
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