High Arctic Energy Services Inc. Investor Presentation March 2016
DISCLAIMER Certain information contained within this presentation and statements made in conjunction with this presentation, including information and statements that contain 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, are forward-looking statements. 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. These statements are derived from certain assumptions and analyses made by the Corporation 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. These statements or predictions are subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from the Corporation’s expectations. These risks and uncertainties include the items discussed under the heading “Risk Factors” in the Corporations' most recently filed Annual Information Form as well as the Corporation’s other public disclosure documents located on SEDAR (www.sedar.com). Consequently, all of the forward-looking information contained within this presentation and statements made in conjunction with this presentation are qualified by these cautionary statements and there can be no assurance that actual results or developments anticipated by the Company will be realized or that they will have the expected consequences or effects on the Corporation or its business or operations. Other than as required by applicable securities laws, the Corporation assumes no obligation to update publicly any such forward-looking information or statements, whether as a result of new information, future events or otherwise. -2-
INTRODUCTION High Arctic is an international oilfield services Papua New Guinea company with operations in Papua New Guinea (PNG) and Canada. PNG: Has a dominant market position for contract drilling, well completion and rental services in Brisbane PNG. Provides services in PNG to regional and super major energy companies under long-term contracts. Has a strong track record of 8+ years of operations in PNG. Grande Prairie Operates in PNG’s developing LNG industry, Slave Point reducing the impact of short-term oil & gas Montney price volatility. Duvernay Cardium Red Deer Canada: Calgary High Arctic owns and operates Canada’s largest Deep Basin fleet of stand alone snubbing units . Corporate Office Offices -3-
FINANCIAL OVERVIEW Financial Highlights Shares outstanding (Mar 16, 2016): 53.8 million Healthy balance sheet. Share Price (Mar 16, 2016): $3.45 Attractive dividend yield. Market Cap : $185.5 million Net Cash & Marketable Securities (Dec 31, 2015): $22.1 million Conservative payouts ratio. Enterprise Value: $174 million Valuation multiples at low end of peer range. Trailing 12 Month EBITDA (Dec 31, 2015) : $64 million EV / EBITDA Multiple (TTM): 2.72x Insider Ownership Annual Dividend: $0.198 Cyrus Capital: 40% Payout Ratio (on funds from operations) 20.6% Director / Management: 9% Dividend Yield (as at Mar 16, 2016): 5.74% Canadian Non-Capital Tax Losses: $65.4 million Insider Ownership : 49% -4-
HISTORY OF STABLE GROWTH HISTORICAL FINANCIAL PERFORMANCE 70 35.0% 30% Adjusted EBITDA Canada Revenue $210 60 Adjusted EBITDA (%) $64 29% PNG Revenue 30.0% 27% 27% 27% $172 50 26% $153 $146 $49 25.0% $127 40 $119 $42 $40 30 $33 $32 20.0% 20 15.0% 10 0 10.0% 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 2012: Expanded PNG rental business and commissioned a new rental camp. 2014: Purchased two new heli-portable rigs for PNG that began generating revenue in 2015. EBITDA growth with stable margins throughout volatile market cycles. Revenue has increased at a CAGR of 10% and EBITDA at a CAGR of 12% -5-
PAPUA NEW GUINEA PNG Overview – Stable and Growing GDP Growth Forecast Independent, established democracy and a stable 18% 16% business jurisdiction. 14% Part of the British Commonwealth with a 12% parliamentary government. 10% 8% Currently experiencing rapid growth from resource 6% exports. 4% 2% 0% PNG Oil and Gas Activities – Long History, with New 2013 2014 2015 2016 2017 Growth PNG All OECD Countries Oil exploration activities since 1920’s Source: World Bank, 2015 Long-term LNG development commenced in 2008 MACRO Drivers for Future Growth High quality operators with financial strength. Large un-explored resource base. Low cost source of LNG to Asian markets. High quality gas (i.e. high heating content). Natural gas electricity development in PNG to support economic growth. Source: Exxon Mobil -6-
GLOBAL LNG DEVELOPMENT – THE PNG ADVANTAGE Destination Sources: Wood Mackenzie, cost to Japan with 10% return (US $/mmbtu) Sources: Wood Mackenzie Globally contracted LNG supply is expected to be short of total anticipated global demand in the long-term with the largest growth in demand for LNG expected to come from Asia. The growth in Asian demand for LNG is expected to come from changes in government policy and environmental strategy to replace coal with natural gas as an energy source. PNG’s close proximity to Asia puts its LNG projects in a strong position as a low cost provider to target high quality Asian customers with long-term demand. Provides the opportunities for the buyers of LNG to geographically diversify the energy source. Large natural gas reserves – current estimates PNG LNG: 9 tcf, Papua LNG: 8.6 tcf, -7-
PNG EXPLORATION & DEVELOPMENT 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 and OSL. Exploration activities ongoing to delineate resource to support LNG facility. Development wells required to feed LNG facility. Sources: 2B1st Consulting Future: InterOil: 14,000 unexplored acres. OSL: Targeting 4 to 6 exploration wells/yr. Focusing investment in PNG to support 10 year growth platform. Estimated 5 million BOE yet to be discovered in PNG. Other operators – Horizon, Repsol, -8-
PNG DRILLING & WORK OVER SERVICES Rig 103 / 104 (leased from OSL) Drilling services and support contracts with OSL through mid to late 2016 (three year term). 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. 2 year drilling services contract with InterOil commencing with spud of first well. Annualized operating revenue per rig of $30M USD including camp. Rig 102 (High Artic owned) Only hydraulic workover rig in PNG. Rig is currently stacked. -9-
PNG DRILLING LANDSCAPE Tier 2 Tier 1 High Arctic Competitors -10-
PNG EQUIPMENT RENTALS Matting Inventory of approximately 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. Camp Services Owns and manages two 103 man Heli-portable man camps Operates and manages two 93 man Heli- portable drilling rig camps 2016 Matting Contract Overview Other Rental Equipment cranes (ranging from 30 ton to 160 ton) Contracted 46% rig moving trucks Prospective 50% forklifts Marketed river pumps 4% -11-
CANADIAN OPERATIONS • 15 Stand Alone Units Snubbing • 3 Rig Assist Units • Currently marketing 9 units • 2016 addition of high capacity 285k unit Nitrogen • 11 Low Rate Unit • 1 High Rate N2 Pumper • 5 Nitrogen Transport Rental • High pressure BOP’s • Boiler Equipment -12-
CANADIAN SNUBBING MARKET WESTERN CANADA SNUBBING MARKET LANDSCAPE AVERAGE WELL DEPTH (WESTERN CANADA) 100% 2,100 Number of Snubbing Units Available 90% 2,000 80% 2 2 High Arctic 70% 1,900 Well Type (%) 70% Well Depth 6 60% Precision 63% 60% 18 58% 50% 1,800 Quattro 40% Powerstroke 1,700 30% Northern 8 20% 1,600 Snub Co. 10% 0% 1,500 2012 2013 2014 2015 11 Horizontal Vertical Other Avg. Depth Sources: Company Reports, High Arctic Sources: Geoactivity High Arctic is a market leader for snubbing in Western Canada Jointed pipe snubbing allows rotation of pipe to overcome friction in extended reach horizontal wells Increasing number of high pressure horizontal wells with longer depth has resulted in additional demand for snubbing services. Snubbing is becoming the preferred method of completions for long-reach horizontal wells. -13-
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