NOTES Please do not place the Anti-Trust call on hold to avoid - PowerPoint PPT Presentation

NOTES Please do not place the Anti-Trust call on hold to avoid Compliance music disrupting the call. PESA will share a Everyone will post-event remain muted. summary. During Q&A: If you have questions/comments, please unmute yourself.

Evercore ISI: Oilfield Services, Equipment & Drilling May 20th, 2020 James West +1 212 653-9047 james.west@evercoreisi.com

What Happened?

Unprecedented Downturn Already felt like the industry had been in a downturn since the middle of 2014 before going into this latest unprecedented  decline driven by a decline in oil prices and enhanced by Covid-19 logistical issues. Oilfield Services companies were facing challenging fundamentals, overleveraged balance sheets, and increasing investor  apathy. Many companies had started restructuring efforts, pulling costs out, making changes to strategy and compensation since  3Q19. These efforts have accelerated since March 2020 as revenue is poised to sharply decline in Q2. Narrative has shifted towards survival and protecting liquidity.  Key Timeline Since Start of 2020 Oil Price OSX Oil price peaked Oil Services begin reporting 4Q20 earnings $75 $90 OPEC+ Emergency $80 OPEC+ collapse, Meeting agrees to $65 Saudi declare war 9-10MMbpd cut $70 Texas RRC meets $55 E&P companies begin $60 with NAM E&Ps slashing capex budgets China alerts $50 WHO of $45 several Crude contracts $40 pneumonia go negative China reports Disease spreads cases first death; WHO declares outbreak a to MidEast and First US death; $35 $30 disease WHO names global health emergency; LatAm; Italy Trump issues COVID-19; spreads first death outside of begins lockdown; additional travel $20 outside of first death in China; Trump restrict Brent Trump asks for warnings $25 China Europe travel from China $1.25B emergency WTI $10 fund Trump declares national OSX emergency $15 $0 Source: Bloomberg, FactSet, Evercore ISI Research 4

Macro Outlook Improving

Global Oil Supply to Exceed Demand, But Tide is Turning Supply will exceed demand and inventories will rise to record levels in Q2 2020. But the Tide is Turning - demand will exceed supply and  inventories to draw by mid-year 2020 and fall further thru 2021. Stronger demand and reductions in supply have flattened the curve for global oil inventories. We maintain our Brent forecast of $40 and $50/bbl  at YE 2020 and 2021. Brent could move into backwardation during Q3. Our forecast calls for 2020 global oil demand to decline by -8.7mmbpd while global oil supply will fall by -6.8mmbpd.  Record global inventories near 75 days are likely approaching a peak. Will fall to 55 days by year end 2020 and 45 days by YE 2021  US production growth has declined in 9 of the past 12 months. Declines will gain momentum in the coming months. NAM production exit rate  at year end will likely exceed 2.0 mmbpd. Oil Supply Will Exceed Demand in 2020 US Shale Production Declining Source: IEA, OPEC, EIA, Evercore ISI Research Source: EIA, Evercore ISI Research 6

Is That Enough?

Sector Headwinds Will Continue Past Covid-19 Unless Behavior Changes Investors have fled the energy sector in pursuit of higher returns driven by other sectors of the economy. Oilfield services  equities have decoupled from crude prices for the past several years. Capex never recovered to the 2014 peak and is now plummeting again. 2020 will likely be almost 55% below the 2014 peak.  We forecast a 40% drop in North American E&P spending in 2020.  Industry change is imperative. There is still too many companies (320 OFS firms at the end of 2019), too much debt  (industry at ~$280B but nearly 85% held by E&Ps), too many assets, and too many management teams! Price Performance of S&P 500 vs S&P 500 Energy Stocks E&P Capital Expenditures Will Fall Sharply in 2020 3,600 3,000 S&P 500 Index 2,400 S&P 500 Energy 1,800 1,200 600 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Bloomberg, Evercore ISI Research Source: Evercore ISI Research 8

Our Playbook for Value Creation (And Higher Stock Prices)  A year ago when “ The Pledge for Oilfield Services” was released we were adamant that companies do the following:  Espouse disciplined spending and consider returning surplus capital to shareholders.  Employ returns-based performance goals at the C-suite that will likely increase intrinsic value in the equity market (ROIC).  That framework is still intact, although this year’s The Pledge: Part Two goes one step further and calls for a heightened sense of urgency for companies to consider consolidation. Value creation for OFS is a “nice -to- have” at this point and given some of the perils facing a number of upstream companies at current commodity price levels, service providers catering to E&P customers need to consider greater scale in order to avoid significant value destruction. The Path to Value Creation is Not Easy The Original “Pledge” The Pledge: Part Two Shareholder Consolidate Capital Aligned Discipline Market Share Compensation 9

It’s Simple: The Four Too’s 3,500 HHI Score Concentrated 10 Year Revenue Growth Inspection & Coating Logging 3,000 While Drilling Casing & Tubing Subsea 2,500 Equipment Cementing Moderately Fragmented 2,000 Unit Offshore Manufacturing Rig Construction Equipment 1,500 Well Artificial Hydraulic Servicing Completion Supply Lift Offshore Fracturing Equip. Vessels Drilling 1,000 Land Geophysical Rental & Downhole Drilling Fragmented Equip. Fishing Drilling Tools 500 -12% -8% -4% 0% 4% 8% 12%  There simply are 1) too many assets, 2) too many companies, 3) too many management teams, and 4) too much debt! The opportunity to raise new capital (debt or equity) isn’t available. The industry needs massive consolidation.  The Oilfield Service sector has low returns on capital, declining revenue and is highly fragmented. Standardization, saturation in key markets, declining product differentiation and rising buyer sophistication nullifies assertive pricing strategies across the sector.  It’s of little coincidence that the most fragmented product lines within OFS are also some of the more economically challenged . Market growth and the invention of U.S. oil shale are the key reasons why new entrants entered the market. 10

Time Is Of The Essence  Increases in returns on invested capital are typically followed by a growing number of small companies that enter the market. We’re not against a competitive marketplace but this kind of behavior has been counter-productive to the sector.  The number of companies with less than 5% market share in their respective product line increased by nearly 30% from 2008 to its peak of nearly 500 in 2016. Despite the massive amount of stress placed on the OFS industry these past four years, today there is only 3.4% less of those companies operating within the industry. More work needs to be done.  One mental heuristic that companies could abide by is that they should pursue consolidation until they have at least a 15-20% market share in their product line. The benefits of scale and a more concentrated operating environment should hopefully raise the barriers to entry and inhibit adverse pricing behavior and unfavorable supply/demand scenarios. OFS Companies With <5% Share In All Product Lines # of Firms With <5% Share in Each Product Line 48 40 32 24 386 397 411 422 439 470 484 491 496 488 480 479 Rental & Fishing Services Completion Equipment Coiled Tubing Services Offshore Construction Land Contract Drilling Directional Drilling Geophysical Equip 16 Pressure Pumping Wireline Services Offshore Drilling Well Servicing Cementing 8 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 0 11

Where Are We Now?

US Land Rig Count Pulled Back Sharply in April and May US land rig count was relatively resilient in Q1, declining by 4.2% sequentially. This compares to the prior three quarters of -  11%, -7.5%, -5.5% respectively. Thus far in Q2, the US land rig count has declined by 39% from Q1 levels. It fell below the 400 level in early May for the  first time since June 2016. We now expect the US land rig count to decline by 55% in 2020. Most of the rig count decline will occur in Q2.  E&Ps have been quick to revise lower capex budgets, with North American changes being more acute than International  (where we expect capex to fall a more modest ~15%). Evercore ISI US Land Rig Count Forecast Negative Revisions to Capex Budgets by Region Source: Baker Hughes Rig Count, Evercore ISI Research Source: Baker Hughes Rig Count, Evercore ISI Research 13