1. sports
2. fishing
3. fly fishing

Investor Presentation
March 19, 2015
Disclaimer
FORWARD-LOOKING STATEMENTS
This presentation contains forward-looking statements and forward-looking information regarding Essential Energy Services Ltd. (the “Corporation”) within
the meaning of applicable securities laws. In particular, this presentation contains forward-looking statements including expectations regarding capital
spending and projected in-service dates of new equipment; expectations of future cash flow and earnings; expectations regarding Essential’s ability to
continue to pay dividends; expectations that dividends and capex will be supported by cashflow; expectations of Essential’s Canadian market share position;
expectations of Essential’s customers’ needs; expectations with respect to the demand for oil and natural gas, the type of wells, the demand for oilfield
services and type of oilfield services; expectations regarding the level and type of drilling and production activity; expectations regarding the business, areas
of growth, operations, services offered by the Corporation and the demand for those services; expectations of lower E&P capital spending and pricing
pressure on services; expectations of Essential’s response to an expected industry downturn including a focus on cost management and an emphasis on
maintaining low debt; expectations for Essential’s role in the fracturing market; expectations for well maintenance work and the demand for service rigs;
and expectations the balance sheet positions Essential for growth and financial stability in uncertain times. By their nature, forward-looking statements and
information involve known and unknown risks and uncertainties that may cause actual results to differ materially from those anticipated. Many of these
factors and risks are described under the heading “Risk Factors” in the Corporation’s Annual Information Form for the year ended December 31, 2014 and
the Corporation’s other filings on record with the securities regulatory authorities, which may be accessed through the SEDAR website (www.sedar.com).
Although the Corporation believes the expectations and assumptions on which such forward-looking statements and information are based are reasonable,
the Corporation can not provide assurance these expectations will prove to be correct. Accordingly, readers should not place undue reliance on the
forward-looking statements and are cautioned that the foregoing factors are not exhaustive. The forward-looking statements and information contained in
this presentation are made as of the date hereof and the Corporation undertakes no obligation to update publicly or revise any forward-looking statements
or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws. This presentation
contains analyst consensus estimates as of a particular point in time. The Corporation includes these third party estimates for reference only and not for the
purpose of endorsement. These estimates reflect the views of the applicable analyst and may not reflect the views of management of the Corporation as at
the point in time when the applicable estimate was given or as of the date of this presentation.
NON-IFRS MEASURES
Throughout this presentation, certain terms used are not measures recognized by International Financial Reporting Standards (“IFRS”) and do not have
standardized meanings prescribed by IFRS including:
• EBITDAS – earnings before finance costs, income taxes, depreciation, amortization, transaction costs, non-controlling interest earnings, losses or
gains on disposal of equipment, write-down of assets, impairment loss, foreign exchange gains or losses, results of discontinued operations and
share-based compensation, which includes both equity-settled and cash-settled transactions.
This measure may not be consistent with calculations of other companies.
® MSFS is registered trademark of Essential Energy Services Ltd.
TM MaxFrac is a trademark of Essential Energy Services Ltd.
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A Focused Story
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• Canada’s largest public pure-play well service company
• Completion and production focus
Coil Tubing
Downhole Tools
Service Rigs
• #1 in Canada
• Top 5 in Canada
• #8 in Canada
• Innovative fleet –
leading edge
• Conventional and
multi-stage packers
• High-quality fleet
• High barriers to entry
in masted deep
market
• High barriers to entry
• Key geographic
locations
Tryton Tools
Pure-Play Well Service Company
Where Earnings are Generated
2014 Revenue - $351 MM*
2014 Gross Margin - $87 MM*
(% of Total Revenue)
Service Rigs
$93 MM
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(% of Total Gross Margin)
Downhole Tools
& Rentals
Downhole
Tools &
Rentals
$121 MM
$40 MM
Well
Servicing
Coil Well
Service
$53 MM
$140 MM
2013 Consolidated Comparative:
Gross Margin as a % of Revenue 2014:
•
•
•
•
Revenue: $336 MM
Gross Margin: $83 MM
Well Servicing: 23% (2013 – 24%)
Downhole Tools & Rentals: 33% (2013 – 32%)
*Charts exclude inter-segment eliminations and centralized operations overhead costs
2015 Outlook
• Industry slowdown due to low oil and natural gas prices
• Lower exploration and production capital spending
• Pricing pressure on services
• Activity has slowed in the first quarter of 2015
• Essential’s response:
• Conservative 2015 capital budget
• Focus on cost management – anticipated savings of $10 million:
• Reduced cash compensation for the Board of Directors
• Salary rollbacks for all salaried employees
• Suspended various benefit and incentive programs
• Reduced discretionary spending
• Layoffs – field and office staff
• Continued emphasis on maintaining low debt
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2015 Capital Budget
• 2015 capital budget:
• $21 million including $13 million growth and $8 million maintenance
• Growth capital: completing and putting into service 4 Gen IV masted coil
tubing rigs
• Deferral of 3 previously announced masted coil tubing rigs to a later,
undetermined, date: 1 Gen III and 2 Gen IV
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Investing in High Demand Equipment
Capital Spending (millions)
Growth
Maintenance/infrastructure
Total
New Assets
7
2013A
2014A
2015B
$32
$32
$13
15
14
8
$47
$46
$21
2014A
2015B
Additions
Additions
In-service(1)
Masted coil tubing rigs – Gen III
2
-
-
Masted coil tubing rigs – Gen IV(1)
2
2
Q3(1) Q4(1)
Pumpers – fluid
1
-
-
Service rigs
-
-
-
(1) 2 Gen IV rigs expected in service in H1/16.
Significant growth in the masted coil tubing fleet with recent equipment additions and
equipment expected in 2015 and 2016.
Fracturing Market: Essential’s Role
• The number of long-reach horizontal wells increases the demand for
Essential’s masted coil tubing rigs
• In the well completion phase, masted coil tubing rigs are used for:
Pre-Fracturing
• Confirmation runs
• Placement of tools to
isolate a portion of
the well during
fracturing
•
•
•
•
Fracturing
Frac-thru coil
Annular fracturing
Convey and actuate
sliding-sleeve tools
“Plug-and-perf”
operations
Post-Fracturing
• Confirmation runs
• Cleanouts
• Mill-out/drill-out ball
and seat systems
• In the post completion phase, masted coil tubing rigs are used for workovers and abandonments
Essential has a Role in the Fracturing Market
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Masted Coil Tubing: Build Program
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• Gen III/IV build program (2013 to 2016 expected delivery):
• Equipment expected in-service by the end of H1/16: 3 Gen III rigs / 6 Gen IV rigs
• Equipment deferred: 1 Gen III rig / 2 Gen IV rigs
• Increased reel capacity - longer and larger diameter coil; unique safety features
• Record depth: Gen III - 6,311 m using 2 3/8” coil (Q2/14)
• Improved integration of fluid and nitrogen pumpers with growing masted coil
fleet
Generation IV masted coil tubing rig
Masted Coil Tubing: Evolution
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Gen II/III/IV Specifications
Size
Gen II
Gen III
Gen IV
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3
2
2” coil
5,500 m
8,400 m
11,200 m
2 3/8” coil
3,500 m
6,300 m
7,900 m
2 5/8” coil
2,900 m
4,900 m
6,400 m
16 m
18 m
23 m
100,000 lbs
130,000 lbs
160,000 lbs
Number of rigs at Dec 31/14
Mast height (ground to injector)
Injector capacity
Essential Provides Full Service Completions
Essential equipment on-site:
•
•
•
1 Gen III and 1 Gen II masted coil tubing rig (milling out multi-stage frac balls and seats)
2 fluid pumpers, 2 nitrogen pumpers, 1 chemical van (supporting the coil rigs)
1 service rig (cleanout and hanging production tubing)
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Completion of Horizontal Wells
Coil Tubing
• Works while well is flowing and
under pressure
• Continuous coil - no threaded
connections
• Preferred for underbalanced and
horizontal operations
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Service Rig
• Use of “kill fluid” to service a well
• Deals with a wide variety of well
bore applications
• Primary market is vertical oil wells
Production Work-overs: Service Rigs
• The growing number of horizontal wells may
increase the demand for service rigs for future
work-over services
• Typically oil-focused
• An ever building inventory of older, high
decline wells will be assessed for stimulation
or abandonment
• Maintenance work (rod and pump changes)
on vertical wells typically use a service rig
• Current service rig position:
• High quality service rig fleet
• Broad WCSB presence
• Over 225,000 producing wells in western
Canada – all require work-overs or
abandonment at some point
• SAGD exposure
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Downhole Tools & Rentals
Proven Business Model:
• High return on low capital investment
• $26 million of tools inventory
• Smaller employee base
• Technical business; significant barriers
to entry
Opportunity in:
• Drilling-related work (rentals)
• Completion work (multi-stage
fracturing - MSFS® products)
• Production work (conventional packers)
• The U.S. (tools)
• Abandonments
Solutions to Meet Our Customers’ Changing Needs
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Downhole Tools
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MSFS® Tools used for Horizontal Completions:
• Ball & Seat technology forms the core of Essential’s
MSFS® tool offering but customers are also seeking new
completion techniques
• Viking sliding sleeve – coil-actuated sliding-sleeve
cemented-in liner; unlimited stages; no balls & seats;
mill-out/drill-out not required (new offering)
• MaxFracTM – dissolvable balls and large inner diameter
sleeve; eliminates the mill-out phase of “plug and perf”
completions (new offering)
Conventional Tools:
• Dominant role in the Canadian market
• Offers insights into customer well completion
preferences and requirements
• Abandonment work in an industry downturn
Viking tools: actuation tool and frac
sleeve
Downhole Tools
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Keys to Success:
• Experienced tool hands (requires diverse rig
experience)
• Service and relationships
• High quality tool design – quality control assembly,
testing and installation
• Ball & seat and new tools to meet changing customer
demands
MSFS® ball & seat tool
Operating Areas
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CANADA
U.S.A.
Coverage Across Key Oil and Gas Basins
Financial Results
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3 months
12 months
Q4/14
Q4/13
2014
2013
Revenue (millions)
$99
$93
$351
$336
EBITDAS (millions)
$22
$21
$68
$66
EBITDAS margin
22%
22%
19%
20%
Masted coil tubing rigs
104%
107%
89%
97%
Service rigs
49%
53%
49%
50%
Utilization:(1)
(1) Utilization is based on a 10 hour day
Q4/14 (3 mths) compared to Q4/13 – higher revenue and EBITDAS from:
• New masted coil tubing rigs
• Better integration of pumpers with masted coil tubing fleet
• MSFS® sales increase
• U.S. operations revenue increase
• Growth in higher margin rentals business
EBITDAS
19
100
$Millions
80
60
40
74
74
66
68
52
20
34
29
10
0
2009
2010
2011
Actual
2012
2013
2014
2015E(1) 2016E(1)
Analyst Consensus
(1) 2015 and 2016 is analyst consensus at Mar 19/15; Essential is covered by 9 analysts, of which 7 have
to-date provided a forecast for 2016.
Financial Strength
20
Debt Outstanding
Debt / EBITDAS
$44 million
0.7x
(Mar 4/15)
(Debt at Mar 4/15; EBITDAS
TTM to Dec 31/14)
Credit Facility:
• $100 million with a syndicate of four lenders
• May 31/17 maturity
• $35 million accordion (subject to lenders’ consent)
Strong Balance Sheet: Growth Opportunities;
Financial Stability in Uncertain Times
Balanced Capital Deployment
2015 EBITDAS
Unused Credit
Capacity
$34 million
$56 million
(Analyst Consensus Mar 19/15)
(Mar 4/15)
2015 Capital Program - $21 million
Annual Dividend - $15 million ($0.03/share quarterly)
Share Buyback
Dividend and Capex Supported by Cash Flow
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Corporate Data
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Mar 19/15
Trading price
$1.03
Market capitalization
$130 million
Enterprise value (based on Mar 4/15 debt)
$174 million
Dividend yield
Replacement cost
11.7%
$3.00/share
EV/2015 EBITDAS (analyst consensus)(1)
5.1x
EV/2016 EBITDAS (analyst consensus)(1)
3.3x
(1) Based on debt at Mar 4/15 and analyst consensus at Mar 19/15
Key Takeaways
Operational Focus
• Capital program focused on masted coil tubing rigs suitable for longreach horizontal wells
• Downhole tools and rentals – new tools and U.S. market
Managing the Industry Downturn
• Strong balance sheet
• Cost management initiatives
• Experienced management team – have been through this before
Return to Shareholders
• Dividend paying
• Share buyback program
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Garnet Amundson
1100, 250 – 2nd Street SW
Calgary, Alberta T2P 0C1
(403) 513-7272
[email protected]
President & Chief Executive Officer
Karen Perasalo
Investor Relations
TSX:ESN
www.essentialenergy.ca