the presentation

TSX:CFW
CALFRAC WELL SERVICES LTD.
CAPP Scotiabank Investment Symposium 2016
Forward Looking Statement
Certain information contained within this presentation and statements made in conjunction with this presentation constitute forward-looking
statements. These statements relate to future events or the future performance of the Company. All statements other than statements of
historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of 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. 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.
The forward-looking statements within this presentation and made in conjunction with this presentation are derived from certain assumptions
and analyses made by the Company 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, including assumptions and analyses relating to: the
economic and political environment in which the Company operates; the Company’s expectations for its customers’ capital budgets and
geographical areas of focus; the effect unconventional oil and gas projects have had on supply and demand fundamentals for oil and natural
gas; the Company’s existing contracts and the status of current negotiations with key customers and suppliers; the effectiveness of cost
reduction measures instituted by the Company; and the likelihood that the current tax and regulatory regime will remain substantially
unchanged. Forward-looking statements are subject to a number of known and unknown risks and uncertainties that could cause actual
results to differ materially from the Company’s expectations. Such risks and uncertainties include the items discussed under the heading
“Business Risks” in the Company’s 2015 Annual Report and under the heading “Risk Factors” in the Company’s most recently filed Annual
Information Form. Consequently, all of the forward-looking statements contained within this presentation and made in conjunction with this
presentation are qualified by these cautionary statements and there can be no assurance that actual results or events anticipated by the
Company will be realized or that they will have the expected consequences or effects on the Company or its business or operations.
Other than as required by applicable securities laws, the Company assumes no obligation to update publicly any such forward-looking
statements, whether as a result of new information, future events or otherwise.
© Calfrac Well Services Ltd.
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2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
1/4/2013
Number of Active WCSB Land Rigs
Number of Rigs
Active Rig Counts: North America & International
1/4/2014
1/4/2015
800
700
600
500
400
300
200
100
0
Jan
1/4/2016
2012
1,100
360
1,050
340
1,000
320
950
300
900
280
850
260
800
240
750
220
700
200
© Calfrac Well Services Ltd.
International Offshore Rig Count
Number of Rigs
Number of Rigs
Lower 48 Active Land Rig Count
International Land Rig Count
Feb
Mar
Apr May
2013
Jul
Aug
2014
Sep
Oct
Nov
2015
Dec
2016
- U.S. land rig count down ~27%
sequentially in Q1/16, off ~80% from
peak
- WCSB active rig count down ~50% from
Q1/15
- International rig count down ~30% from
peak
Source: Baker Hughes
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Company Snapshot
TSX Stock Symbol: CFW
Share Price*
$1.19
30-Day Average Volume*
1,222,800
Market Capitalization*
$137.5 million
Enterprise Value*
$954.0 million
Shares Outstanding*
115.6 million
Insider Ownership
~25%
* As at 16:00:00 ET on 4/7/2016
- On February 24, 2016 Calfrac’s Board of
Directors suspended the dividend until further
notice
Canada Frac Crew Operator (2012). Calfrac Well Services Photo
© Calfrac Well Services Ltd.
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Full Service Pressure Pumping
As at December 31, 2015
Canada Fleet:
425,000 Horsepower
18 Coiled Tubing Crews
U.S. Fleet:
674,000 Horsepower
18 Cementing Crews
5 Coiled Tubing Crews
Russia Fleet:
70,000 Horsepower
7 Coiled Tubing Crews
Latin America Fleet:
131,000 Horsepower
13 Cementing Crews
7 Coiled Tubing Crews
© Calfrac Well Services Ltd.
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Committed To Safety, Quality And Flawless Execution
GLOBALLY DIVERSE OPERATIONS
© Calfrac Well Services Ltd.
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Canadian Operations
Canada Fleet:
425,000 Horsepower
18 Coiled Tubing Crews
© Calfrac Well Services Ltd.
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Canada – Market Update
Calfrac Market Positioning
 Positioned in key areas of frac demand:
– Montney, Duvernay, Deep Basin,
Cardium and Viking
 Diversified customer base gives us
exposure to all key areas of the world-class
Montney resource play
 Greater proportion of 24-hour operations
Pricing & Utilization
 Continued pricing headwinds (pricing off
~15% from Q4/15)
 ~50% of horsepower parked
 14 of 18 coil units idled
© Calfrac Well Services Ltd.
Market Trends
 Stages per well increasing
 Frac spacing tightening
 Operators refocusing on highest quality
plays and assets
Market Outlook
 Weak activity levels in the first few weeks of
Q1/16 and early spring break-up in midMarch
 Visibility for 2016 is limited
 Customer capex is expected to be
meaningfully lower than 2015
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United States Operations
U.S. Fleet:
674,000 Horsepower
18 Cementing Crews
5 Coiled Tubing Crews
© Calfrac Well Services Ltd.
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United States – Market Update
Calfrac Market Positioning
 Focus on customers that are financially
strong and intend to remain active in key
plays across the U.S.
 Target an equal mix of oil/gas exposure
 Positioned in key areas of frac demand:
– Bakken, Marcellus, Rockies, Utica,
Eagle Ford (temporarily suspended)
 ~90% of work is 24-hour operations
Pricing & Utilization
 Pricing largely stabilized but remains down
~40% from peak
 ~60% of horsepower parked
 Temporarily suspended coiled tubing and
cementing operations
© Calfrac Well Services Ltd.
Market Trends
 Stages per well increasing
 Frac spacing tightening
Market Outlook
 Average U.S. land rig count decreased
~27% from Q4/15
 Visibility in 2016 is limited
 Customer capex is expected to be
meaningfully lower than 2015
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Managing The Downturn
 Service Line Strategy
– Equipment will be idled if operating margins do not meet the company’s return requirements
– Optimize completion methods
 Utilization and Maintenance Planning
– More efficient equipment utilization and maintenance schedules
– Elimination of unnecessary discretionary spending
 Logistics and Supplier Initiatives
– Transload facilities in key locations and increase in rail car fleet
– Reduce supplier costs – proppant costs down ~30%-40%, chemical costs down ~10%-25% and
third-party subcontractor rates down ~20%
 Working Capital
– Focus on improving working capital management
– Appropriately manage and maintain lower levels of inventory (sand, chemicals and spare parts)
© Calfrac Well Services Ltd.
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Workforce & Fixed Cost Optimization
 Canada
–
–
–
–
Reduced field workforce by ~60% from January 1, 2015
Fixed costs down ~50% from the end of 2014 (as at 12/31/2015)
Further compensation reductions as of January 1, 2016
Transportation group and the majority of frac and coiled tubing groups transitioned to variable pay
structure
– Closed Medicine Hat District
 U.S.
–
–
–
–
–
Reduced field workforce by ~70% from January 1, 2015
Fixed costs down ~60% from the end of 2014 (as at 12/31/2015)
Closed district in Arkansas
Temporarily suspended fracturing operations in San Antonio
Suspended all coiled tubing and cementing operations
© Calfrac Well Services Ltd.
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Latin America Operations
Neuquén, Argentina Frac Operation (2014). Calfrac Well Services Photo
© Calfrac Well Services Ltd.
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Argentina – Market Update
Calfrac Market Positioning
 One of the largest pressure pumping
companies in Argentina
 Customer expansion to IOCs and
domestic players
 First company to complete 12 fractures in
under 8 hours on a horizontal well
 Contracts based in USD
Argentina Fleet:
108,250 Horsepower
13 Cementing Crews
6 Coiled Tubing Crews
Market Outlook
 Country focused on reducing reliance on
imported energy
 Third fleet added in Q1/16
 Shift towards gas-focused activity
 Medium-to-longer term upside potential
following reforms by new President Macri
© Calfrac Well Services Ltd.
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Mexico – Market Update
Calfrac Market Positioning
 Long-term opportunity due to
Mexican energy industry reforms
– Low oil prices will limit
immediate impact
 Round One tenders are ongoing
Market Outlook
 Limited near-term activity
 Right-sized business to reflect
current activity levels
© Calfrac Well Services Ltd.
Mexico Fleet:
22,500 Horsepower
1 Coiled Tubing Crew
15
Russia Operations
Siberia, Russia Frac Crew (2006). Calfrac Well Services Photo
© Calfrac Well Services Ltd.
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Russian Operations
Russia Fleet:
7 Fracturing Spreads
70,000 Horsepower
7 Coiled Tubing Crews
© Calfrac Well Services Ltd.
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Russia – Market Update
Calfrac Market Positioning
 Horizontal fracturing in conventional reservoirs is a significant amount of Calfrac’s activity
 Small rouble-based pricing increases achieved in 2015
 Rouble devaluation has negatively impacted reported financial results
Market Outlook
 2016 activity expected to be down
modestly from 2015
 Change in customer mix
 Introduction of multi-stage annular
fracture treatments is a market
differentiator
© Calfrac Well Services Ltd.
Russia Fracturing Crew (2015). Calfrac Well Services Photo
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Committed To Safety, Quality And Flawless Execution
LICENSE TO OPERATE
© Calfrac Well Services Ltd.
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Our License to Operate
HSE
QUALITY
Plan ▪ Do ▪ Assess ▪ Adjust
Monitor ▪ Refine ▪ Execute ▪ Improve
TECHNOLOGY
Research ▪ Develop ▪ Test ▪ Refine
SUPPLY CHAIN
Evaluate ▪ Negotiate ▪ Finalize ▪ Implement
Calfrac employee on a Canadian hydraulic fracturing job. Calfrac Well Services Photo
© Calfrac Well Services Ltd.
Calfrac sand terminal in Whitecourt, Alberta. Calfrac Well Services Photo
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FINANCIAL HIGHLIGHTS
© Calfrac Well Services Ltd.
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The Balance Sheet
Term Debt
 US$600 mm with an interest rate of
7.5%
 Matures in 2020
Credit Facilities
 Recently renegotiated facility structure
and covenants
 Loan facility now $300 mm
 Facility matures in September 2018
Capital Program
 2016 capital budget set at $50 million
– Includes $35 mm of carryover
Neuquén, Argentina Frac Operation (2014). Calfrac Well Services Photo
© Calfrac Well Services Ltd.
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Relaxation Of Covenants
 Funded Debt/EBITDA covenant
amendments including two periods of
waivers
 Introduction of Equity Cure:
– Applicable up to December 31, 2017
– Not to exceed the greater of 50% of total EBITDA over the prior twelve month period
or $25 million per cure
– Positively impacts both EBITDA and Funded Debt
– Can be utilized twice during period of covenant relief
– Not be utilized in consecutive quarters
 The Total Debt to Capitalization ratio removed
 Funded Debt to Capitalization ratio introduced - 30% (does not include Calfrac’s
unsecured senior notes or any prospective second lien issuance)
© Calfrac Well Services Ltd.
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Amendments To Credit Facility
 A voluntary reduction in the Credit Facilities commitment from $400 mm to $300
mm
– Advances under the Credit Facilities will be limited by borrowing base based on North
American accounts receivable, cash on hand and fixed asset values
 Distributions will be restricted and no increase in dividends will be permitted
 A conditional increase in the accordion feature of the syndicated credit facility
(from $100 million to $200 million)
 Two pricing levels were added which will result in Calfrac paying higher fees for
advances and for standby fees
 Second lien financing of up to $400 million will be permitted, subject to certain
conditions, including the execution of a satisfactory intercreditor agreement
© Calfrac Well Services Ltd.
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Senior Note Indenture Considerations
 Offside our Fixed Charge Coverage Ratio (FCCR) but not in breach of covenants
or defaults
 Indenture restricts ability to incur additional debt or make certain restricted
payments when offside FCCR unless baskets available
– Number of baskets available to us
– The most relevant for the incurrence of indebtedness is the greater of $175 million or
30% of consolidated tangible assets (which was over $500 million as at 12/31/2015)
– US$20 million basket that allows for restricted payments (dividends, share buybacks,
etc.)
 We do not foresee an issue with either of these restrictions and believe we have
sufficient liquidity
© Calfrac Well Services Ltd.
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Ashley Connolly
Manager, Capital Markets
587-955-1704
[email protected]
www.calfrac.com