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Investor Presentation May 2017 | NYSE: FTK
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FORWARD LOOKING STATEMENTS DISCLAIMER & DISCLOSURES
Certain statements and information included in this presentation constitute “forward–looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on certain assumptions and analyses made by the Company’s management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate under the circumstances. These statements involve known and unknown risks and uncertainties, some of which are outlined in the Company’s most recent 10-K and subsequent 10-Qs, which may cause the actual performance of Flotek to be materially different from any future results expressed or
implied in this presentation and the forward-looking statements. Flotek undertakes no obligation to update any of its forward-looking statements for any reason. Contained in this slide deck are transactional and financial reporting information. In some cases, estimates or approximations may be used. While footnotes are intended to explain such cases, they may not be all inclusive in the procedures taken to report transactional or customer specific information.
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ABOUT FLOTEK: WHO WE ARE
Flotek® develops and delivers prescriptive chemistry-based technology, including specialty chemicals, to clients in the energy, consumer industrials and food & beverage industries.
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NYSE: FTK Recent Stock Price: $10.36 30 Day Average Market Cap: $690 mil. Average Trading Volume (LTM): 961,000 shares Outstanding Shares: 57.3 mil. Top 20 Owners: 81% Insider Ownership: 5%
Utilizing our focus on research and supply chain, our goal is to maximize the performance of oil and gas wells through the application of our proprietary chemistry in our clients’ reservoirs. We intend to capture our synergies and penetrate high margin opportunities in the consumer and industrial markets over time.
Sources: Ipreo BigDough Analytics, Bloomberg Note: All material contained in this slide deck represents continuing operations
• Growth of patented Complex nano-Fluid® (CnF®) technology coupled with a synergistic supply chain model and strong balance sheet provides for a robust cash flow outlook.
• Proven track record of business model innovation, industry-leading R&D capabilities and continued product re-investment.
• Benefitting from increasing well complexity and de-coupling of goods and services in energy.
• Streamlined business model to operators through the virtual Flotek StoreTM.
• Leader in utilizing data and cognitive learning: IBM Watson + Reservoir Cognitive ConsultantTM (RC2 TM).
• Focused on lowering G&A and expenses throughout 2017 in order to maximize cash flows.
• Citrus oil supply chain leadership, with high-margin growth initiatives in our consumer and industrial segment.
INVESTMENT THESIS
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Flotek is strategically positioned as a high-return, asset light, technology-focused chemistry Company with broadening end markets through cross-industry product expansion and adoption and growing market penetration.
Consumer and Industrial Chemistry Technologies (CICT)
Flotek’s Consumer and Industrial Chemistry Technologies delivers high-quality products that meet the demands of a variety of consumer and industrial applications.
• 2016 Revenues: $74.6 mil. (28% of total) • 2016 Op. Income: $9.7 mil. (25% of total)
• 1Q17 Revenues: $19.2 mil. (24% of total) • 1Q17 Op. Income: $3.7 (30% of total)
OPERATING SEGMENTS
Energy Chemistry Technologies (ECT) Flotek's Energy Chemistry Technologies division provides oilfield specialty chemicals and logistics as well reservoir characterization and petroleum engineering services to solve the toughest drilling, cementing, stimulation and production challenges.
• 2016 Revenues: $188.2 mil. (72% of total) • 2016 Op. Income: $29.0 mil. (75% of total)
• 1Q17 Revenues: $60.8 mil. (76% of total) • 1Q17 Op. Income: $8.5 (70% of total)
5 Note: Percentages above represent continuing operations
LOCATIONS AND GLOBAL REACH
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International Reach • Calgary, AB Canada, Offices/Chemistry Lab • Abu Dhabi, UAE, Regional Distribution • Dubai, UAE, Sales Office • Y-TEC Collaboration in Argentina • Collaboration with Anton in China • Global sales depicted in countries on map
Domestic Locations • Houston, TX – Headquarters, Research & Innovation • Marlow, OK – Chemistry Manufacturing/Testing • Winter Haven, FL – CICT, Florida Chemical • Waller, TX – Manufacturing, Logistics, Testing • Monahans, TX – Chemistry Testing, Logistics • Raceland, LA - Logistics • Dalton, GA – IPI, Guar
ENERGY CHEMISTRY TECHNOLOGIES (ECT)
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FAVORABLE MACRO TRENDS
-
400
800
1,200
1,600
2,000
EIA
, Mo
nth
ly D
PR
Reg
ion
s C
om
ple
tio
ns
Frac
Co
mp
lexi
ty
Time
Today
• Industry recovery underway, led by U.S. shale. • Technology and innovation are reducing break-evens. • Drill times, spacing, proppant loading are pushing the leading
edge– we expect complexity of fluid applications to accelerate.
Source: EIA Drilling Productivity Report
Flotek is uniquely positioned to benefit from a growing focus on fluid design and overall well complexity. We are experiencing a growing shift
in our clients needs for custom chemistry solutions.
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+$0.01
+$0.49
+$1.45
+$2.40
-$(0.23)
-$1.00
$0.00
$1.00
$2.00
$3.00
CnF Permian well+5% EUR
CnF Permian well+10% EUR
CnF Permian well+20% EUR
CnF Permian well+30% EUR
CnF Permian wellno uplift
Net
Pre
sen
t V
alu
e, 1
0%
Dis
cou
nt
($s
mill
ion
s)
Risk $ NPV Benefit/(Cost) Net Benefit/(Cost)
CnF®: WHAT IS IT, VALUE PROPOSITION The line of Complex nano-fluids® technologies offer a number of performance-enhancing features including solvency, contact angle which impacts wettability, outstanding demulsification properties, reduction of capillary pressures and interfacial tension (IFT) that all contribute to improved oil and gas production from a reservoir.
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22%
22%
25%
29%
34%
20%
10% 20% 30% 40%
Permian Well, NoCnF
CnF Permian well+5% EUR
CnF Permian well+10% EUR
CnF Permian well
+20% EUR
CnF Permian well+30% EUR
CnF Permian wellno uplift
Single Well IRR
Risk $ NPV Benefit/(Cost) Net Benefit/(Cost) IRR of Well
Permian Well, No CnF -$ -$ 21.7%
CnF Permian well +5% EUR 0.233$ 0.246$ 0.013$ 22.3%
CnF Permian well +10% EUR 0.233$ 0.724$ 0.491$ 24.5%
CnF Permian well +20% EUR 0.233$ 1.680$ 1.447$ 29.0%
CnF Permian well +30% EUR 0.233$ 2.636$ 2.403$ 33.6%
CnF Permian well no uplift 0.233$ (0.233)$ (0.233)$ 20.2%
• Hypothetical well attributes: • Base cost: $6.5 mil., with CnF: $6.75 mil. • 70% oil, 30% split NGLs/nat. gas. • 90-day IP: 796 Boepd– 1,500 Boepd (CnF, 30% uplift). • EUR: 750 Mboe – 950 Mboe.
Hypothetical Permian well sensitivity highlights the value proposition of CnF® for our clients.
CnF® can increase the well IRR from 22% to 34%, while risking only ~2%. The hypothetical
cost-benefit in NPV ranges from a loss of $(233K) to benefit of $2.4 mil. to the operator.
CHEMISTRY OFFERINGS, FOR THE LIFECYCLE
Initial frac and stimulation Remediation and re-treatment
• We have 50+ formulations of Complex nano-Fluid® (CnF®) technologies, and growing. • Of which, 30+ are regularly commercialized due to activity concentration.
• We offer 100+ chemistry solutions for all applications and demands, compatible in most fluid designs with our CnF®. • Of which 70+ are regularly commercialized.
• Our fluid design treatments can be applied in the initial frac through the full life-cycle of the well. • Our clients trust and depend on Flotek to deliver the right chemistry application to maximize their value and reservoir.
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GLOBAL ECT PRODUCT TRENDS
s
11
• Since the peak, EIA DPR region completions are down (59%) to 1Q17.
• Our Non-CnF revenues are down (50%) in the same time frame, despite challenging pricing.
• However, CnF® revenues have expanded 55%+ in the same timeframe.
• We believe the acceptance rates will grow as operators seek to enhance their well economics through technology.
Non-CnF ECT Revenues vs. Completions CnF® Revenues vs. Completions
Note: we compare our global ECT activity in this slide to US EIA DPR completions as 80%+ of our average revenues are derived domestically. Source: EIA Drilling Productivity Report
0
2000
4000
6000
$0
$60,000
EIA
DP
R R
egio
n C
om
ple
tio
ns
Rev
enu
e ($
s in
th
ou
san
ds)
US EIA DPR Completions (Right Axis) Non-CnF, ECT Revenue
0
2000
4000
6000
$0
$60,000
EIA
DP
R R
egio
n C
om
ple
tio
ns
Rev
enu
e ($
s in
th
ou
san
ds)
US EIA DPR Completions (Right Axis) CnF Revenue
-9% -5%
+38%
-55%
+123%
+37% +6%
-5%
-14% +2%
+10%
+25%
13% -1% 2%
-23%
-21%-7%
-21%
-21% -5% 7% -2%14%
-
1,000
2,000
3,000
4,000
5,000
6,000
0
4,000,000
Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17
EIA
DPR
Reg
ions
Com
plet
ions
Do
mes
tic
Cn
F® V
olu
mes
So
ld (
Ga
llon
s)
Domestic CnF Volume (Gallons) ** # of Completions*
CnF® DOMESTIC VOLUME GROWTH • Despite “premium” pricing compared to
less or even non-effective “competitive” products, CnF® volumes have consistently outgrown completion activity.
• Since the peak of oil prices in 3Q14, EIA DPR Completions are down 59% to today. Domestic CnF® volumes have expanded +125% since that time.
• Dedication to research and product innovation and maximizing our clients’ reservoir performance, combined with direct and transparent pricing through the “Flotek Store” have led to this success.
* Completions data from the EIA DPR report which provides data for the 7 major basins in the lower 48 states.
** CnF Gallons represents domestic activity only.
12 Source: EIA Drilling Productivity Report
Solid bars indicate introduction of Flotek store
Approaching 4 mil. gals
0
1000
2000
3000
4000
5000
6000
0%
50%
100%
EIA
DPR
Reg
ion
Com
plet
ions
Ma
jor
Cu
sto
mer
Qu
art
erly
Ret
enti
on
Ra
te
Major Domestic Customer Qtrly Retention Rate EIA DPR Completions
0
30
60
90
Un
iqu
e
Cn
F C
ust
om
ers
/Tra
nsa
ctio
ns
Domestic International
CnF® CLIENT TRENDS
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0%
50%
100%
CnF® Clients by Geography
% Domestic CnF® Volumes Direct to Operators
Major* Domestic CnF® Clients Retention Rates vs. Completions
While M&A may cause minor disruption, combined with reorganization/re-structurings, our major* client retention has averaged ~70% since late 2014. We
remain dedicated to our clients and believe it is our technology to credit.
Direct sales by volume are >50% for CnF®.
We expect growth of CnF® to continue to remain strong, both domestically and internationally.
Source: EIA Drilling Productivity Report *Note: Major clients are defined as purchasing >1% of LT quarterly average volumes of CnF ®.
Flotek’s nanotech technology was a game-changer for us in the Southern Delaware Basin. Without a doubt, it was an important driver in making our Pecos County acreage a success.”
– ERIC HOOVER, EVP OF OPERATIONS, BRIGHAM January 2017
“
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CONSUMER & INDUSTRIAL CHEMISTRY TECHNOLOGIES (CICT)
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• Citrus flavor molecules are in short supply, creating global market opportunities with beverage, flavor and fragrance companies. • Consumers are demanding natural flavors that are “from the named fruit” in beverages and foods. • Expansion into non-thermal manufacturing and varietal diversification will enhance growth opportunities. • Nutraceutical, pharmaceutical and agriculture present unique growth opportunities for Flotek. • Our supply chain sets us apart, with more end markets and technical capabilities to execute a market penetration strategy.
CONSUMER & INDUSTRIAL CHEMISTRY TECHNOLOGIES (CICT)
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CICT IS IDEALY POSITIONED
Oil & Gas
CnF®
Flavors
“Keys”
Agriculture
“CnF”®
Nutraceutical
“Keys” & “CnF”®
Industrial & Functional Fragrance
“Solvent”
• Our ability to utilize the entire citrus molecule, opens the door for new opportunities in markets we have not yet penetrated.
• We have the ability to leverage increasing energy market demand for d-Limonene in our patented CnF® technology as a competitive advantage in non-energy products.
• The combination of Florida Chemical with Flotek in 2013 is evolving from vertical integration strategy into synergistic revenue relationship.
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CICT MOVING ALONG THE VALUE CHAIN
ECT demand of d-Limonene for CnF® is only one component of
the citrus oil chain.
• We are positioned to begin moving further across the value chain, where other components can be utilized in higher margin end markets.
• Florida Chemical is a leader in orange oil processing globally.
• Due to our growing ability to utilize the different molecules which make up the citrus oil, we can look at higher margin opportunities and at lower cost points.
• We look forward to updating investors as our strategy is executed.
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COMMITMENT TO INNOVATION & PROTECTING OUR POSITIONING
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Our total filed and pending patent applications now number more than 75, including over 40 unique CnF® formulations demonstrating our commitment to continuing to be a leader in the specialty chemistry sector.
Our patent portfolio has continued to grow, with five more patents granted last year, bringing the total to more than a dozen grants.
*Flotek Industries, Inc. owns additional patents, trademarks, and copyright assets that are not chemistry related and are excluded from this overview.
INTELLECTUAL PROPERTY PORTFOLIO COMMITMENT TO INNOVATION:
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We remain focused on diligently protecting our shareholders and our technology through proactive IP.
This innovative business model provides a case study into our strategy beyond the chemistry which is an ongoing effort.
INNOVATIVE MODEL: FLOTEK STORETM 2014-2016 CASE STUDY
01
02
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The following graph shows the success of the Flotek StoreTM which has led the de-coupling of the chemistry purchase decision, and offered benefit to operators of all sizes and geographic locations.
*1Q14 contains March data only, from Drillinginfo. Sources: Drillinginfo, BHI Rig Count, Flotek
Despite a 68% drop in the U.S. rig count from early 2014 to late 2016, which subsequently led to the exit of a number of operators and drillers from the oil and gas industry, Flotek’s client base expanded, while CnF® volumes grew.
63% 48%
- 68%
- 32% - 29%
In April 2017, Flotek announced a global agreement with IBM to jointly develop greater capabilities to predict and apply custom chemistry and other approaches to enhance the performance of wells throughout their entire life-cycle, highlighting Flotek’s commitment to lead the effort of Big Data in the Oilfield and jointly create value for clients.
DATA & ANALYTICS COMMITMENT TO INNOVATION:
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Flotek’s Reservoir Cognitive ConsultantTM (RC2 TM) will analyze proprietary oilfield chemistry research, oil & gas client-contributed data and publicly reported sources.
TECHNOLOGY INVESTMENT GENERATES GROWTH
• In ECT, Flotek’s investments in new chemistry technology have meaningfully contributed to the segment’s revenue growth.
• Share of revenue from new technologies has surpassed our goal by a margin of more than 2:1.
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9%
24.80%
22.80%
0%
5%
10%
15%
20%
25%
30%
Goal 2015 2016
Share of ECT revenue from new technology
CONTACT US
CORPORATE HEADQUARTERS: 10603 W. Sam Houston Pkwy. N. Suite 300 Houston, TX 77064 MATT MARIETTA Senior Vice President Corporate Development, Investor Relations Flotek Industries Email: [email protected] Phone: (713) 726-5348
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