Upload
others
View
2
Download
0
Embed Size (px)
Citation preview
Investor Presentation November 2017 | NYSE: FTK
1
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.
2
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.
NYSE: FTK Recent Stock Price: $4.57 30 Day Average Market Cap: $274 mil. 30 Day Average Trading Volume: 1,018,927 shares Outstanding Shares: 56.8 mil. Top 20 Owners: 70% 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, FactSet Note: All material contained in this slide deck represents continuing operations
3
Divest Drilling Technologies and Production Technologies.
Rationalize fixed costs, lower Corporate and segment SG&A.
Maximize cash flow of the enterprise.
Enhance borrowing abilities, maximize financial flexibility.
Pay off Term Loan and balance on Credit Facility.
Assess and balance Company-wide organic growth and inorganic growth opportunities.
Assess opportunity for long term stock repurchase program.
ONGOING STRATEGIC INITIATIVES
Flotek continues to position itself to generate free cash flows and maximize shareholder value.
4
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)
• 3Q17 Revenues: $18.3 mil. (23% of total) • 3Q17 Op. Income: $1.0 (13% of total)
OPERATING SEGMENTS
Energy Chemistry Technologies (ECT) Flotek's Energy Chemistry Technologies division provides oilfield specialty chemicals and logistics as well as 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)
• 3Q17 Revenues: $61.2 mil. (77% of total) • 3Q17 Op. Income: $6.5 mil. (87% of total)
Note: Percentages above represent continuing operations 5
LOCATIONS AND GLOBAL REACH
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 • Japan – New CICT Sales Facility • Global sales depicted in countries on map
Domestic Locations • Houston, TX – Headquarters, Research & Innovation • Winter Haven, FL – CICT, Florida Chemical • Marlow, OK – Chemistry Manufacturing/QAQC • Waller, TX – Manufacturing, Logistics, Testing • Monahans, TX – Chemistry Testing, Logistics • Raceland, LA - Logistics • Dalton, GA – IPI, Guar • Canonsburg, PA – Logistics, Inventory, Sales 6
ENERGY CHEMISTRY TECHNOLOGIES (ECT)
7
FAVORABLE MACRO TRENDS Fr
ac C
om
ple
xity
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.
8
EIA DPR Completions
-
400
800
1,200
1,600
2,000
2,400
Jan
-14
Ap
r-1
4
Jul-
14
Oct
-14
Jan
-15
Ap
r-1
5
Jul-
15
Oct
-15
Jan
-16
Ap
r-1
6
Jul-
16
Oct
-16
Jan
-17
Ap
r-1
7
Jul-
17EI
A,
Mo
nth
ly D
PR
Reg
ion
s C
om
ple
tio
ns
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.
9
10 Sources: DrillingInfo
EXPANSIVE FOOTPRINT ACROSS MOST ACTIVE REGIONS
New Leased Facility – Canonsburg, PA
COMPLEX NANO-FLUID® (“CnF®”) TECHNOLOGY VS. CONVENTIONAL SURFACTANT: INCREASING CONNECTIVITY
Conventional Surfactant Surfactant Strands
Oil soluble portion
Surfactant Components
Water soluble portion
• Typically incorporate only capillary pressure or demulsification
• Larger size inhibits broader distribution: 10 nm-5000 nm
CnF® Composition Solvent Core: Made from orange oils to increase mobility
Multiple Surfactant Types: Impact capillary pressure and demulsification
Patented & customized to incorporate capillary pressure, demulsification & solvency
Efficient & effective delivery of all properties to every reservoir surface
Increase connectivity in the reservoir Smaller size to facilitate delivery: 10
nm-100 nm
11
Source: SPE 125248
CnF®: DELIVERING CAPILLARY PRESSURE, DEMULSIFICATION & SOLVENCY TO THE RESERVOIR
12
Water Phase
Hydrocarbon Layer
Reservoir Face
CnF® traveling through the
reservoir matrix
CnF® interaction with reservoir fluids
CnF® delivery to reservoir fluids and reservoir surface
Source: UrTeC:2154925, “Insights into Mobilization of Shale Oil using Microemulsion”
-
10
20
30
40
50
60
70
80
90
100
Per mil. lbs Proppant Per Thou. Lat. Perforated Ft.
Ave
rage
36
5-D
ay O
il P
rod
uct
ion
Offset Wells CnF® Wells
76%
12%
13
CnF®: QUANTIFYING THE UPLIFT POTENTIAL • In a Delaware Basin Case Study, CnF® wells showed
a 12% increase and a 76% increase in daily oil production rates through the first year of a well’s life when normalized for proppant and normalized for lateral length, respectively, vs. offset wells.
• Average EUR’s were 19% higher in CnF® wells vs. offset wells*.
• Using a 500 mboe base EUR well (75% oil), a 19% uplift in EUR at $50 WTI/$2.75 NYMEX flat pricing resulted in a $1.4 mil. increase in NPV per well**.
• In a hypothetical 50k acre Delaware position targeting 3 benches with 1,280 acre spacing, we estimate NPV uplift potential to be >$120 mil., or >$2,400/acre.
Source: Individual Well Data Provided by Client
19% EUR Uplift $2,450/Acre Added NPV
*EUR values sourced from DrillingInfo. **Our well economics assume $1.50/bbl and $0.30/Mcf variable LOE, $22.5k/month fixed LOE and $6.5 mil. D&C. EURs based on 30-year well life but shut-in if LOE/boe > Rev ($)/boe.
1-Year Avg. Daily Oil Production Rates
• Our customized PCM™ offering delivers significant value to our clients by establishing a complete chemistry experience at direct-to-consumer economics.
• PCM™ creates more permanent relationships and CnF® selling opportunities, adds to our database and provides greater scale. • Increased uptake of PCM™ offering will result in lower gross margins, but accretive to Company cash flow and EBITDA. • PCM™ platform can reduce our clients’ chemistry spend by ~33%, or ~5% of total well cost, on a $6.5 mil. base well.
14
PRESCRIPTIVE CHEMISTRY MANAGEMENT™ (PCM™) OPPORTUNITY
Base STACK/SCOOP Well – CnF® Only STACK/SCOOP Well – PCM™ w/ CnF®
Our PCM™ platform is opening the opportunity to capture more of the overall well spend (from 3% to 14%), while also reducing the total well cost by (5%) in our STACK/SCOOP well example.
Total Well Cost: $6,500,000 CnF® Opportunity:
$225,000
Total Well Cost: $6,200,000 PCMTM Opportunity: $875,000
PCM™ is expanding our
opportunity set from CnF® leading jobs to
encompass our full suite of chemistry solutions
3%
33%
64%
CnF® Only
Drilling
Completion
14%
33%53%
PCM w/CnF®
Drilling
Completion
TM
GLOBAL ECT PRODUCT TRENDS
s
• From 2Q14 to 3Q17, EIA DPR region completions are down (45%).
• Our Conventional Chemistry revenues are down (36%) in the same timeframe, despite challenging pricing.
• However, CnF® revenues have expanded 40% in the same timeframe.
• We believe the acceptance rates will grow as operators seek to enhance their well economics through technology.
Conventional Chemistry 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
15
-
5,000
10,000
15,000
20,000
25,000
$-
$160
2014 2015 2016 2017 YTD
EIA
DP
R R
egio
n C
om
ple
tio
ns
Rev
enu
e ($
s in
mill
ion
)Conventional ECT Revenue (Left Axis) US EIA DPR Completions (Right Axis)
-
5,000
10,000
15,000
20,000
25,000
$-
$160
2014 2015 2016 2017 YTD
EIA
DP
R R
egio
n C
om
ple
tio
ns
Rev
enu
e ($
s in
mill
ion
)
CnF® Revenue (Left Axis) US EIA DPR Completions (Right Axis)
-9% -5%
38%
-55%
123%
37%6%
-5%
-14% 2%
10%
25%
6%
-18%12% 0% 1%
-23%
-23%-5%
-20%
-21% -6%12% 5% 6%
18%12%
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
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 Q2 17 Q3 17
EIA
DP
R R
eg
ion
s C
om
ple
tio
ns
Do
mes
tic
Cn
F® V
olu
mes
So
ld (
Ga
llon
s)
Domestic CnF® Volume (Gallons) ** # of Completions*
CnF® DOMESTIC VOLUME GROWTH • CnF® volumes have shown consistent
growth through the downturn, even as operators have focused on cost reduction.
• Since the peak of oil prices in 3Q14, EIA DPR Completions are down ~45%. Domestic CnF® volumes have expanded 100% since that time.
• Dedication to research and product innovation and maximizing our clients’ reservoir performance, combined with direct and transparent pricing through the “Flotek StoreTM,” has led to this success.
* Completions data from the latest EIA DPR report which provides data for the 7 major basins in the lower 48 states.
** CnF® Gallons represents domestic activity only.
Source: EIA Drilling Productivity Report
Solid bars indicate introduction of Flotek StoreTM
Approaching 4 mil. gals
16
0
30
60
90
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
3Q
17
Un
iqu
e C
nF
Cu
sto
mer
s/Tr
an
sact
ion
s
Domestic International
0.0%
50.0%
100.0%
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
CnF® CLIENT TRENDS
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-structuring's, our major* client retention has averaged >75% 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®.
Source: EIA Drilling Productivity Report *Note: Major clients are defined as purchasing >1% of LT quarterly average volumes of CnF® within trailing 6 month period. 17
-
1,000
2,000
3,000
4,000
5,000
6,000
0%
25%
50%
75%
100%
EIA
DP
R R
egio
n C
om
ple
tio
ns
Ma
jor
Cu
sto
mer
Qu
art
erly
Ret
enti
on
Ra
te
Major Domestic Qtrly Retention Rate EIA DPR Completions
CONSUMER & INDUSTRIAL CHEMISTRY TECHNOLOGIES (CICT)
18
• Citrus flavor molecules have been 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)
19
Oil & Gas
Flavors
Agriculture Nutraceutical
Industrial & Functional Fragrance
CICT IS IDEALLY POSITIONED
• 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.
20
Vertical Opportunities
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.
21
COMMITMENT TO INNOVATION & PROTECTING OUR POSITIONING
22
Our portfolio covers more than 40 unique CnF® formulations, demonstrating our continuing commitment to lead the specialty chemistry sector.
Our patent portfolio has continued to grow, with 3 patents granted this year, and at least 10 more patents expected to issue later this year or early next year. Our portfolio contains 25 patents and 86 pending patent applications.
PATENT PORTFOLIO COMMITMENT TO INNOVATION:
We remain focused on diligently protecting our shareholders and our technology through proactive IP.
23
The numbers in the chart above are representative of data captured through November 10, 2017.
Flotek Chemistry, LLC, 98
Eclipse IOR Services, LLC, 4
Flotek Industries, Inc., 7
Florida Chemical Company, Inc., 2
TOTAL
111
Total Patent Assets
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:
Flotek’s Reservoir Cognitive ConsultantTM (RC2 TM) will analyze proprietary oilfield chemistry research, oil & gas client-contributed data and publicly reported sources.
24
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. 9%
24.80%
22.80%
0%
5%
10%
15%
20%
25%
30%
Goal 2015 2016
Share of ECT revenue from new technology
25
APPENDIX
26
+$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-Fluid® technologies offers 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.
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.
27
28
CnF®: UNLOCKING THE OIL IN THE PERMIAN • In a case study in the Delaware basin analyzing 15 wells (9 CnF® wells, 6 offset wells) targeting the Wolfcamp A and B,
CnF® well oil production meaningfully outperformed offset wells during the first 12 months of production. • When normalized per million pounds of proppant used, oil production rates averaged 11%-14% higher in the first year. • When normalized per foot of lateral perforated interval, oil production rates averaged 74%-79% higher in the first year.
CnF® Wells Normalized for Proppant CnF® Wells Normalized for Perf. Lat. Ft.
Source: Individual Well Data Provided by Client
CnF® meaningfully outperformed offset wells for a client who tested and properly applied their customized CnF® chemistry solution.
-
10
20
30
40
50
60
70
80
90
100
30 Day Rate 90 Day Rate 180 Day Rate 365 Day Rate
Avg
. O
il P
rod
uct
ion
Rat
e p
er
mil.
lb
s P
rop
pan
t
Offset Wells Oil Production CnF® Wells Oil Production
11%
11%
14%
12%
-
20
40
60
80
100
120
140
160
180
200
30 Day Rate 90 Day Rate 180 Day Rate 365 Day Rate
Avg
. O
il P
rod
uct
ion
Rat
e p
er
Tho
u.
Late
ral P
erf
ora
ted
Ft.
Offset Wells Oil Production CnF® Wells Oil Production
74%
76%
79%
76%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
Unique CnF®Purchasers
CnF® Volumes(mil. gals)
U.S. Land RigCount
Unique NAMOperators*
Unique NAMDrillers*
% G
row
th (
Dec
line)
fro
m 1
Q1
4 to
4Q
16
This innovative business model provides a case study into our strategy beyond the chemistry which is an ongoing effort.
FLOTEK STORETM 2014-2016 CASE STUDY
01
02
The following graph shows the success of the Flotek StoreTM which has led the de-coupling of the chemistry purchase decision, and benefitted 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%
29
Snapshot Comparison: 2014 - 2016
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
30