gasfrac investor presentation june 2010
TRANSCRIPT
June 2010
Forward-Looking Statement Advisory
Certain statements included in this presentation constitute forward looking statements or forward looking information under applicable securitieslegislation. Such forward looking statements or information are provided for the purpose of providing information about management’s currentexpectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for otherpurposes, such as making investment decisions. Forward looking statements or information typically contain statements with words such as“anticipate”, “believe”, “expect”, “plan”, “intend”, “estimate”, “propose”, “projected” or similar words suggesting future outcomes or statementsregarding an outlook. Forward looking statements or information in this presentation include, but are not limited to statements or information withrespect to: business strategy and objectives; development plan; capital expenditures; net revenue; cash flow; debt levels; operating and othercosts; and taxes.
Forward looking statements or information are based on a number of factors and assumptions which have been used to develop suchstatements and information but which may prove to be incorrect. Although GASFRAC Energy Services Inc. (the “Company”) believes that theexpectations reflected in such forward looking statements or information are reasonable, undue reliance should not be placed on forwardlooking statements because the Company can give no assurance that such expectations will prove to be correct. In addition to other factors andassumptions which may be identified in this presentation, assumptions have been made regarding, among other things: the impact of increasingcompetition; the general stability of the economic environment in which the Company operates; the timely receipt of any services in a timely andcost efficient manner; and the ability of the Company to obtain financing on acceptable terms. Readers are cautioned that the foregoing list isnot exhaustive of all factors and assumptions which have been used.
Forward looking statements or information are based on current expectations, estimates and projections that involve a number of risks anduncertainties which could cause actual results to differ materially from those anticipated by the Company and described in the forward lookingstatements or information. These risks and uncertainties which may cause actual results to differ materially from the forward looking statementsor information include, among other things: the ability of management to execute its business plan; general economic and business conditions;fluctuations in oil and natural gas prices, foreign currency exchange rates and interest rates; credit risk; health, safety and environmental risks;and uncertainties as to the availability and cost of financing. Readers are cautioned that the foregoing list is not exhaustive of all possible risksand uncertainties.
The forward looking statements or information contained in this presentation are made as of the date hereof and the Company undertakes noobligation to update publicly or revise any forward looking statements or information, whether as a result of new information, future events orotherwise unless required by applicable securities laws. The forward looking statements or information contained in this presentation areexpressly qualified by this cautionary statement.
Any financial outlook or future oriented financial information in this presentation, as defined by applicable securities legislation, has beenapproved by management of the Company. Such financial outlook or future oriented financial information is provided for the purpose ofproviding information about management’s current expectations and plans relating to the future. Readers are cautioned that reliance on suchinformation may not be appropriate for other purposes.
2
GASFRAC Overview
GASFRAC is a fracturing stimulation company which has commercialized new technology using Liquefied Propane Gas (“LPG”) as the fracturing fluid
LPG was approved as a fracturing fluid by the Energy Utility Board (“EUB”) in 2007 and GASFRAC began equipment design & construction; at this time Patent Filings were initiated
GASFRAC’s technology is a proprietary fracturing process with 10 patents pending and currently 7 applications in process
GASFRAC has proven that LPG fracturing delivers enhanced well productivity across many reservoirs
GASFRAC’s technology has resulted in increased reserves for oil and gas companies
GASFRAC has completed over 390 fracturing treatments and has consistently proven the technical and economic benefits of LPG fracturing technology
GASFRAC’s proprietary technology will allow it to continue to grow market share and generate premium margins and returns
3
Corporate History
Dwight Loree
started GASFRAC
(35 years in
fracturing
business)
Raised $3.5MM at
$1.00/share
Proceeds
GASFRAC raised
$24MM at
$1.80/share
Jan 2008, took
delivery of first
complete set of
equipment
First fracture
completed and
technology began
to be field proven
and accepted by oil
and gas producers
Technology
deemed a technical
and commercial
success
GASFRAC
demand greater
than equipment
available
GASFRAC raised
$59.5MM at
$4.25/share
Managed to grow in
very difficult
operating
environment
Continued to prove
technology in oil
and gas plays such
as Marcellus, Utica,
Viking, Montney,
etc.
Sept 2009, took
delivery of majority
of equipment from
2008 capital raise
Generated revenue
of $30MM in 2009
Generated $15.9
MM of revenue in
Q1 2010
Continues capital
expansion
Begins to establish
US presence
Proceeds
Fund initial
research and
concept design Equipment
design
Health and
safety
Gelation system
Patent
applications
Approval from
Energy and
Utilities Board
GASFRAC
commenced
construction of 2
fracturing spreads
Feb - Mar 2006 May - Dec 2007 Jan - Sept 2008 Sept 2008 2009 - 2010 (Q1)
Proceeds
Commenced
construction of
equipment
expansion
Generated revenue
of $23.5MM in
2008
4
Management
CEO: Dwight Loree
51 years of oil and gas service
experience
35 years of fracturing experience
Founder, GASFRAC 2006-current
Co-Founder, Trysol Inc., fracture fluid manufacturer 1987-2000
Founder, Wild Mount Resources, oil and gas company 1988-1991
Founding Partner, Canadian Fracmaster Ltd. 1975-1985
Sales Manager, Nowsco Well 1970-1975
Operations and sales, Dresser Eskimo 1959-1969
COO - Canada: Reid MacDonald
35 years of oil and gas industry
experience
Vice President, Airborne Energy Solutions
Vice President, Crown Industries Inc., stimulation equipment manufacturer
CEO, Aker Maritime Canada, stimulation equipment manufacturer
23 years Nowsco Well Services (now BJ Services Canada), domestic and
international operations
COO - United
States:Audis Byrd
30 years of oil and gas completions
and fracturing experience
10 years in Research & Development, Halliburton
15.5 years in Technical sales and operations, Halliburton
3.5 years in Engineering Completions Advisor, EOG Resources
Multiple patents issued and trade journal articles written
CFO: James Hill
28 years of oil and gas financial
management experience
21 years in the oil well service
sector
President, HSE Integrated
CFO, Complete Production Services
CFO, DALSA Corporation
CFO, Canadian FracMaster
Director / Internal Audit, Nowsco Well Services Ltd.
VP -
Engineering:Eric Tudor
23 years of fracturing experience
8 years at BJ Services Canada
12 years at Canadian Fracmaster
VP - Cdn
Operations:Vic Fordyce 32 years in fracturing operations management
VP - US
Operations:Emmett Capt 30 years in operational and completion management
- More Detailed Bio’s in Appendix A -
5
Board of Directors
Chairman: Gerald Roe
BSc Mechanical Engineering
Orca Petroleum
Trilogy Resources
Sundance Oil
Eurasia Gold
Director: Dwight Loree CEO, GASFRAC
Director: Robert MaitlandCA, ICD.D
Director, Profound Energy Inc.
Director, Paramount Energy Operator Corp.
CFO, Director, Fairquest Energy Inc.
CFO, Fairborne Energy Ltd.
CFO, Pan East Petroleum Corp.
Director: Leo SchnitzlerBSc Mechanical Engineering
President, Lookout Enterprises Ltd. (Private)
Atlantic Richfield
Petro-Canada
Frontier Engineering
Passburg Petroleum
Director: Dale BossertBSc Mechanical Engineering
Amoco
Union Pacific
Celsius Energy
Director: Robbie Roberts Founder & Chief Operating Officer, CalFrac Well Services
Former President, CalFrac Offshore Ltd.
Former Executive VP Operations, Director and Partner of Canadian
Fracmaster
Former Director, Uganst Fracmaster
Former Director, Samotlor Services
Former Director, Vahk Fracmaster
- More Detailed Bio’s in Appendix A -
6
GASFRAC Process and Equipment Overview
Nitrogen support
LPG Bulkers - 73 m3 capacity Nitrogen support
Chemical Addition
2500 HP LPG Frac Pumpers
1 of 100 T Proppant Blender
1 of 32 T Proppant Blender
7
Why Use Propane?
Enhances well productivity and provides higher returns for oil and gas
producers
Positive effect on oil and gas reserve estimates
LPG purity eliminates possible reservoir contamination
Proven in many oil and gas reservoirs
Environmentally friendly and sustainable (no requirement for water, limited flaring)
Proven to be safe
8
Enhanced Well Productivity
Fracture effectiveness is measured in effective fracture length (Surface Area)
LPG is a formation compatible fracture fluid and is naturally occurring in the reservoir
No water damage to formation; water or oil cause considerable damage
Produces more effective formation fracture length (no fluid blockage of fractures)
Typically less than 50% of conventional fracture fluids are recovered from the well
Capture initial flush production due to less flaring with fast fracture fluid recovery
Faster clean up due to underbalanced nature of LPG fluids
Excellent fluid for tight oil reservoirs due to LPG thinning oil in the reservoir
LPG is compatible with both oil and gas reservoirs
Low surface tension of LPG makes it clean up faster and better than conventional fluids
9
Frac Length and Production Impact
Initial Production – 750 mcf/d
Conventional Frac
Well Loading Requiring Well
Intervention
Coil Tubing 2 x $25K = $50K
Fluid Clean Up to Flare With Conventional
Water/Oil Frac
12 days x $6K = $72K
GASFRAC Conventional Frac
Initial Production – 1,400 mcf/d
LPG Frac
10
LPG Fracture Production and Economic Impact
Incremental Rate/Production From
100% Effective Fracture Length
Accelerated Recovery
20% Increased rate over 3 years
results in a NPV10 of $400K
Incremental Reserves from 100%
Effective Fracture Length
Incremental Revenue from Zero Flare and
Rapid Clean-up: $57K + $72K = $129K
Assuming $4.00/mcf
GASFRAC Conventional Frac
Flared: $72K in
Lost Revenue
Gas Produced in
First 12 Days: $57K
750 mcf/d
1,400 mcf/d
11
VantageTM LPG Frac Applications - Oil
23 Years
16 T LPG
Stimulation
Doe Creek Oil
16% Incremental Reserves :
283K – 243K = 39K BOE
39K BOE X $60 = $2.3MM!
(5 Months)
12
Environmental
LPG fracturing is a sustainable process for oil & gas operators by using
products they produce to produce more hydrocarbons
LPG fracturing eliminates the use of millions of gallons of potable water per
well
LPG reduces the need to flare production to clean up the traditional fracturing
fluids, eliminating thousands of tons of CO2 emissions; this, in turn, generates
carbon credits that have a substantial dollar value
Eliminates the disposal of millions of gallons of non-potable fracturing water
Eliminates the need for biocides (insecticides) that are required in fracturing
13
Health and Safety
Equipment and operating procedures meet or exceed industry standards for
handling of LPG
Pumping of Flammable Fluids: Industry Recommended Practice (IRP) Volume
8-2002 and NFPA 58 “Liquefied Petroleum Gas Code”
Continuously updating Independent Hazard and Operability Studies
performed by SIGMA Risk Management Inc. and Hood Engineering
The recommendations are incorporated into the equipment design and
operating procedures to mitigate/eliminate potential risks
We have conducted fracture treatments in the following jurisdictions: Alberta,
British Columbia, Saskatchewan, Quebec, New Brunswick and Pennsylvania
GASFRAC has the same insurance rating as conventional water frac
companies
14
GASFRAC has developed top tier clients reflecting the broad acceptance of the
technology
Apache
Corridor Resources
Devon
Caltex
Husky Energy
Yangarra
GASFRAC has built its revenue base without customer concentration. In 2009 no
single customer accounted for more than 20% of GASFRAC’s revenue
GASFRAC Developed Top Tier Client list
Combined revenue
share of customers
not within top 8
Murphy Oil
Nexen
Paramount Resources
Trilogy
TAQA North
30%
15
LPG Fractures Proven on Majority of Formations
GASFRAC has completed fracture treatments on both oil and gas formations.
Successful treatments have been completed on the following formations:
- Alberta - Cardium - Mannville - Upper Foremost Belly
- Artex - Charlie Niobrara - Marcellus Shale River
- Bakken - Chinkeh - Milk River - Upper Colorado Shale
- Basal Colorado - Chinook - Montney - Utica Shale
- Basal Quartz - Dinosaur Park - Muskwa - Viking
- Base Fish Scales - Doe Creek - Nikanassin - Wilrich
- Beaverhill Lake - Doig - Notikewin - Fredrick Brook Shale
- Belloy - Dunvegan - Ostracod (New Brunswick)
- Belly River - Edmonton - Paddy
- Blue Sky - Ellerslie - Rock Creek
- Bow Island - Falher - Second White Specks
- Braeburn - Gething - Shale
- Cadomin - Glauconite - Sparky
- Cadotte - Halfway - Spirit River
16
Market Focus / Segment
Gas - Oil Formations Q1 2010
50%
39%
11%
Gas Well Gas Well with NGL Oil
Target
30%
40%
30%
Gas Well Gas Well with NGL Oil
Gas - Oil Formations Stimulated to Date
7%
26%
67%
Gas Well Gas Well with NGL Oil
17
Key to GASFRAC Growth
GASFRAC has identified industry trends and positioned itself to capitalize on them
Industry GASFRAC
Multi-stage frac’s
Multi-zone and horizontal frac’s
Overall increase in wells completed
utilizing fracturing
Push from E&P companies to
produce more from single well
Utilize technology to enhance
production beyond traditional levels
Are able to operate in majority of
formations
Effective in conventional and
unconventional reservoirs
Work for horizontal and vertical
wells
Especially effective in difficult
formations
Tight sands
Shale
Water sensitive
Low pressure
Effective on depleted reservoirs
18
Equipment Capital
Sand Storage
3 x 100 tonne
Fracturing Pumpers
4 pumpers
LPG Storage
10 tanks
Nitrogen Pumpers
1 pumper
Truck Tractors
13 units
Ordered Equipment
Using 2010 CF
Sand Storage
3 x 100 tonne
Fracturing Pumpers
17 pumpers
LPG Storage
53 tanks
Nitrogen Pumpers
5 pumpers
Propane Recovery
3 units
Truck Tractors
52 units
Miscellaneous Boost Pumps,
Trailers, Chemical Vans, Data
Vans
Capital Expansion with
New Equity
Capital Cost $14 MM Capital Cost $100 MM
Source of Funds:
Cash Flow $14 MM
Equity $0 MM
Debt $0 MM
$14 MM
Cash Flow $4 MM
Equity (net) $61 MM
Debt $35 MM
$100 MM
19
Balance Sheet and Capital Structure
($000) (000)
Current Assets 23,509 Basic common shares O/S 33,501
Capital Assets 68,714 Warrants 1
2,340
Total Assets $92,223 Options 2
2,552
Fully Diluted 38,393
Current Liabilities 5,692
Long Term Debt 1
0 Notes:
Shareholder Equity 86,5311 Warrant average exercise price is $1.36.
Total Liability and Equity $92,2232 Option average exercise price is $3.17.
Working Capital $17,819 Directors and officers own approximately 9%.
Working Capital in Days of 2010
Revenue 2
70.1 Days
Notes:
Balance Sheet - March 31, 2010
1 Company does not have any debt as at March 31,
2010. It intends to add $35 MM of long term debt as
part of $100 MM capital equipment expansion. This
facility has been put in place. In addition,
GASFRAC will have a $15 MM operating facility.
2 This working capital level is consistent with what
is generally required in the industry.
Share Capital
20
Why Invest in GASFRAC
Proven and accepted technology
Provides key services to growing multi-stage fracturing completion process
Proprietary LPG technology causes:
Elimination of need for water and related infrastructure during fracturing
Enhanced well productivity
Possible reserve revisions
Customer demand outweighs equipment availability
Strong proven management team and Board of Directors
Strong balance sheet
“Thank You for listening to the GASFRAC story.”
21
New Brunswick,
2009
Pennsylvania, 2009
Alberta, May 2008
Alberta Oct, 2009
Control
Centre
(Data Van)
22
Appendix A – Detailed Management Biographies
23
Management
Dwight Loree, President & CEO, Founder
Dresser Eskimo, Operations and Sales (1959 to 1969)
NOWSCO, Sales Manager (1970 to 1975)
Recognized as #1 sales representative and major contributor to new product
development, market introduction and systemization of “Foam Fracturing”
Canadian Fracmaster Ltd., Partner and Sr. Vice President (1975 to 1985)
One of two founding members with responsibilities for co-ordination of general
operations, sales and marketing delivering 4 year sales growth of $300 million and a
staff of over 700
Founder of Wild Mount Resources (1988 to 1991)
Sold company to Trilogy Resources in 1991
Trysol Inc., Founder, Owner and President (1987 to 2001)
Manufacturer and refiner of fracture oils and drill oils; sold to Enerchem
Responsible for co-ordination of general operations, sales and marketing
24
Management (continued)
Reid MacDonald, Executive Vice President & Chief Operating Officer, GASFRAC
Energy Services Inc.
35 years oil and gas industry experience
23 years Nowsco Well Service Ltd., domestic, international offshore and onshore
operations
President & CEO, Aker Maritime Canada
Vice President, Crown Industries Inc.
Vice President, Airborne Energy Solutions
Vice President & GM, Nabors Blue Sky Ltd.
Audis Byrd, Executive Vice President & Chief Operating Officer, GASFRAC Inc.
30 years experience in oil and gas industry management and technology for well construction,
completions, fracturing and field operations
10 years Research & Development, Halliburton
15.5 years senior operations and technical sales management, Halliburton
3.5 years EOG Resources, Engineering Completions Advisor
12 US Patents Issued
Multiple SPE Papers and Trade Journal Articles
25
Management (continued)
James Hill, CA, Chief Financial Officer, GASFRAC Energy Services Inc.
28 years of financial and operational management experience in the oil and gas industry
21 years in the well servicing sector
President, HSE Integrated
CFO, Complete Production Services
CFO, DALSA Corporation
CFO, Canadian FracMaster
Director / Internal Audit, Nowsco Well service Ltd.
Eric Tudor, P.Eng, Vice President Engineering, GASFRAC Energy Services Inc.
23 years of technical and sales experience in well fracturing business
12 years Fracmaster
8 years BJ Services
3 years GASFRAC Energy Services Inc.
26
Management (continued)
Frank Oriold, Business Development Manager, GASFRAC Energy Services Inc.
34 years of Business Development experience in the well servicing business
Vic Fordyce, Vice President, Operations, GASFRAC Energy Services Inc.
32 years of operational and management experience in the well fracturing business
Emmett Capt, Vice President US Operations, GASFRAC Inc.
30 years of operational and management experience in well completions and operations
27
Appendix B – Maps of Treatment Locations
28
GASFRAC’s Treatment Locations Through March 2010
29
GASFRAC’s Treatment Locations In Western Canada
30
Appendix C – Technical Details
31
Viscosity Comparison
-0.5
0
0.5
1
1.5
2
2.5
3
0 20 40 60 80 100 120 140 160
Vis
cosi
ty (
cP)
Temperature (°C)
WATER
100% BUTANE50% PROPANE - BUTANE100% PROPANE
40% METHONAL WATER
40 API CARDIUM LIVE OIL
50% - 40 API CARDIUM LIVE OIL / 50% PROPANE
50% - 40 API CARDIUM LIVE OIL / 50% FRAC OIL
FRAC OIL
NATURAL GAS
Features of Reduced Viscosity:
• An order of magnitude reduction in viscosity results in
an order of magnitude reduction in the pressure
required to move the same volume of fluid through a
porous media.
Benefits of Reduced Viscosity:
• Greatly improves post fracture treatment fluid recovery
that will maximize the effective fracture length and
result in accelerated production and incremental
reserves.
32
Surface Tension Comparison
-10
0
10
20
30
40
50
60
70
80
0 20 40 60 80 100 120 140 160
Surf
ace
Te
nsi
on
(d
yn/c
m)
Temperature (°C)
WATER
100% BUTANE
50% PROPANE - BUTANE100% PROPANE
40 % METHANOL WATER
40 API CARDIUM LIVE OIL40 API CARDIUM LIVE OIL / 50% PROPANE
40 API CARDIUM LIVE OIL / 50% FRAC OILFRAC OIL
NATURAL GAS
Features of Reduced Surface Tension:
• Surface Tension of the treatment fluid is directly
proportional to Capillary Threshold Pressure or
differential pressure required to mobilize fracturing fluid
during cleanup.
Benefits of Reduced Surface Tension:
• Greatly improves post fracture treatment fluid recovery
that will maximize the effective fracture length and
results in accelerated production and incremental
reserves.