strategies produced for today and tomorrow … · 2015 2016 strip 2016 nbf wti us$49.79 us$49.53...
TRANSCRIPT
Presented by:
Date:
David Yager, National Leader Oilfield Services
November 2015
Strategies Produced for
Today and Tomorrow
State of the Canadian Oilfield
Services Industry and 2016
Forecasts
Rig photos courtesy of Beaver Drilling Ltd.
Page 2
Program
1. What is Oilfield Services?
2. Where have we been?
3. How did we get here?
4. Where are we going?
5. How should OFS manage its
business in a challenging market
environment
6. About MNP
Page 3
What is Oilfield Service?
E&P company seeks to
develop an oil or gas
reservoir
Delivery of oil or gas to refinery
terminal or pipeline access
facility
1. Exploration
2. Engineering & Consulting
3. Construction
4. Transportation
5. Drilling & Service Rigs
6. Wellhead Services
7. Downhole Tools
8. Equipment Rentals
9. Equipment Supply
10.Logistics
11.Fabrication & Manufacturing
12.Production
All the products and
services an oil company
does not supply itself
Page 4
1 Exploration
2 Engineering
3 Construction
4 Transportation
5 Drilling & Service Rigs
6 Wellhead Services7 Downhole Tools
8 Equipment Rentals
9 Equipment Supply
10 Logistics
11 Fabrication,
Manufacturing
12 Production
OILFIELD SERVICES
Major subsectors in
the Exploration &
Production process
from early stage
investment to
commercial
development
MNP Oilfield Services Subsectors Through
Oil and Gas Development Investment Cycle
Page 5
Sources of Revenue for OFS
WHERE DO PRODUCERS GET THEIR MONEY?
• Cashflow from oil and gas production sales (net of operating expenses)
• E&P capital inflows (debt, equity)
WHERE DO OFS COMPANIES GETS THEIR MONEY
• E&P Capital Expenditures (CAPEX)
• E&P operating costs
• Service sector CAPEX
Page 6
Production Volumes
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
20
10
2011
2012
2013
2014
Oil/Liquids
Bitumen
Gas
Total
SOURCE: ARC Financial
Millions of Barrels of Oil or Natural Gas Liquids
Millions of Barrels of Oil Equivalent of Gas (@ 6:1) Per Day
Page 7
Revenue/Cashflow 1998 - 2015
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
$160.0
1998
1999
2000
2001
2002
2003
2004
2005
2006
20
07
2008
2009
2010
2011
2012
2013
2014
2015
Billions of $ Cdn – (Estimates 2014 & 2015)
SOURCE: ARC Financial Sep 15/15
Record Year
Page 8
CAPEX Conventional/Oilsands 1998 - 2015
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
$40.0
$45.0
$50.0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Billions of $Cdn – (Estimate 2014, 2015)
SOURCE: ARC Financial Sep 15/15
10 Yr. Av Conv. CAPEX
Page 9
$0
$10
$20
$30
$40
$50
$60
199
1
199
2
199
3
199
4
199
5
19
96
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
20
05
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
Production
Value
SOURCE: CAPP, ARC
YAHOO!
The Gas Boom – 2000 to 2008
Billions of dollars of revenue
Billions of cubic feet per day
Page 10
The Oilsands Boom – 1998 to 2014
$0
$10
$20
$30
$40
$50
$60
$70
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
20
08
2009
2010
2011
2012
2013
2014
Value of Oilsands Production, $Billions Per Year
20X increase in 17 years!
SOURCE: CAPP Actual to 2013, ARC Financial Estimate 2014
Page 11
Production Operating Costs
0
5,000
10,000
15,000
20,000
25,000
30,000
1998
1999
2000
2001
2002
2003
2004
20
05
2006
2007
2008
2009
2010
2011
20
12
2013
2014
Conventional
Oilsands
Billions of Dollars
Oilsands exceeded
conventional for the
first time in 2011
SOURCE: CAPP
1998 - $8.3 billion
2014 - $45.5 billion
Page 12
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
180.0%
200.0%
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Equity/Debt InflowsRoyalty Trust Era
Reinvestment Ratio: CAPEX/After-Tax Cashflow
(Estimates 2014, 2015)
SOURCE: ARC Financial Sep 15/15
Oil
Price
Co
llap
se
Oil
Price
Co
llap
se
Oil
Price
Co
llap
se
Oil
Hits $
14
7
Page 13
Why The Price Of Oil Tanked
Q3 2014 Q4 2014 Q1 2015 Q2 2015
Supply mmb/d 94.17 95.28 95.03 96.31
Demand mmd/d 93.26 93.91 93.55 93.74
Surplus mmb/d 0.91 1.37 1.48 2.57
Average WTI Price US$97.78 US$73.16 US$48.54 US$57.84
Source: International Energy Agency
Page 14
Oil Storage, OECD
Page 15
Oil Storage, USA
Page 16
20%
30%
40%
50%
60%
70%
80%
90%
100%
Au
g-1
0
Se
p-1
0
Oct-
10
No
v-1
0
Dec-1
0
Jan
-11
Fe
b-1
1
Ma
r-11
Ap
r-11
Ma
y-1
1
Ju
n-1
1
Ju
l-11
Au
g-1
1
Se
p-1
1
Oct-
11
No
v-1
1
Dec-1
1
Jan
-12
Fe
b-1
2
Ma
r-12
Ap
r-12
Ma
y-1
2
Ju
n-1
2
Ju
l-12
Au
g-1
2
Se
p-1
2
Oct-
12
No
v-1
2
Dec-1
2
Jan
-13
Fe
b-1
3
Ma
r-13
Ap
r-13
Ma
y-1
3
Ju
n-1
3
Ju
l-13
Au
g-1
3
Se
p-1
3
Oct-
13
No
v-1
3
Dec-1
3
Jan
-14
Fe
b-1
4
Ma
r-14
Ap
r-14
Ma
y-1
4
Ju
n-1
4
Ju
l-14
Au
g-1
4
Se
p-1
4
Oct-
14
No
v-1
4
Dec-1
4
Jan
-15
Fe
b-1
5
Ma
r-15
Ap
r-15
Ma
y-1
5
Ju
n-1
5
Ju
l-15
Au
g-1
5
WTI Coal Iron Ore Copper Potash Nickel Rubber Aluminum
WTI and Other Commodities as a Percentage of Their Five-Year
Highest Price - August 2010 to August 2015
Page 17
World Oil Supply/Demand 2015, 2016
Source: International Energy Agency Sep 11/15
Page 18
A Few Facts Not Included In These Charts
• U.S. light tight crude production is down at over 600,000 b/d since April,
First Energy figures 1 million b/d by year-end, more next year
• The U.S. shale estimates in the IEA data is wrong. U.S. cannot maintain
light tight oil production after idling 1,000 rigs
• Worldwide CAPEX on new oil projects is down an estimated US$200
billion, about one-third
• Iran is probably exporting oil overland right now without telling
anybody so they may not be able to increase production as much as
thought
• There is no risk premium in oil prices despite shooting wars in Iraq,
Syria and Yemen
Page 19
PSAC Drilling Forecast – Nov 3/15
•On a rig released basis
•Price Assumptions: WTI US$53.00 AECO Cdn$2.75
2013 2014 2015 F 2016 F Change
Wells Drilled 11,066 11,194 5,340 5,150 -3.6%
Meters Drilled (millions) 22.9 25.1 13.4 13.6 +1.5%
Rig Operating Days 112,153 113,813 61.0 58.1 -4.8%
Days Per Well 10.2 10.2 11.4 11.3 -1.0%
Meters Per Well 2,069 2,247 2,500 2,650 +6.0%
Page 20
National Bank Financial Forecast – Nov 3/15
2015 2016 Strip 2016 NBF
WTI US$49.79 US$49.53 US$65.00
AECO Gas Cdn$2.75 Cdn$2.93 Cdn$3.25
E&P CAPEX (Conventional) $22.2B $17.6B $26.7B
Well Count 7,555 6,285 8,633
Active Rigs (Average) 209 175 240
Rig Utilization (Annual) 27% 22% 31%
NBF sees short-term spending reductions (based on current
prices and tight credit) followed by a recovery with
commodity prices in H2 2016
Page 21
Capital Expenditures – CAPP Nov 3/15
Billions of Cdn$ 2013 2014 2015 F 2016 F Change
Oilsands $31.0 $33.0 $23.0 $21.0 -9%
Western Canada Conventional $39.0 $42.0 $21.0 $18.0 -14%
Billions of Cdn$ 2013 2014 2015 F 2016 F Change
Total CAPEX $74 $81 $48 $42 -13%
CAPEX – 4 Year Summary
Year 2013 2014 2015 2016 Change
Wells 11,065 11,255 5,300 4,800 -9%
2016 Drilling Forecast- CAPP Nov 3/15
Page 22
2015 Trends By MNP Sector
Exploration Downhole Tools
Engineering & Consulting Equipment Rentals
Construction Supply
Transportation Logistics
Drilling & Service Rigs Manufacturing & Fabrication
Wellbore Services Production
Page 23
Rebound By Sector
OFS Activity Sector Outlook
Production Services – keep the cash
flowing
Continuing, pricing main challenge
Facilities & Pipelines – processing plants
and gathering systems
Expanding with production volume, pricing
pressure main problem
Shale Oil Drilling Down for now but first to recover with oil
prices
Oilsands sustaining CAPEX Ongoing because of harsh operating
conditions, pricing main challenge
Oilsands growth CAPEX Winding down as construction finishes, no
new projects, no recovery imminent
Page 24
Oilsands Production Growth to 2018 –
Millions of Barrels Per Day
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2014 2015 2016 2017 2018
Mining
In-Situ
Total
Production to increase 756,000 b/d or 33%, 2014 - 2018
Source: CAPP Crude Oil Forecast June 2015
Page 25
Operating (Producing) Oil & Gas Well Base
0
50,000
100,000
150,000
200,000
250,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Oil
Gas
Total
Source: CAPP Statistical Handbook 2014
Page 26
2015 Drilling Compared to Prior Years
Date Active Drilling Rigs Change*
November 2, 2015 186
November 4, 2014 404 -54%
November 5, 2013 417 -55%
Source: June-Warren Nickles Rig Locator November 2, 2015
*2015 compared to prior year
Page 27
U.S. Active Oil Drilling Rigs Since October 2014
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Oct 30
/15
Oct 23
/15
Oct 16
/15
Oct 9/1
5
Oct 2/1
5
Sep 2
5/1
5
Sep 1
8/1
5
Sep 1
1/1
5
Sep 4
/15
Aug 2
8/1
5
Aug 2
1/1
5
Aug 1
4/1
5
Aug 7
/15
Jul 31/1
5
Jul 24/1
5
Jul 17/1
5
Jul 10/1
5
Jul 2/1
5
Jun 2
6/1
5
Jun 1
9/1
5
Jun 1
2/1
5
Jun 5
/15
Ma
y 2
9/1
5
Ma
y 2
2/1
5
Ma
y 1
5/1
5
Ma
y 8
/15
Ma
y 1
/15
Apr
24
/15
Apr
17
/15
Apr
10
/16
Apr
3/1
5
Ma
r 27/1
5
Ma
r 20/1
5
Ma
r 13/1
5
Ma
r 6/1
5
Feb
27/1
5
Feb
20/1
5
Feb
13/1
5
Feb
6/1
5
Jan 3
0/1
5
Jan 2
3/1
5
Jan 1
6/1
5
Jan 9
/15
Jan 2
/15
De
c 2
6/1
4
De
c 1
9/1
4
De
c 1
2/1
4
De
c 5
/14
No
v 2
6/1
4
No
v 2
1/1
4
No
v 1
4/1
4
No
v 7
/14
Oct 31
/14
Oct 24
/14
Oct 17
/14
Oct 10
/14
Rigs Drilling For Oil in the United States, Baker Hughes October 10, 2014 – October 30, 2015
578 active rigs down 64% from October 2014 peak of 1,609.
This is the lowest figure since June, 2010
Page 28
North Dakota Drilling Activity
Year 2015 2014 2013 2012 2011
69 193 181 187 195
-64% -62% -63% -65%
North Dakota Active Rig Count For November 2, 2011 – 2015Year over year change 2015 compared to prior year
Source: North Dakota Department of Mines & Resources
Page 29
Funds Available to OFS MNP Model, $Billions
Source 2014 2015 F 2016 F
E&P Capex (CAPP) $81 $48 $42
E&P Operating Costs (1/3, CAPP) $15 $16 $17
OFS CAPEX (MNP) $10 $5 $2
Less – land sales, licenses, permits ($2) ($1) ($1)
Total $104 $68 $60
Change -35% -12%
OFS CAPEX Includes: third party operated pipelines, processing plants & production
storage facilities: drilling rigs, well servicing equipment, rental equipment
Page 30
Major Positive Potential Changes
• LNG Project Announced – B.C. tax
changes in place: will somebody commit?
• Export Pipelines – if construction begins
on any of four major oil pipelines
• Oil Price Recovery – when global supply
and demand near balance and drive the
short sellers out of the market
• Oilsands Production Rising – which will
grow support services
Page 31
What Should OFS Managers Do?
• Don’t hope the market will bail you out
• Figure out your costs to the nearest penny
• Make friends with your banker and stay on his good side
• Develop a strategy to ensure your company survives with whatever business comes in the door
• Protect your investment/equity through a merger with a competitor
Page 32
Don’t hope the market to bail you out
• Holding tight for recovery won’t work
because the timing of the turnaround
is unknown
• No major investment or spending
decisions will be made until the
majority are confident the bottom has
been reached
• Work to protect your investment by
not selling assets or issuing equity
(selling all or part of the company) at
current valuations
Page 33
Figure out your costs to the nearest penny
• Know the exact cash costs of
every sale or job
• Don’t move unless you know
the cash gain will zero or
better
• You have to have some cash
profit on every sale or job to
keep the company afloat
Page 34
Stay friends with your banker
• Get ahead of the game with your
banker…give plenty of notice of tough
times
• Give your loans manager whatever he
wants and needs because he has to
sell your continued support to credit
• If you don’t have the internal
resources hire somebody! MNP can do
that
• Bankers don’t want your company or
your assets but they need your help
Page 35
Make your business work with whatever
business is out there
• If you have revenue and a cash profit of
sales or jobs you have a chance
• Business will pick up once people figure
the bottom has been reached
• Be merciless in cutting costs to prevent
having to sell assets or all or part of the
company at current valuations
• Be cautious of credit/collection risk in this
market
Page 36
Consider a merger with a competitor to
protect your investment
• It is better to own part of something bigger with a chance that 100% of a company that may not survive
• Valuation with a competitor is simple as long as they are the same
• Oil service must reduce the CEOs and managers per dollar of revenue to retool to a smaller market (Ensign & Precision in 1980s)
• Bringing in an equity investor/partner who can provide strategic help (financial administration, capital, M&A experience) may be an option
Page 37
Conclusions – Special “Good News” Section
• It’s got to get better because it can’t get worse
• We’ve got to be at or very close to the bottom
• The herd is always wrong
• The banks don’t want your assets or company if
you can come up with any reason for them to work
with you
• Canada is the 5th largest hydrocarbon jurisdiction
in the world and demand growth shows we’re not
quitting oil anytime soon Maybe…I’ve
been wrong
before
Page 38
Where We Operate
Western Canadian
Sedimentary Basin
We work where you work
Page 39
About MNP
• Fifth largest tax, accounting and business advisory services firm in
Canada.
• Offices in strategic locations throughout all the major producing
areas of the Western Canadian Sedimentary Basin.
• Experience with over 5,500 oilfield services clients.
• Over 150 dedicated OFS professionals.
• Member of the major OFS industry associations.
• Only professional services firm with an on-hands industry specialist.
• Corporate restructuring specialists in all major Canadian centres.
• Alberta based corporate recovery specialists experienced in the
major Alberta industries.
Page 40
OUR PEOPLE
“Think Global, Act Local”
• Over 75 offices from Montreal to Vancouver Island.
• Member of Praxity Global Alliance of Independent Firms giving us
worldwide presence.
• We have specialists located in the areas necessary to meet the local
needs of our OFS clients.