Strategies Produced for Today and Tomorrow … · 2015 2016 Strip 2016 NBF WTI US$49.79 US$49.53...

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.

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

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

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

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

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

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

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)


10 Yr. Av Conv. CAPEX

$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

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

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

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)


Oil

Price

Co

llap

se

Oil

Price

Co

llap

se

Oil

Price

Co

llap

se

Oil

Hits $

14

7

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

Oil Storage, OECD

Oil Storage, USA

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

World Oil Supply/Demand 2015, 2016

Source: International Energy Agency Sep 11/15

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

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%

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

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

2015 Trends By MNP Sector

Exploration Downhole Tools

Engineering & Consulting Equipment Rentals

Construction Supply

Transportation Logistics

Drilling & Service Rigs Manufacturing & Fabrication

Wellbore Services Production

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Where We Operate

Western Canadian

Sedimentary Basin

We work where you work

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.

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.

Strategies Produced for Today and Tomorrow … · 2015 2016 Strip 2016 NBF WTI US$49.79 US$49.53...

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Transcript of Strategies Produced for Today and Tomorrow … · 2015 2016 Strip 2016 NBF WTI US$49.79 US$49.53...