High Arctic Energy Services Inc. Investor Presentation March 2016 - - PowerPoint PPT Presentation

High Arctic Energy Services Inc. Investor Presentation

March 2016

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DISCLAIMER

Certain information contained within this presentation and statements made in conjunction with this presentation, including information and statements that contain words such as “seek”, “anticipate,” “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe”, “forecast”, “can” and similar expressions, are forward-looking statements. In particular, forward-looking statements in this presentation include, but are not limited to, statements with respect to future capital expenditures, future financial resources, anticipated equipment utilization levels, future oil and gas well activity, projections of market prices and costs,

• utcomes of specific events and trends in the oil and gas industry.

These statements are derived from certain assumptions and analyses made by the Corporation based on its experience and perception of historical trends, current conditions, expected future developments and other factors that it believes are appropriate in the circumstances. These statements or predictions are subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from the Corporation’s expectations. These risks and uncertainties include the items discussed under the heading “Risk Factors” in the Corporations' most recently filed Annual Information Form as well as the Corporation’s other public disclosure documents located on SEDAR (www.sedar.com). Consequently, all of the forward-looking information contained within this presentation and statements made in conjunction with this presentation are qualified by these cautionary statements and there can be no assurance that actual results or developments anticipated by the Company will be realized or that they will have the expected consequences or effects on the Corporation or its business or operations. Other than as required by applicable securities laws, the Corporation assumes no obligation to update publicly any such forward-looking information or statements, whether as a result of new information, future events or otherwise.

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• High Arctic is an international oilfield services

company with operations in Papua New Guinea (PNG) and Canada.

• PNG:
• Has a dominant market position for contract

drilling, well completion and rental services in PNG.

• Provides services in PNG to regional and super

major energy companies under long-term contracts.

• Has a strong track record of 8+ years of
• perations in PNG.
• Operates in PNG’s developing LNG industry,

reducing the impact of short-term oil & gas price volatility.

• Canada:
• High Arctic owns and operates Canada’s largest

fleet of stand alone snubbing units.

Calgary

Montney Deep Basin Duvernay Slave Point Cardium

Red Deer Grande Prairie

Corporate Office Offices

Brisbane Papua New Guinea

INTRODUCTION

• 4-

FINANCIAL OVERVIEW

Financial Highlights

• Healthy balance sheet.
• Attractive dividend yield.
• Conservative payouts ratio.
• Valuation multiples at low end of

peer range.

Insider Ownership

• Cyrus Capital: 40%
• Director / Management: 9%

Shares outstanding (Mar 16, 2016): 53.8 million Share Price (Mar 16, 2016): $3.45 Market Cap : $185.5 million Net Cash & Marketable Securities (Dec 31, 2015): $22.1 million Enterprise Value: $174 million Trailing 12 Month EBITDA (Dec 31, 2015): $64 million EV / EBITDA Multiple (TTM): 2.72x Annual Dividend: $0.198 Payout Ratio (on funds from operations) 20.6% Dividend Yield (as at Mar 16, 2016): 5.74% Canadian Non-Capital Tax Losses: $65.4 million Insider Ownership: 49%

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HISTORY OF STABLE GROWTH

HISTORICAL FINANCIAL PERFORMANCE

• 2012: Expanded PNG rental business and commissioned a new rental camp.
• 2014: Purchased two new heli-portable rigs for PNG that began generating revenue in 2015.
• EBITDA growth with stable margins throughout volatile market cycles.
• Revenue has increased at a CAGR of 10% and EBITDA at a CAGR of 12%

$119 $127 $146 $153 $172 $210 2010 2011 2012 2013 2014 2015 Canada Revenue PNG Revenue $32 $33 $40 $42 $49 $64 27% 26% 27% 27% 29% 30%

10 20 30 40 50 60 70 2010 2011 2012 2013 2014 2015 Adjusted EBITDA Adjusted EBITDA (%)

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PAPUA NEW GUINEA

PNG Overview – Stable and Growing

• Independent, established democracy and a stable

business jurisdiction.

• Part of the British Commonwealth with a

parliamentary government.

• Currently experiencing rapid growth from resource

exports. PNG Oil and Gas Activities – Long History, with New Growth

• Oil exploration activities since 1920’s
• Long-term LNG development commenced in 2008

MACRO Drivers for Future Growth

• High quality operators with financial strength.
• Large un-explored resource base.
• Low cost source of LNG to Asian markets.
• High quality gas (i.e. high heating content).
• Natural gas electricity development in PNG to

support economic growth.

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 2013 2014 2015 2016 2017 PNG All OECD Countries

GDP Growth Forecast

Source: World Bank, 2015 Source: Exxon Mobil

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GLOBAL LNG DEVELOPMENT – THE PNG ADVANTAGE

Sources: Wood Mackenzie, cost to Japan with 10% return (US $/mmbtu)

• Globally contracted LNG supply is expected to be short of total anticipated global demand in the long-term

with the largest growth in demand for LNG expected to come from Asia.

• The growth in Asian demand for LNG is expected to come from changes in government policy and

environmental strategy to replace coal with natural gas as an energy source.

• PNG’s close proximity to Asia puts its LNG projects in a strong position as a low cost provider to target high

quality Asian customers with long-term demand.

• Provides the opportunities for the buyers of LNG to geographically diversify the energy source.
• Large natural gas reserves – current estimates PNG LNG: 9 tcf, Papua LNG: 8.6 tcf,

Sources: Wood Mackenzie Destination

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PNG EXPLORATION & DEVELOPMENT

Sources: 2B1st Consulting

PNG LNG:

• Exxon is the operator.
• Total forecast production includes 9.0 tcf of natural

gas and 200+ million bbls of associated liquids over 30 years.

• Shipments began Q2 2014.
• Exploration to support expansion (e.g. P’nyang)

Elk / Antelope (Papua LNG):

• Ownership: TOTAL, InterOil and OSL.
• Exploration activities ongoing to delineate resource to

support LNG facility.

• Development wells required to feed LNG facility.

Future:

• InterOil:
• 14,000 unexplored acres.
• OSL:
• Targeting 4 to 6 exploration wells/yr.
• Focusing investment in PNG to support 10 year growth

platform.

• Estimated 5 million BOE yet to be discovered in PNG.
• Other operators – Horizon, Repsol,

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PNG DRILLING & WORK OVER SERVICES

Rig 103 / 104 (leased from OSL)

• Drilling services and support contracts with OSL

through mid to late 2016 (three year term).

• Strong relationship with OSL with a history of two 3

year contract renewals.

Rig 115 / 116 (High Arctic owned)

• AC self-erecting 1500 HP heli-portable triple.
• 2 year drilling services contract with InterOil

commencing with spud of first well.

• Annualized operating revenue per rig of $30M USD

including camp.

Rig 102 (High Artic owned)

• Only hydraulic workover rig in PNG.
• Rig is currently stacked.

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PNG DRILLING LANDSCAPE

Tier 1 Tier 2 High Arctic Competitors

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PNG EQUIPMENT RENTALS

Matting

• Inventory of approximately 10,000 rental mats

in PNG.

• High Arctic has PNG distributor rights.
• The largest rental supplier of Dura-Base mats
• utside of the USA.
• Possible expansion into other countries with

similar challenging environments.

Camp Services

• Owns and manages two 103 man Heli-portable

man camps

• Operates and manages two 93 man Heli-

portable drilling rig camps

Other Rental Equipment

• cranes (ranging from 30 ton to 160 ton)
• rig moving trucks
• forklifts
• river pumps

2016 Matting Contract Overview

50% 4% 46%

Contracted Prospective Marketed

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CANADIAN OPERATIONS

• 11 Low Rate Unit
• 1 High Rate N2 Pumper
• 5 Nitrogen Transport
• 15 Stand Alone Units
• 3 Rig Assist Units
• Currently marketing 9 units
• 2016 addition of high capacity 285k unit

Snubbing Nitrogen Rental

• High pressure BOP’s
• Boiler Equipment

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CANADIAN SNUBBING MARKET

WESTERN CANADA SNUBBING MARKET LANDSCAPE AVERAGE WELL DEPTH (WESTERN CANADA)

• High Arctic is a market leader for snubbing in Western Canada
• Jointed pipe snubbing allows rotation of pipe to overcome friction in extended reach horizontal wells
• Increasing number of high pressure horizontal wells with longer depth has resulted in additional demand

for snubbing services.

• Snubbing is becoming the preferred method of completions for long-reach horizontal wells.

60% 58% 63% 70% 1,500 1,600 1,700 1,800 1,900 2,000 2,100 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2012 2013 2014 2015 Well Depth Well Type (%) Horizontal Vertical Other

• Avg. Depth

Sources: Geoactivity Sources: Company Reports, High Arctic

18 11 8 6 2 2 Number of Snubbing Units Available

High Arctic Precision Quattro Powerstroke Northern Snub Co.

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FINANCIAL SUMMARY – GROWTH & FINANCIAL STRENGTH

Mar, 2014 Jun, 2014 Sep, 2014 Dec, 2014 Mar, 2015 Jun, 2015 Sep, 2015 Dec, 2015 40.9 44.3 45.6 48.3 42.8 41.2 39.6 32.1 111.5 115.0 118.7 123.5 129.2 139.7 158.5 177.8 152.4 159.3 164.3 171.8 172.0 180.9 198.1 209.9 PNG Revenue (%) 73% 72% 72% 72% 75% 77% 80% 85% 44.0 48.5 48.5 49.3 44.6 47.6 56.5 64.0 37.2 41.9 41.3 43.3 38.4 39.1 45.8 52.8 25.5 30.1 26.1 28.2 23.7 24.2 26.6 27.1 36.2 40.5 46.0 37.2 28.4 25.6 12.5 11.5 71.8 70.1 105.9 119.9 145.7 155.9 162.5 161.7 122.8 124.5 155.3 165.6 177.3 180.2 191.9 201.2 50.1 50.4 55.8 55.8 55.2 55.1 54.9 54.4 Dividends Paid 7.5 8.0 8.5 9.1 10.0 10.5 10.9 10.9 Normal Course Issuer Bid 0.2 0.0 0.0 0.0 1.7 2.0 3.5 5.7

1 All financial data presented on a TTM basis excluding PP&E, Shareholders' Equity and Shares Outstanding 2 Net Cash: Cash less Bank Debt

Shares Outstanding (mm) Adjusted EBITDA CFFO Net Income Net Cash 2 PP&E Shareholders’ Equity Financial Performance (TTM1)

(in $ CDN millions)

CDN Revenue PNG Revenue Total Revenue

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FINANCIAL PERFORMANCE

Historical Return on Equity Enterprise Value / EBITDA Indexed Share Price Performance

• High Arctic’s share price has historically
• utperformed industry peers.
• High Arctic consistently delivers strong returns

to shareholders.

• High Arctic is trading at the lower end of the

industry valuation spectrum.

Sources: Lightyear Capital, Altacorp Comps include AKT.A, ESN, TDG, PD, WRG, SVY, XDC

Highlights

0% 50% 100% 150% 200% 250% 300% Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 High Arctic Competitors 0% 5% 10% 15% 20% 25% 30% 35% 2012 2013 2014 2015 Competitors High / Low High Arctic 0.0 x 1.0 x 2.0 x 3.0 x 4.0 x 5.0 x 6.0 x 7.0 x 8.0 x 9.0 x 2012 2013 2014 2015 Competitors High / Low High Arctic

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HISTORY OF SHAREHOLDER DISTRIBUTIONS

THREE YEAR DIVIDEND GROWTH 1

Canadian Energy Services Yield Cos 2 High Arctic

1 Changes in dividend from December 2012 to December 2015 2 Canadian energy services yieldcos: AKT.A, CET, CFW, ESI, ESN, FRC, TDG, TCW and WRG

DISTRIBUTIONS TO SHAREHOLDERS

• Established history of dividend growth while maintaining conservative payout ratios.
• Additional distributions to shareholders through share repurchases.
• Maintained dividend growth during challenging market conditions.
• Disciplined distributions, without sacrificing capital resources to execute on growth
• pportunities.

65% (100%) (80%) (60%) (40%) (20%) 0% 20% 40% 60% 80% $0.07 $0.15 $0.17 $0.20 $0.01 $0.00 $0.10 2012 2013 2014 2015 Dividends per share Repurchases per share

HIGH ARCTIC

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GROWTH STRATEGY

• Strong balance sheet and cash flows provides fuel for growth.
• Continue to strengthen position in PNG through operational excellence and

strong customer relationships.

• Organic growth of Canadian snubbing operations. Fit for purpose solutions

to meet customer needs.

• Diversification is key to long-term strength of High Arctic.
• Geographic – Management team with strong North American and International experience.
• Complementary product lines – capture more of the customer value chain.
• Depressed North American activity levels may provide attractive valuations

for acquisition targets.

• Valuation gaps may start to narrow.
• Focus on quality operations, consistent with High Arctic’s operating culture.

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WHY INVEST IN HIGH ARCTIC

• The leader in PNG for contract drilling, well

completions and rentals.

• The leader in Canada for snubbing services.
• Strong balance sheet and financial

performance.

• Disciplined management team with a

strong track record and international and North American experience.

• Exposure to long-term LNG projects

reduces exposure to short-term oil & gas fluctuations.

• Well positioned to take advantage of

future growth opportunities.

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APPENDIX A: BOARD OF DIRECTORS

Daniel Bordessa,

Independent

Thomas Alford

Independent

Steven Vasey

Independent

Christopher Warren

Independent

Simon Batcup

Independent

Michael Binnion,

Chairman of the Board

Dennis Sykora

• President and CEO of Questerre Energy Corporation
• Chartered Accountant
• Partner, Cyrus Capital Partners L.P.
• Managing Director, Cyrus Capital Partners Europe LLP
• Independent businessman
• Former President and CEO of IROC Energy Services Corporation
• Partner at Warren Sinclair LLP, a law firm in Red Deer, AB.
• A member of the Central Alberta Bar Association
• Independent geological consultant
• Former Country Manager for Global Canada Geophysical Services
• Former EVP and General Counsel of High Arctic Energy Services
• Member of the Law Society of Alberta and Institute of Chartered

Accountants of Alberta

• Former VP of Operations Sylogist (a public consulting company)
• Past executive roles in IT, courier and distribution

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APPENDIX B: MANAGEMENT TEAM

Tim Braun

CEO

Brian Peters, CA

CFO

Darren Greer

President, International

Michael Maguire

VP, International

Daniel Beaulieu

COO, Canada

Shannon Matthyssen, CA

Corporate Controller

• Over 35 years of oilfield services sector experience, primarily with large

drilling contractors.

• 10+ years with Precision Drilling’s International drilling division
• Former COO of Saxon Energy Services
• Over 15 years of experience in corporate finance, accounting and audit.
• Former CFO at IROC Energy Services, EnerMAX Services and Pure

Energy Services Inc.

• Over 12 years in senior petroleum and drilling engineering roles.
• Former COO of Easternwell
• Over 35 years of oilfield services sector experience.
• Former business unit manager at Weatherford.
• Over 20 years of oilfield experience, including 7 years at Easternwell
• Professional Engineer
• Over 20 years of experience at public and private oil & gas companies
• Former VP Finance and CFO at Magnum Energy.

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COPORATE DIRECTORY

Head Office 444 – 5th Avenue SW, Suite 2010 Calgary, AB Canada T2P 2T8 Auditors PricewaterhouseCoopers LLP Legal DLA Piper (Canada) LLP Lender HSBC Bank of Canada Contacts Tim Braun, CEO Ph: (403) 508-7836 Email: tim.braun@haes.ca Brian Peters, CFO Ph: (403) 508-7836 Email: brian.peters@haes.ca Analyst Coverage AltaCorp Capital Inc. Mark Westby Industrial Alliance Elias Foscolos National Bank Greg Coleman PI Financial Brian Purdy Website www.haes.ca TSX HWO