Investor Presentation November 2016 TSX : HWO 2 DISCLAIMER - - PowerPoint PPT Presentation

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Investor Presentation November 2016 TSX : HWO 2 DISCLAIMER - - PowerPoint PPT Presentation

1 Investor Presentation November 2016 TSX : HWO 2 DISCLAIMER Certain information contained within this These statements are derived from certain this presentation and statements made in presentation and statements made in


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Investor Presentation

November 2016

TSX : HWO

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DISCLAIMER

These statements are derived from certain assumptions and analyses made by the Corporation based

  • n

its experience and perception

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historical trends, current conditions, expected future developments and

  • ther factors that it believes are appropriate in

the circumstances. These statements

  • r

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

  • ther

public disclosure documents located

  • n

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

  • r developments anticipated by the Company

will be realized or that they will have the expected consequences

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effects

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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

  • f new information, future events or otherwise.

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

  • il

and gas well activity, projections

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market prices and costs,

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

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Executive Leadership Change Executive Leadership Change Executive Leadership Change Executive Leadership Change

  • Combined with the timing of the acquisition and the retirement of Tim Braun, Thomas Alford

was appointed the interim President & CEO by the Board of Directors

  • Mr. Alford has over 35 years of experience in well servicing Western Canada, having held the

title of President and CEO at IROC Energy Services and Bonus Resource Services Corporation

Recent Developments

Tervita Corporation's Production Services Division Tervita Corporation's Production Services Division Tervita Corporation's Production Services Division Tervita Corporation's Production Services Division – – – – 10 Weeks In 10 Weeks In 10 Weeks In 10 Weeks In

  • Acquisition of the third largest well servicing fleet in Canada which includes 85 high quality

service rigs (59 currently marketed) and a substantial inventory of rental equipment

  • Key management and majority of employees from Tervita Production Services have joined

High Arctic, resulting in approximately 400 employees in Canada

  • Expanded geographical coverage in Western Canadian with seven new geographical locations

in Cold Lake, Drayton Valley, Lloydminster, Blackfalds, Acheson and Whitecourt

  • Larger client base that includes top tier exploration and production companies
  • Rebranded the acquired service rig division to Concord Well Servicing
  • Facing tight markets with utilization at historic lows and pricing continuing to be pressured

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Business Overview

High Arctic Energy Services is a market leader with diversified operations in Papua New Guinea (PNG) and Canada

PNG PNG PNG PNG

  • Dominant market position for contract drilling, well

completion and rental services in PNG

  • Provides services in PNG to super majors and regional

energy companies under long-term contracts

  • Strong track record of 9 years of operations in PNG.
  • PNG’s developing LNG industry reduces the impact of

short-term oil & gas price volatility

Canada Canada Canada Canada

  • Owns and operates Canada’s largest fleet of stand

alone snubbing units

  • Recently acquired 85 high quality service rigs
  • Flexibility to expand organically or through

acquisition

  • Solid platform established for growth

2016 TTM Revenue

PNG $174.2 mm Canada $29.5 mm

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Shares outstanding (Nov 11, 2016):

52.6 million

Share Price (Nov 11, 2016):

$4.60

Market Cap (Nov 11, 2016):

$242.0 million

Net Cash & Marketable Securities (Sept 30, 2016):

$4.8 million

30 Day Average Trading Volume

110,005

Trailing 12 Month Adjusted EBITDA (Sept 30, 2016):

$73.3 Million

Annual Dividend

$0.198

Dividend Yield

4.30%

CORPORATE SNAPSHOT

Cyrus Capital 42% Insiders 9% Public 49%

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Stable Growth

T R A C K R E C O R D O F

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50 100 150 200 250 2010 2011 2012 2013 2014 2015 TTM Canadian Revenue PNG Revenue 32 33 40 42 49 64 73.3 27% 26% 27% 27% 29% 30% 36% 10% 15% 20% 25% 30% 35% 20 30 40 50 60 70 80 2010 2011 2012 2013 2014 2015 TTM Adjusted EBITDA Adjusted EBITDA (%)

REVENUE

(as at September 30, 2016)

ADJUSTED EBITDA

(as at September 30, 2016)

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Overview – Stable and Growing

  • Independent, established democracy and a stable business jurisdiction
  • Part of the British Commonwealth with a parliamentary government
  • Government working with industry to develop nation’s natural resources (even in the

current environment)

Papua New Guinea

Oil and Gas Activities – Long History, with New Growth

  • Oil exploration activities since 1920’s with OSL being established in PNG since 1929
  • Long-term LNG development commenced in 2008
  • Exxon’s pending purchase of InterOil confirms its position in PNG

Macro Drivers for Growth

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

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Overview – Stable and Growing

  • PNG’s LNG projects are advantageously situated to supply

Asian buyers

  • Large natural gas reserves – current estimates PNG LNG: 9 tcf,

Papua LNG: 8.6 tcf, encourages long-term drilling

  • Globally contracted LNG supply is expected to be short of total

anticipated demand by 2020

  • Largest growth in demand for LNG is expected to come from

Asia resulting from changes in:

  • Government policy
  • Environmental strategy to replace coal

LNG Development

THE PNG ADVANTAGE

East Africa $8.76 West Africa $8.76 US Gulf Coast $10.76 West Australia $8.73 East Australia $14.49 PNG $7.59

Cost of LNG to Japan

10% return (US$/mmbtu)

Source: Wood Mackenzie

Proximity to growing Asian market’s provides incentive to develop LNG projects despite industry downturn

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PNG Outlook & Development

P’nyang Juha Kutubu Kumul Gobe Kopi Triceratops InterOil New Discovery PNG LNG Operating Papua LNG Proposed Port Moresby Elk / Antelope Hides and Angore Valve and pigging station Oil/gas fields Oil export platform LNG Facility Oil / gas refinery Proposed pipeline Pipeline

PNG LNG:

  • Exxon is the operator
  • Total forecast production includes 9.0

tcf of natural gas and 200+ million bbls

  • f associated liquids over 30 years
  • Shipments began Q2 2014
  • Exploration to support expansion

(e.g. P’nyang)

Elk / Antelope (Papua LNG):

  • Ownership: TOTAL, InterOil / Exxon

and OSL

  • Reserve confirmation test underway

to size LNG facility

  • Development wells required to feed

LNG facility

OSL:

  • Targeting 4 to 6 exploration wells/yr
  • Focusing investment in PNG to

support 10 year growth platform

Exxon:

  • Pending acquisition of InterOil
  • Significant unexplored acreage
  • Declared interest in expanding

LNG capacity in PNG

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NATURAL GAS + OIL PRODUCTION Customer Base

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Drilling Landscape

P A P U A N E W G U I N E A

Rig Type Owner / Operator Details Classification

Heli Portable OSL / High Arctic 2 Rigs (103 /104) Tier 1 High Arctic 2 Rigs (115 /116) Tier 1 Contractor A 1 Rig circa mid 1970's Tier 2 Contractor B 1 Rig modified for limited heli use Tier 2 Heli Portable Work Over Rig High Arctic 1 Rig 102 Tier 1 Land Rigs Contractor C 1 Land based rig Operator 1 Land based rig

High Arctic is the dominant Tier 1 drilling provider in PNG

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PNG Drilling and Work Over Services

Rig 103 / 104 (leased from OSL)

  • Drilling services and support contracts with OSL extended

to Oct 31, 2016. Discussions ongoing for longer extensions

  • 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
  • Rig 115: contracted to June 17
  • Rig 116: 2 year drilling services contract with commencing

with spud of first well

Rig 102 (High Artic owned)

  • Only hydraulic work over rig in PNG
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Matting

  • Inventory exceeding 10,000 rental mats in PNG
  • High Arctic has PNG distributor rights
  • The largest rental supplier of Dura-Base mats outside of the USA
  • Possible expansion into other countries with similar challenging environments

PNG Equipment Rentals

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

Q4 2016 MATTING CONTRACTS

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42% 3% 53%

Term Contract Prospective Idle

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Canadian Operations

Service Rigs Service Rigs Service Rigs Service Rigs

  • Operating under Concord Well Servicing
  • 85 Rigs & associated equipment
  • 68 Rigs registered with CAODC
  • Currently marketing 59 Rigs

Snubbing Snubbing Snubbing Snubbing

  • 15 Stand Alone Units
  • 3 Rig Assist Units
  • Currently marketing 8 Units
  • 2016 addition of fully guided 285k and 170k Units

Nitrogen Nitrogen Nitrogen Nitrogen

  • 11 Low Rate Unit
  • 1 High Rate N2 Pumper
  • 5 Nitrogen Transport

Rentals Rentals Rentals Rentals

  • High pressure BOP’s
  • Surface Equipment

OUR CUSTOMERS

Strong Western Canadian Service Rig and Snubbing Presence Provides Platform to Expand

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  • Operates the 3rd largest fleet of service rigs in WCSB
  • Facing tight markets with utilization at historic lows and

pricing continuing to be pressured

  • Strategically located to cover major plays in WCSB with

exposure to heavy and light oil

  • Solid client base that includes international supermajors

major Canadian E&P companies

  • Recorded 7,823 operating hours in the month of September

(38% utilization relative to Q3 industry utilization of 24%) 1

  • Industry leading safety culture and record

Concord Well Servicing

GEOGRAPHICAL FOOTPRINT GEOGRAPHICAL FOOTPRINT GEOGRAPHICAL FOOTPRINT GEOGRAPHICAL FOOTPRINT

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1 Source: CAODC

Montney Duvernay Cardium

Blackfalds Whitecourt Acheson Lloydminster Cold Lake

Cold Lake Oil Sands

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  • High Arctic is a market leader for stand alone snubbing in

Western Canada

  • Jointed pipe snubbing allows rotation of pipe to over

come friction in extended reach horizontal wells

  • Increasing number of high pressure horizontal wells has

resulted in additional demand for higher capacity units

  • Recent capital additions have been directly aimed toward

higher capacity units

  • Snubbing remains a necessary service for completions of

long-reach horizontal wells

Canadian Snubbing

# OF SNUBBING UNITS AVAILABLE AVERAGE WELL DEPTH AVERAGE WELL DEPTH AVERAGE WELL DEPTH AVERAGE WELL DEPTH (WESTERN CANADA)

(WESTERN CANADA) (WESTERN CANADA) (WESTERN CANADA)

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High Arctic Owns and Operates Canada’s Largest Fleet of Stand Alone Snubbing Units

18 11 8 6 2 2 High Arctic Precision Quattro Powerstroke Northern Snub Co.

60% 58% 63% 70%

20% 24% 21% 19% 20% 18% 16% 11% 1,500 1,600 1,700 1,800 1,900 2,000 2,100 0% 20% 40% 60% 80% 100%

2012 2013 2014 2015 Well Depth Well Type (%) Horizontal Vertical Other

  • Avg. Depth

Source: Geoactivity Sources: Company Reports, High Arctic

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Nine months ended September 30,

$58.5 $47.5 $0.0 $20.0 $40.0 $60.0 2015 2016 $18.7 $15.6 $0.0 $10.0 $20.0 2015 2016 $14.3 $11.6 $0.0 $5.0 $10.0 $15.0 2015 2016

REVENUE ADJUSTED EBITDA FUNDS FROM OPS.

(1) The restricted shares held by a trustee under the Executive and Director Incentive Share Plan are included in the shares outstanding. The number of shares used in calculating the net earnings per share amounts is determined differently as explained in the Financial Statements.

Q3 2016 YTD Results

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$ millions (except per share amounts) Revenue 145.7 145.7 145.7 145.7 151.9 (4%) (4%) (4%) (4%) Adjusted EBITDA 52.5 52.5 52.5 52.5 43.2 22% 22% 22% 22% Adjusted EBITDA % of revenue 36% 36% 36% 36% 28% 27% 27% 27% 27% Net Earning per share (diluted)(1) Fund From Ops. per share (diluted)(1) Dividends per share(1) 0.15 0.15 0.15 0.15 0.15 0% 0% 0% 0% 0.70 0.70 0.70 0.70 0.40 75% 75% 75% 75% 0.82 0.82 0.82 0.82 0.59 39% 39% 39% 39% 2016 2016 2016 2016 2015 % Change

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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 10.0 x 2012 2013 2014 2015 TTM Competitors… High Arctic

0% 50% 100% 150% 200% 250% 300% Competitors High Arctic

Financial Performance

INDEXED SHARE PRICE PERFORMANCE ENTERPRISE VALUE / EBITDA HISTORICAL RETURN ON EQUITY High Arctic’s share price has historically outperformed industry peers High Arctic consistently delivers strong returns to shareholders High Arctic is trading at the lower end of the industry valuation spectrum

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

0% 5% 10% 15% 20% 25% 30% 35% 2012 2013 2014 2015 TTM Competitors High / Low High Arctic

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$0.07 $0.15 $0.17 $0.20 $0.17 $0.01 $0.00 $0.10 $0.12 $- $0.05 $0.10 $0.15 $0.20 $0.25

2012 2013 2014 2015 2016 YTD*

Distributions per share ($)

Dividends per share Repurchases per share

Shareholder Distributions

T R A C K R E C O R D O F

Disciplined distributions, without sacrificing capital resources to execute on growth opportunities

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DISTRIBUTIONS TO SHAREHOLDERS (per share) DISTRIBUTION TO SHAREHOLDER ($ Millions)

2016 YTD figure shown as at October 31, 2016

$3.5 $7.2 $9.1 $10.9 $8.8 $0.5 $0.2 $5.7 $6.5 0% 5% 10% 15% 20% 25% 30% 35% 40%

  • 2.0

4.0 6.0 8.0 10.0 12.0

2012 2013 2014 2015 2016 YTD*

Payout Ratio (including repurchases) Distributions ($)

Dividends Repurchases Payout Ratio

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Balance Sheet and Liquidity

W E L L P O S I T I O N E D W I T H S O L I D

Balance Sheet

  • Net Debt of $5.8M
  • Funded Debt / EBITDA ratio: < 0 .5x

Credit Facility

  • Maturity Aug. 31, 2017
  • On side with all covenants
  • In discussions with lenders to

expand and extend credit facility

LIQUIDITY

Credit Facility Available $14.4 million Cash $24.8 million Short-term Investments $10.6 million

(as at September 30, 2016)

Total $69.1 Million

Non-Cash Working Capital $19.3 million

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Growth Strategy

  • Depressed North American activity levels may lead to attractive valuations for

additional acquisition targets

  • Valuation gaps starting to narrow
  • Focus on quality operations, consistent with High Arctic’s operating culture
  • Potential for upward pricing pressure from low personnel & equipment

availability

  • 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
  • Exposure to light oil, heavy oil and natural gas production
  • Organic growth
  • Fit for purpose solutions to meet customer needs
  • New opportunities arising for service rigs and snubbing units
  • Solid operating base and strong balance sheet to support further accretive

growth

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Contact us

Thomas Alford, CEO Ph: (587) 318-3826 Email: tom.alford@haes.ca Brian Peters, CFO Ph: (587) 318-2218 Email: brian.peters@haes.ca

Analyst Coverage

Acumen Capital Brian Pow AltaCorp Capital Inc. Aaron MacNeil Industrial Alliance Elias Foscolos National Bank Greg Coleman PI Financial Brian Purdy

Website www.haes.ca Head Office 700 – 2nd Street SW, Suite 500 Calgary, AB Canada T2P 2W2

TSX : HWO

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  • Partner, Cyrus Capital Partners
  • Managing Director, Cyrus Capital Partners Europe LLP
  • Former President and CEO of IROC Energy Services Corporation
  • President & CEO of High Arctic Energy Services Inc.
  • Independent geological consultant
  • Former Country Manager for Global Canada Geophysical Services
  • Former VP of Operations Sylogist (a public consulting company)
  • Past executive roles in IT, courier and distribution

Appendix A: Board of Directors

Daniel Bordessa

Independent

Thomas Alford Steven Vasey

Independent

Simon Batcup

Independent

Michael Binnion

Chairman of the Board

  • President and CEO of Questerre Energy Corporation
  • Chartered Accountant

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  • Former Federal Member of Parliament (Minister of Natural Resources; Minister of Finance)
  • Former senior investment banker with Merrill Lynch, Nesbitt Thomson and First Marathon

Joe Oliver

Independent

  • Direct of Investor Relations at Cyrus Capital Partners
  • Chartered Financial Analyst

Ember Shmitt

Independent

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Thomas Alford

Interim President & CEO Board Member

Brian Peters, CA

CFO

Michael Maguire

VP, International

Daniel Beaulieu

COO, Canada

  • 35+ years of experience in well servicing in Western Canada
  • Former President and CEO of IROC Energy Services Corporation and Bonus Resource

Services Corporation

  • Former Board Member of Western Energy Services Corporation
  • Over 15 years of experience in corporate finance, accounting and audit.
  • Former CFO at IROC Energy Services, EnerMAX Services and Pure Energy Services
  • 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

Appendix B: Management Team

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