Investor Presentation May 2017 NYSE: FTK Stephens Energy Conference

Transcription

1 Investor Presentation May 2017 NYSE: FTK Stephens Energy Conference 1

2 FORWARD LOOKING STATEMENTS DISCLAIMER & DISCLOSURES Certain statements and information included in this presentation constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of These statements are based on certain assumptions and analyses made by the Company s management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate under the circumstances. These statements involve known and unknown risks and uncertainties, some of which are outlined in the Company s most recent 10-K and subsequent 10-Qs, which may cause the actual performance of Flotek to be materially different from any future results expressed or implied in this presentation and the forward-looking statements. Flotek undertakes no obligation to update any of its forward-looking statements for any reason. Contained in this slide deck are transactional and financial reporting information. In some cases, estimates or approximations may be used. While footnotes are intended to explain such cases, they may not be all inclusive in the procedures taken to report transactional or customer specific information. 2

3 ABOUT FLOTEK: WHO WE ARE NYSE: FTK Recent Stock Price: $ Day Average Market Cap: $690 mil. Average Trading Volume (LTM): 961,000 shares Outstanding Shares: 57.3 mil. Top 20 Owners: 81% Insider Ownership: 5% Flotek develops and delivers prescriptive chemistry-based technology, including specialty chemicals, to clients in the energy, consumer industrials and food & beverage industries. Utilizing our focus on research and supply chain, our goal is to maximize the performance of oil and gas wells through the application of our proprietary chemistry in our clients reservoirs. We intend to capture our synergies and penetrate high margin opportunities in the consumer and industrial markets over time. Sources: Ipreo BigDough Analytics, Bloomberg Note: All material contained in this slide deck represents continuing operations 3

4 INVESTMENT THESIS Growth of patented Complex nano-fluid (CnF ) technology coupled with a synergistic supply chain model and strong balance sheet provides for a robust cash flow outlook. Proven track record of business model innovation, industry-leading R&D capabilities and continued product re-investment. Benefitting from increasing well complexity and de-coupling of goods and services in energy. Streamlined business model to operators through the virtual Flotek Store TM. Leader in utilizing data and cognitive learning: IBM Watson + Reservoir Cognitive Consultant TM (RC 2 TM ). Focused on lowering G&A and expenses throughout 2017 in order to maximize cash flows. Citrus oil supply chain leadership, with high-margin growth initiatives in our consumer and industrial segment. Flotek is strategically positioned as an asset-light, technology-centric chemistry company, focused on making high-return investments in its technology, with broadening end markets through cross-industry product expansion and adoption and growing market penetration. 4

5 OPERATING SEGMENTS Energy Chemistry Technologies (ECT) Flotek's Energy Chemistry Technologies division provides oilfield specialty chemicals and logistics as well reservoir characterization and petroleum engineering services to solve the toughest drilling, cementing, stimulation and production challenges Revenues: $188.2 mil. (72% of total) 2016 Op. Income: $29.0 mil. (75% of total) 1Q17 Revenues: $60.8 mil. (76% of total) 1Q17 Op. Income: $8.5 (70% of total) Consumer and Industrial Chemistry Technologies (CICT) Flotek s Consumer and Industrial Chemistry Technologies delivers high-quality products that meet the demands of a variety of consumer and industrial applications Revenues: $74.6 mil. (28% of total) 2016 Op. Income: $9.7 mil. (25% of total) 1Q17 Revenues: $19.2 mil. (24% of total) 1Q17 Op. Income: $3.7 (30% of total) Note: Percentages above represent continuing operations 5

6 LOCATIONS AND GLOBAL REACH International Reach Calgary, AB Canada, Offices/Chemistry Lab Abu Dhabi, UAE, Regional Distribution Dubai, UAE, Sales Office Y-TEC Collaboration in Argentina Collaboration with Anton in China Global sales depicted in countries on map Domestic Locations Houston, TX Headquarters, Research & Innovation Marlow, OK Chemistry Manufacturing/Testing Winter Haven, FL CICT, Florida Chemical Waller, TX Manufacturing, Logistics, Testing Monahans, TX Chemistry Testing, Logistics Raceland, LA - Logistics Dalton, GA IPI, Guar 6

7 ENERGY CHEMISTRY TECHNOLOGIES (ECT) 7

8 Frac Complexity EIA, Monthly DPR Regions Completions FAVORABLE MACRO TRENDS Industry recovery underway, led by U.S. shale. Technology and innovation are reducing break-evens. Drill times, spacing, proppant loading are pushing the leading edge we expect complexity of fluid applications to accelerate. Today 2,000 1,600 1, Flotek is uniquely positioned to benefit from a growing focus on fluid design and overall well complexity. We are experiencing a growing shift in our clients needs for custom chemistry solutions. Time Source: EIA Drilling Productivity Report 8

9 Net Present Value, 10% Discount ($s millions) CnF : WHAT IS IT, VALUE PROPOSITION The line of Complex nano-fluids technologies offer a number of performance-enhancing features including solvency, lower contact angle which affects wettability, outstanding demulsification properties, reduction of capillary pressures and interfacial tension (IFT) that all contribute to improved oil and gas production from a reservoir. $3.00 CnF Permian well no uplift CnF Permian well +30% EUR CnF Permian well +20% EUR CnF Permian well +10% EUR CnF Permian well +5% EUR Permian Well, No CnF 20% 22% 22% 25% 29% 34% 10% 20% 30% 40% Single Well IRR Hypothetical Permian well sensitivity highlights the value proposition of CnF for our clients. Hypothetical well attributes: Base cost: $6.5 mil., with CnF: $6.75 mil. 70% oil, 30% split NGLs/nat. gas. 90-day IP: 796 Boepd 1,500 Boepd (CnF, 30% uplift). EUR: 750 Mboe 950 Mboe. CnF can increase the well IRR from 22% to 34%, while risking only ~2%. The hypothetical cost-benefit in NPV ranges from a loss of $(233K) to benefit of $2.4 mil. to the operator. $2.00 $1.00 $0.00 -$1.00 +$0.01 CnF Permian well +5% EUR +$0.49 CnF Permian well +10% EUR +$1.45 CnF Permian well +20% EUR +$2.40 Risk $ NPV Benefit/(Cost) Net Benefit/(Cost) CnF Permian well +30% EUR -$(0.23) CnF Permian well no uplift Risk $ NPV Benefit/(Cost) Net Benefit/(Cost) IRR of Well Permian Well, No CnF $ - $ % CnF Permian well +5% EUR $ $ $ % CnF Permian well +10% EUR $ $ $ % CnF Permian well +20% EUR $ $ $ % CnF Permian well +30% EUR $ $ $ % CnF Permian well no uplift $ $ (0.233) $ (0.233) 20.2% 9

10 CHEMISTRY OFFERINGS, FOR THE LIFECYCLE Initial frac and stimulation Remediation and re-treatment We have 50+ formulations of Complex nano-fluid (CnF ) technologies, and growing. Of which, 30+ are regularly commercialized due to activity concentration. We offer 100+ chemistry solutions for all applications and demands, compatible in most fluid designs with our CnF. Of which 70+ are regularly commercialized. Our fluid design treatments can be applied in the initial frac through the full life-cycle of the well. Our clients trust and depend on Flotek to deliver the right chemistry application to maximize their value and reservoir. 10

11 Revenue ($s in thousands) EIA DPR Region Completions Revenue ($s in thousands) EIA DPR Region Completions GLOBAL ECT PRODUCT TRENDS Since the peak, EIA DPR region completions are down (56%) to 1Q17. Our Non-CnF revenues are down (50%) in the same timeframe, despite challenging pricing. Non-CnF ECT Revenues vs. Completions US EIA DPR Completions (Right Axis) Non-CnF, ECT Revenue $60, $60,000 CnF Revenues vs. Completions US EIA DPR Completions (Right Axis) CnF Revenue However, CnF revenues have expanded 55%+ in the same timeframe s 2000 We believe the acceptance rates will grow as operators seek to enhance their well economics through technology. $0 0 $0 Note: we compare our global ECT activity in this slide to US EIA DPR completions as 80%+ of our average revenues are derived domestically. Source: EIA Drilling Productivity Report 0 11

12 Domestic CnF Volumes Sold (Gallons) EIA DPR Regions Completions Approaching 4 mil. gals 4,000,000 0 CnF DOMESTIC VOLUME GROWTH +13% -1% 2% -9% -5% Domestic CnF Volume (Gallons) ** +38% Solid bars indicate introduction of Flotek store -23% -55% -21% +123% +37% -7% +6% -21% -5% # of Completions* -21% -5% -14% +2% +10% +7% -3% Q1 14 Q2 14 Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q1 17 * Completions data from the EIA DPR report which provides data for the 7 major basins in the lower 48 states. ** CnF Gallons represents domestic activity only. +25% +23% 6,000 5,000 4,000 3,000 2,000 1,000 - Despite premium pricing compared to less or even non-effective competitive products, CnF volumes have consistently outgrown completion activity. Since the peak of oil prices in 3Q14, EIA DPR Completions are down 56% to today. Domestic CnF volumes have expanded +125% since that time. Dedication to research and product innovation and maximizing our clients reservoir performance, combined with direct and transparent pricing through the Flotek Store have led to this success. Source: EIA Drilling Productivity Report 12

13 Unique CnF Customers/Transactions Major Customer Quarterly Retention Rate EIA DPR Region Completions CnF CLIENT TRENDS % Domestic CnF Volumes Direct to Operators 100% 50% 0% CnF Clients by Geography Direct sales by volume are >50% for CnF. We expect growth of CnF to continue to remain strong, both domestically and internationally. While M&A may cause minor disruption, combined with reorganization/restructurings, our major* client retention has averaged ~70% since late We remain dedicated to our clients and believe it is our technology to credit. Major* Domestic CnF Clients Retention Rates vs. Completions 100% 50% 0% Domestic International *Note: Major clients are defined as purchasing >1% of LT quarterly average volumes of CnF. Major Domestic Customer Qtrly Retention Rate EIA DPR Completions Source: EIA Drilling Productivity Report 13

14 Flotek s nanotech technology was a game-changer for us in the Southern Delaware Basin. Without a doubt, it was an important driver in making our Pecos County acreage a success. ERIC HOOVER, EVP OF OPERATIONS, BRIGHAM January

15 CONSUMER & INDUSTRIAL CHEMISTRY TECHNOLOGIES (CICT) 15

16 CONSUMER & INDUSTRIAL CHEMISTRY TECHNOLOGIES (CICT) Citrus flavor molecules are in short supply, creating global market opportunities with beverage, flavor and fragrance companies. Consumers are demanding natural flavors that are from the named fruit in beverages and foods. Expansion into non-thermal manufacturing and varietal diversification will enhance growth opportunities. Nutraceutical, pharmaceutical and agriculture present unique growth opportunities for Flotek. Our supply chain sets us apart, with more end markets and technical capabilities to execute a market penetration strategy. 16

17 CICT IS IDEALLY POSITIONED Our ability to utilize the entire citrus molecule, opens the door for new opportunities in markets we have not yet penetrated. Oil & Gas CnF We have the ability to leverage increasing energy market demand for d-limonene in our patented CnF technology as a competitive advantage in non-energy products. Industrial & Functional Fragrance Solvent Flavors Keys The combination of Florida Chemical with Flotek in 2013 is evolving from vertical integration strategy into synergistic revenue relationship. Nutraceutical Keys & CnF Agriculture CnF 17

18 CICT MOVING ALONG THE VALUE CHAIN ECT demand of d-limonene for CnF is only one component of the citrus oil chain. We are positioned to begin moving further across the value chain, where other components can be utilized in higher margin end markets. Florida Chemical is a leader in orange oil processing globally. Due to our growing ability to utilize the different molecules which make up the citrus oil, we can look at higher margin opportunities and at lower cost points. We look forward to updating investors as our strategy is executed. 18

19 COMMITMENT TO INNOVATION & PROTECTING OUR POSITIONING 19

20 COMMITMENT TO INNOVATION: INTELLECTUAL PROPERTY PORTFOLIO Our patent portfolio has continued to grow, with five more patents granted last year, bringing the total to more than a dozen grants. Our total filed and pending patent applications now number more than 75, including over 40 unique CnF formulations demonstrating our commitment to continuing to be a leader in the specialty chemistry sector. We remain focused on diligently protecting our shareholders and our technology through proactive IP. *Flotek Industries, Inc. owns additional patents, trademarks, and copyright assets that are not chemistry related and are excluded from this overview. 20

21 01 02 INNOVATIVE MODEL: FLOTEK STORE TM CASE STUDY The following graph shows the success of the Flotek Store TM which has led the de-coupling of the chemistry purchase decision, and offered benefit to operators of all sizes and geographic locations. Despite a 68% drop in the U.S. rig count from early 2014 to late 2016, which subsequently led to the exit of a number of operators and drillers from the oil and gas industry, Flotek s client base expanded, while CnF volumes grew. 63% 48% This innovative business model provides a case study into our strategy beyond the chemistry which is an ongoing effort. - 68% - 32% - 29% *1Q14 contains March data only, from Drillinginfo. Sources: Drillinginfo, BHI Rig Count, Flotek 21

22 COMMITMENT TO INNOVATION: DATA & ANALYTICS In April 2017, Flotek announced a global agreement with IBM to jointly develop greater capabilities to predict and apply custom chemistry and other approaches to enhance the performance of wells throughout their entire life-cycle, highlighting Flotek s commitment to lead the effort of Big Data in the Oilfield and jointly create value for clients. Flotek s Reservoir Cognitive Consultant TM (RC 2 TM ) will analyze proprietary oilfield chemistry research, oil & gas client-contributed data and publicly reported sources. 22

23 TECHNOLOGY INVESTMENT GENERATES GROWTH In ECT, Flotek believes its investments in new chemistry technology have meaningfully contributed to the segment s revenue growth. Share of revenue from new technologies has surpassed our goal by a margin of more than 2:1. 30% 25% 20% 15% Share of ECT revenue from new technology 24.80% 22.80% 10% 9% 5% 0% Goal

24 CONTACT US CORPORATE HEADQUARTERS: W. Sam Houston Pkwy. N. Suite 300 Houston, TX MATT MARIETTA Senior Vice President Corporate Development, Investor Relations Flotek Industries Phone: (713)