Johnson Rice Energy Conference

Transcription

1 Johnson Rice Energy Conference October 5, 2011

2 Forward-Looking Statements This document contains forward-looking statements and information regarding the Company and Quinn s Oilfield Supply ( Quinn ), including statements that describe the Company s beliefs, estimates and expectations with respect to both the Company and Quinn. These forward-looking statements are based on management s beliefs as well as assumptions made by and information currently available to management. Such statements reflect the Company s current views with respect to certain events and are subject to certain assumptions, risks and uncertainties, many of which are outside the control of the Company. Undue reliance should not be placed on forward-looking statements. Information about risks and uncertainties that could cause actual results to differ materially from forwardlooking statements is contained in Part I, Item 1A. Risk Factors of the Company s Annual Report on Form 10-K for the year ended December 31, All forward-looking statements attributable to the Company or persons acting on the Company s behalf are expressly qualified in their entirety by these risk factors. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. In addition to these risks and uncertainties, there can be no guarantee that the proposed transaction with Quinn will be consummated. Even if the proposed transaction is consummated, there can be no guarantee that the Company will be able to effect the integration of Quinn s operations smoothly or efficiently or that the anticipated benefits of the transactions will be achieved. The forward-looking statements included in this document are only made as of the date hereof, and the Company disclaims any obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. 2

3 Company Overview

4 Company Overview Businesses: Energy Service Company Oil and Gas Artificial Lift Provides products, services and automation for multiple forms of artificial lift in global turnkey applications for oil & gas production. Traditionally known for beam pumping units for rod lift, now offers gas lift and plunger lift. Mechanical Power Transmission Serving the energy and industrial sectors with engineered gearing solutions and fluid film bearings. Ticker Market Cap (9/22/11) Stock Price (9/22/11) Annual Dividend Countries Served Employees Headquarters NASDAQ: LUFK $1.7 billion $56.82 $ ,382 Lufkin, Texas 4

5 Investment Highlights Short Term: Historically high oil prices Emerging unconventional oil plays Expanding investments in energy infrastructure and power generation Long Term Importance of oil as an energy source Global decline rates in producing fields Rising demand from emerging economies 5

6 Market Outlook

7 Global Artificial Lift Market $7.9 billion in 2011 With acquisitions, Lufkin s share of rod lift market based on revenue equals 38% Plunger, Gas Lift and Hydraulic share ~ 10% 2% ESP ($4,215) 25% PCP ($542) Other ($365) 54% Gas Lift ($345) 3% Plunger Lift ($255) 4% Rod Lift ($1,965) 5% 7% Hydraulic ($170) Source: Spears & Associates, Oilfield Market Report, October % 7

8 Artificial Lift Market (Dollar amounts in billions) Artificial Lift Market Rod Lift Market $10.0 $9.0 $8.0 $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $4.2 $3.6 $2.7 $2.7 $3.0 $2.2 $1.6 $5.7 $5.1 $6.9 $5.8 $6.7 $7.9 $9.0 $2.5 $2.0 $1.5 $1.0 $0.5 $0.7 $0.6 $0.6 $0.5 $0.4 $0.2 $0.9 $1.4 $1.1 $1.2 $1.3 $1.2 $2.0 $0.0 $0.0 Source: Spears and Associates Oilfield Market Report. September 2011.

9 1Q95 3Q95 1Q96 3Q96 1Q97 3Q97 1Q98 3Q98 1Q99 3Q99 1Q00 3Q00 1Q01 3Q01 1Q02 3Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 US Oil Rig Count vs. US Oil Well Completions (# Oil Rigs) (# Oil Well Completions) 1,000 7:1 7, :1 800 US Oil Well Completions 2 9.5:1 6, , US Oil Rig Count , : , , ,200 1) Source: Baker Hughes North American Rotary Rig Count 2) Source: American Petroleum Institute Quarterly Well Completion Report 9

10 Index of US Oil Rig Count / Completions Compared to Lufkin Pumping Unit Revenue 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q Rig Count US Oil Well Completions Lufkin US PU ) Source: Baker Hughes North American Rotary Rig Count 2) Source: American Petroleum Institute Quarterly Well Completion Report 3) US Pumping Unit Sales Only 10

11 Market Outlook GLOBAL ONSHORE FORECAST (excl Russia, China, Stans) E&P Spending Year Rigs Wells (Billions) ,640 73,980 $ ,186 90,599 $ ,293 94,539 $ ,380 96,679 $ ,466 98,876 $ , ,484 $ , ,186 $287.0 Source: Spears Research HEADWINDS Sovereign Debt Crisis Regulations on hydraulic fracturing MENA political uncertainty Market price discipline TAILWINDS Steady increase in oil demand Decreasing OPEC spare capacity Increasing E&P Spending Shale plays..usa, Europe Inventory of uncompleted and flowing wells 11

12 Oilfield Division Strategic Direction

13 Artificial Lift Products and Services

14 Artificial Lift Current Offerings and Gaps Conventional Beam Pumping Linear Hydraulic Pumping Units Hydraulic Submersible Pump ESP Controls New Linear Lift Technologies Water Injection Gas Lift and Plunger Lift PCP Controls Completion Products Well Optimization Downhole Rod Pumps Progressive Cavity Pumps

15 Artificial Lift Current Offerings and Gaps Conventional Beam Pumping Internal Development Linear Hydraulic Pumping Units New Linear Lift Technologies Water Injection Hydraulic Submersible Pump Gas Lift and Plunger Lift Internal Development PCP Controls ESP Controls Completion Products Pentagon + Automation Group Well Optimization Downhole Rod Pumps Quinn Pumps + Pentagon Progressive Cavity Pumps Quinn Pumps Electric Submersible Pumps

16 Acquisition 16

17 Benefits: Complementary to ILS Acquisition Constructive Canadian Expansion Canadian Plunger Lift / Optimization $70 - $80 million Market 2 nd only to USA Source: Spears 17

18 Pentagon Products and Services 18

19 Pentagon The ANGEL Downhole Pump Design Features: Low-cost, effective patented method to produce: Pressure-depleted gas wells High GLR oil wells Non-pumpable horizontal plays such as the Cardium, Bakken Capable of pumping variety of fluids (liquids, gas, LNG) from various depths, pressures, temperatures and environments up to 30 m 3 per day. Durable with low maintenance and can produce both liquids and gas without gas locking. Maintains rod string in tension on downstroke INSTALLATION OF ANGEL DOWNHOLE PUMP 19

20 Lufkin s Acquisition Of

21 Transaction Term Summary Consideration Structure Closing Conditions Transaction value of $302.7 million subject to certain closing adjustments All cash transaction to acquire substantially all of the assets of Quinn's Oilfield Supply Ltd ("Quinn"), including certain affiliates Funding to be provided from new credit facilities Regulatory approvals, including HSR clearance Satisfactory financing arrangement Final Lufkin Board of Directors' approval Timing Transaction expected to be completed in Q

22 Quinn Overview Quinn is a leading manufacturer of: Downhole reciprocating pumps for rod lift applications Progressing cavity pumps ( PCP ) and related equipment Strong brand name Founded in 1965, privately held and based in Canada More than 450 employees and 50 locations across Canada and the U.S. Over 150,000 square feet of manufacturing space 2011E revenue: ~$140 million 22

23 Overview Of Downhole Rod Pumps Surface Unit One of three key components within a rod lift system Highly technical Sucker Rod Downhole Rod Pump Harsh environment and constant motion leads to wear Significant service, repair and replacement opportunities Quinn has significant aftermarket revenue 23

24 Strategic Rationale Highly complementary to Lufkin s artificial lift offering Pairs Lufkin s strong position in surface rod lift systems with a leading provider of downhole rod lift pumps Integrated packaging becoming more important, particularly in international locations Combination enables better optimization of the rod lift system Further expands Lufkin s artificial lift product offering with PCPs Fit with Automation strategy by integrating downhole devices to monitor and control production 24

25 Strategic Rationale (Continued) Expands manufacturing and field service capabilities Quinn has quality manufacturing facilities with significant growth capacity Extensive field service and repair footprint in major oil-producing regions throughout North America Able to customize and adapt solutions to fit field requirements International manufacturing opportunities for Quinn products 25

26 Strategic Rationale (Continued) Significant growth opportunities Unconventional oil outlook is encouraging Leverage Lufkin s international footprint Sell more bundled products and services to shared customers Expanded geographic selling network to cross-sell products and services to new customers Increased aftermarket and service opportunities for both companies 26

27 Quinn 2011E Geographic Revenue Split ~45% U.S. ~55% Canada 27

28 Quinn Canadian Locations Canada is forecasted to account for approximately 57% of 2011P revenue. Expands Canadian Footprint 30 Canadian operations All but 5 are new to Lufkin 28

29 Canadian Activity Is Increasing Comparable quarter growth Canadian drilling rig count Unconventional plays (Bakken Shale and Cardium) + gas orientated plays (Horn River & Montney Shale) are driving activity Quarterly Average Canadian Land Rig Count 700 Number Of Rigs 600 Historical¹ Projected² Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11P Q4 11P Q1 12P Q2 12P Q3 12P Q4 12P Q1 13P 1 Source: Baker Hughes. As of August 30, Represents an average for the quarter. 2 Source: Simmons Research. As of August 30, Represents an average for the quarter. 29

30 Quinn U.S. Locations U.S. is forecasted to account for 43% of revenue and has been higher growth in recent years. U.S. forecasted to account for 45% of revenue and has been higher growth in recent years. Quinn s approach to the market and distribution channels are similar to Lufkin. Own shops Service and support product in the field 30

31 Financial Summary EBITDA Multiples Accretion Financing 9.0x to 9.5x 2011E EBITDA 7.5x to 8.0x 2012P EBITDA Expected to be accretive to earnings and cash flow in 2011E and 2012P Detail to follow during Q4 Debt package in process with lenders; expected to fully fund Quinn and Pentagon transactions Pro forma total debt to 2011E EBITDA of approximately 2.0x Pro forma total debt to book capitalization of ~40% at close - Targeting year-end 2012P range of 30% to 35% 31

32 Oilfield Division Strategic Direction: Geographic Expansion

33 Eastern Hemisphere Pumping Unit Revenue / Market Analysis Geographic Expansion Europe $115 million Middle East / North Africa $125 million South Asia / Asia-Pacific $80 million EH Served Market Size : Mid-range: $ million / yr Low end: $320 million / yr High end: $565 million / yr

34 Geographic Expansion: Romania Project Update Machining / Fabrication Facility 34

35 Geographic Expansion: Romania Project Update 15% Complete Occupancy July 4, % Complete Occupancy Oct 26, % Complete Occupancy Jan 27,

36 Power Transmission Division Strategic Direction

37 Power Transmission Sectors 37

38 Power Transmission Projected 2011 Revenue by Market Segment ($ Millions) PT Consolidated Revenue ($mil) Oil & Gas Refining & Petrochemicals Power Generation Marine Rubber & Plastics Metals Processing Sugar Parts General HS General LS Other / Miscellaneous 2011 Proj

39 Financials

40 Financial Highlights Revenue Contribution by Segment ($ in millions) $800 Power Transmission Oilfield $700 $600 $190 $168 $500 $400 $158 $172 $89 $300 $200 $397 $552 $349 $478 $333 $100 $ YTD 2Q11 40

41 Financial Highlights Order Backlog History Comparison ($ in millions) Oilfield Power Transmission YTD 2Q11 $125.3 $195.2 YE 2010 $103.1 $131.4 YE 2009 $43.3 $97.0 YE 2008 $129.3 $188.1 YE 2007 $76.9 $122.2 $0.0 $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0 $160.0 $180.0 $

42 Lufkin Industries, Inc.

43 Appendix A

44 EBITDA Reconciliation From Continuing Operations ($ in millions) 2011 Upper 2011 Lower Net Earnings $ 83.6 $ 76.6 $ 43.8 $ 22.5 $ 88.0 $ 71.8 Legal/Other $ 1.9 $ 1.9 $ 1.0 $ 6.0 $ 6.0 $ - D & A $ 24.7 $ 24.7 $ 21.2 $ 18.5 $ 15.7 $ 14.0 Interest Exp $ 0.6 $ 0.6 $ 0.6 $ 0.6 $ 0.2 $ 0.3 Income Tax $ 48.2 $ 44.2 $ 24.0 $ 10.5 $ 48.4 $ 37.7 EBITDA $ $ $ 90.6 $ 58.1 $ $

45 Key Lufkin Milestones 1902 Lufkin founded to manufacture railroad & sawmill equipment 1925 Launched pumping unit manufacturing business 1939 Acquired Martin Wagon Co., establishing trailer business 1939 Created industrial gear businesses to serve mill customers 1990 Became a publicly traded company 1997 Acquired Fannie Lee Mitchell, an oil field service company 1998 Acquired Comelor, French gear manufacturer 1998 Acquired Nabla, establishing oil field automation business 1999 Acquired Delta-X (expands oil field automation) 2003 Acquired Lufkin Argentina 2008 Exited trailer business 2009 (Mar) Acquired International Lift Systems (ILS) 2009 (Jul) Acquired Rotating Machinery Technology (RMT) 2010 (Nov) Acquired Petro Hydraulic Lift Systems (PHL) 2011 (Aug) Acquired Pentagon Optimization Services, Inc (Sep) Announced Quinn s Oilfield Supply Acquisition 45

46 Appendix B

47 Artificial Lift

48 Artificial Lift Rod Lift Lufkin Products Beam Pumping Units Automation Service Completion Products (Tubing Anchors) Rod lift is best suited for the following range of conditions: Operating Depth: 100 to 16,000 Operating Volume: 5 5,000 BPD Operating Temperature: F Corrosion Handling: Good to Excellent Primarily Onshore Application Limitations: High Production Volumes, Highly deviated wells

49 Artificial Lift Gas Lift & Gas Well Deliquification Lufkin Products Mandrels Valves Packers Gas Lift is best suited for the following range of conditions: Operating Depth: 5,000 to 15,000 Operating Volume: 50 30,000 BPD Operating Temperature: F Corrosion Handling: Good to Excellent Excellent offshore application; also used onshore Limitations: Requires Gas Infrastructure, Not Practical to Well Depletion

50 Artificial Lift Plunger Lift Lufkin Products Plungers Lubricators Controllers Plunger Lift is best suited for the following range of conditions: Operating Depth: 1,000 to 19,000 Operating Volume: BPD Operating Temperature: F Corrosion Handling: Excellent Onshore application Limitations: Production Rate, Adjustability

51 Artificial Lift Progressive Cavity Pump Lufkin Products Controller Progressive Cavity Pump is best suited for the following range of conditions: Operating Depth: 500 to 10,000 Operating Volume: 5 3,000 BPD Operating Temperature: F Corrosion Handling: Fair Can be used onshore or offshore Limitations: Chemicals, Gas, Temperature, Production Rate, Reliability, High Production Volumes, Highly deviated wells

52 Artificial Lift Electrical Submersible Pump Electrical Submersible Pump is best suited for the following range of conditions: Operating Depth: 1,000 15,000 Operating Volume: ,000 BPD Operating Temperature: F Corrosion Handling: Good Can be used onshore or offshore Limitations: Solids, Reliability, Temperature

53 Artificial Lift Services Lufkin Services offers high quality and high value to maximize productivity and efficiency Globally located in key-producing regions Quick response time Trained service technicians with safety as a priority Services Offered: Well analysis to ensure proper Artificial Lift application Installation OEM replacement parts Pumping unit repair (all brands) Inspection and Preventative Maintenance Machine shop repair Customer training opportunities by industry experts

54 Artificial Lift Automation Field Automation and Well Optimization Increases operating performance and optimizes well efficiency Reduces lifting costs Maximizes return on producing assets Products and Services: Pump-off controllers Injection well controllers Progressing Cavity Pump controllers Variable speed drives Motor control panels Dynamometers Design/Analysis software

55 Notes 55