RAYMOND JAMES 33 rd Annual Institutional Investors Conference March 5, 2012
FORWARD-LOOKING STATEMENTS This document and the accompanying commentary contain forward-looking statements and information regarding the Company, Datac Instrumentation Limited ( Datac ), RealFlex Technologies Limited ( RealFlex ) and Zenith Oilfield Technology Ltd ( Zenith ) including statements that describe the Company s beliefs, estimates and expectations with respect to the Company, Datac, RealFlex and Zenith. The words will, anticipate, believe, estimate, expect, plan, schedule, could, may, might, should, project or similar words or expressions are intended to identify forwardlooking statements. Similarly, statements that describe the Company s future plans, objectives or goals are also forward-looking statements. 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 forward-looking 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, 2011. 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 Company will be able to effect the integration of the operations of Datac, RealFlex or Zenith smoothly or efficiently or that the anticipated benefits of these acquisitions will be achieved. The forward-looking statements included in this document or the accompanying commentary 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. 2012 Lufkin Industries, Inc. 2
COMPANY OVERVIEW 2012 Lufkin Industries, Inc. 3
Businesses: ENERGY SERVICE COMPANY COMPANY OVERVIEW OILFIELD SEGMENT 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. POWER TRANSMISSION SEGMENT Serving the energy and industrial sectors with engineered gearing solutions and fluid film bearings. TICKER: NASDAQ: LUFK MARKET CAP: (3.1.12) $2.43 billion STOCK PRICE: (3.1.12) $79.84 ANNUAL DIVIDEND: $0.50 COUNTRIES SERVED: 40+ EMPLOYEES: (1.1.12) 4,200 HEADQUARTERS: Lufkin, Texas 2012 Lufkin Industries, Inc. 4
Who We Are A leading global provider of artificial lift and power transmission solutions delivering comprehensive, engineered solutions for complex projects around the world #2 market share in artificial lift, excluding ESPs (1) Zenith acquisition brings downhole sensing technology and ESP segment exposure Serve a large and diverse base of loyal, multinational customers Long history of revenue and margin growth Revenue CAGR since 2007 of 13.8% Segments 2011 Revenue Geography Pow er Transmission s 21% Latin America 11% MENA 7% Other 3% Oilfield 79% Canada 9% Europe 7% United States 63% 1) Spears & Associates, Inc. as of December 2011. Total: $932.1mm 2012 Lufkin Industries, Inc. 5
Outstanding Financial Performance Long History of Revenue and Margin Growth Revenue ($ millions) Gross Margin (%) $1,250 40% $1,000 30% $750 20% $500 $250 10% $0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E (Guidance - excludes Revenue Gross Margin Zenith(1)) 0% 1) Lufkin Industries press release issued 2/9/2012. 2012 Lufkin Industries, Inc. 6
INVESTMENT HIGHLIGHTS Oilfield segment has a unique, singular focus on artificial lift solutions Growth in Power Transmission segment correlated to global energy infrastructure development Both segments well-aligned with established trends in energy development Particularly well-positioned to benefit from growth in oil-focused development, including development of liquids-rich shale plays Ability to optimize artificial lift solutions via integrated products, automation solutions and service packages Expanding global platform Experienced management team with a proven track record 2012 Lufkin Industries, Inc. 7
OILFIELD SEGMENT 2012 Lufkin Industries, Inc. 8
Global Artificial Lift Market Lufkin has the largest installed base in the rod lift market Growing presence in other artificial lift markets gas, plunger and hydraulic lift and PCP 29% Global Market By Product (2011) (1) Artificial Lift Market ($ billions) (1) 2% 50% ESP ($4,215 mm) Rod Lift ($2,445 mm) PCP ($572 mm) Other ($390 mm) Gas Lift ($360 mm) $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $0.0 $2.7 $1.6 $2.2$2.7 $3.0 $5.9 $5.2 $3.6 $4.2 $7.2 $6.1 $8.4 $7.1 $9.7 3% 4% 5% 7% Plunger Lift ($285 mm) Hydraulic ($170 mm) Products Currently Offered by Lufkin $3.0 $2.5 $2.0 2006 2005 2004 2003 2002 2001 2000 1999 2012E 2011E 2010 2009 2008 2007 Rod Lift Market ($ billions) (1) $2.4 Total: $8,437mm $1.5 $1.0 $0.5 $1.1 $1.2 $0.9 $0.4 $0.6 $0.5 $0.6 $0.7 $0.2 2004 2003 2002 2001 2000 1999 2010 2009 2008 2007 2006 2005 $1.4 $1.3 $1.2 $0.0 2011E 2012 Lufkin Industries, Inc. 9
Artificial Lift is Required in 94% of Producing Oil Wells 94% of the world s ~1 million producing oil wells are assisted by some form of artificial lift (1) Artificially Lifted vs. Naturally Flowing Producing Oil Wells (1) By Region By Percentage 0% 6% 1% 1% 0% 2% 5% 17% 68% Naturally Flowing Artificially Lifted: North America South America Middle East Western Europe Eastern Europe Far East Africa South Pacific Naturally Flowing: Global Artificially Lifted 1) World Oil Magazine. 2) Spears & Associates Inc. as of December 2011. Oil & Gas Journal. Artificial Lift Oil Well Population (Units) (2) North Latin Middle Far America America Europe Africa East Russia East China Total Flowing 23,591 3,740 2,907 7,070 7,348 4,212 3,520 1,472 53,860 Rod Lift 485,811 51,564 20,707 3,390 4,013 39,035 6,760 65,021 676,302 ESP 17,946 2,518 553 1,577 1,922 56,631 6,087 4,208 91,442 PCP 23,058 3,522 171 56 123 3,135 297 70 30,433 Gas Lift 20,708 293 323 56 1,642 2,022 2,130 70 27,244 Other 17,403 660 450 56 26 304 375 772 20,046 Total 588,517 62,297 25,111 12,205 15,074 105,339 19,171 71,613 899,327 2012 Lufkin Industries, Inc. 10
Shale Opportunity for Artificial Lift Unconventional oil and gas reservoirs often require some form of artificial lift earlier in the production life of the well than conventional reservoirs Bakken (1) Eagle Ford (1) $160 829 869 900 $35 2,113 2,500 $120 $138 720 $28 2,000 $80 226 532 468 $80 540 360 $21 $14 659 $26 1,500 1,000 $40 $35 $65 $38 180 $7 57 $7 500 $0 0 2007 2008 2009 2010 2011 Annual Lufkin Revenue Annual Well Count $0 $0 0 2009 2010 2011 Annual Lufkin Revenue Annual Well Count 1) Well count data source: HPDI, annual wells spudded. Lufkin annual artificial lift revenue by basin per management. 2012 Lufkin Industries, Inc. 11
Expanding International Operations All expansion in Latin America and Eastern Hemisphere has come since 1998 LUTKIN INDUSTRIES, INC. Corporate Office Manufacturing Plants Sales Locations / Service Centers 2011 Oilfield Segment Revenue (1) Latin Am. 11% MENA 7% Other 3% Non-North American Oilfield Segment Revenue ($ mm) (1) $150 21.1 7.7 13.6 $100 30.1 36.8 53.7 Canada 11% US 68% $50 $0 81.4 88.2 84.6 2009 2010 2011 1) Source: Management. Other includes Asia, Central Africa, Europe and Oceania. Latin Am. MENA Other 2012 Lufkin Industries, Inc. 12
Lufkin s Artificial Lift Strategies Preferred Provider of Artificial Lift Solutions Trusted supplier for 80+ years Continue to Expand Global Reach Recent expansions in Latin America, Eastern Europe Expand Portfolio of Products and Solutions Through both acquisitions and internal development Develop Next Generation of Automation Solutions Automatically optimize pump performance across a variety of well conditions Temperature, pressure, flow rate 2012 Lufkin Industries, Inc. 13
CURRENT OFFERINGS AND GAPS as of 2008 ARTIFICIAL LIFT Conventional Beam Pumping Linear Hydraulic Pumping Units Hydraulic Submersible Pump ESP Controls Linear Lift Technologies Gas Lift and Plunger Lift PCP Controls Water Injection Completion Products SCADA Communications Well Optimization Downhole Rod Pumps Downhole Gauges Progressing Cavity Pumps Electric Submersible Pumps 2012 Lufkin Industries, Inc. 14
Enhancing our Artificial Lift Product Portfolio to Provide a Complete and Integrated Customer Offering Recent Acquisitions have Complemented Internal Development New Products Automated Solution Elements Linear Lift Technologies Internal Development PCP and ESP Controls Internal Development Gas Lift Equipment ILS Process Control System Software RealFlex Plunger Lift Equipment Pentagon, ILS Communication Technology Datac Hydraulic Rod Units PHL Downhole Gauge Technology Zenith Reciprocating Downhole Pumps Quinn s PCPs Quinn s ESP Products Zenith 2012 Lufkin Industries, Inc. 15
Lufkin Automation Portfolio Vision 2010 O&G Production Optimization Consulting & Engineering Industry Experts Field Optimization Protects Product Margin SCADA System iwell Application Server Integration to all SCADA Systems Advanced Applications EFM/Flow Computers Expansion into Gas Balances Portfolio/Solutions Artificial Lift Optimization RPC, PCP, IWC, Plunger/Gas Lift + ESP + iwell Mgr Add Secondary Elements: - Load Cells - Well Analysis (i.e. Echometer, Downhole Gauges, etc ) 2012 Lufkin Industries, Inc. 16
Lufkin Automation Portfolio Vision 2012 O&G Production Optimization Consulting & Engineering Industry Experts Field Optimization Protects Product Margin SCADA System iwell Application Server Integration to all SCADA Systems Advanced Applications DATAC/RealFlex EFM/RTU s Expansion into Gas Balances Portfolio/Solutions Artificial Lift Optimization RPC, PCP, IWC, Plunger/Gas Lift + ESP + iwell Mgr Add Secondary Elements: Load Cells Well Analysis (i.e. Echometer, Downhole Gauges, etc ) Zenith 2012 Lufkin Industries, Inc. 17
Technology Map Connectivity: 1. Ethernet 2. Radios 3. Cellular 4. Satellite 5. OPC SCADA Info Server: 1. Application Server Asset Mgmt Predictive Failure Analysis Analytic Tools 2. 3 rd Party SCADA Systems 3. Production Optimization 4. Business System Integration ESP & PCP Optimization RTU s: 1. Facilities Control 2. Tank Levels 3. Flow Rates 4. EFM s Lufkin Well Manager 1. RPC 2. PCP 3. IWC 4. Plunger Lift iwell Manager 1. Same Base as LWM + ESP 2. Optimization per Stroke 3. Improved Communications 4. Surveillance for Asset Mgmt 2011 Lufkin Industries, Inc. 18
Downhole Lift Gauges 2012 Lufkin Industries, Inc. 19
Zsight Leading Edge Technology 2012 Lufkin Industries, Inc. 20
CURRENT OFFERINGS AND GAPS ARTIFICIAL LIFT Conventional Beam Pumping Internal Development Linear Hydraulic Pumping Units Linear Lift Technologies Water Injection Hydraulic Submersible Pump Gas Lift and Plunger Lift PCP Controls ESP Controls Internal Development Completion Products SCADA Communications Well Optimization Downhole Rod Pumps Downhole Gauges Progressing Cavity Pumps Electric Submersible Pumps 2012 Lufkin Industries, Inc. 21
POWER TRANSMISSION SEGMENT 2012 Lufkin Industries, Inc. 22
Power Transmission Examples of Use High Speed Products Power generation LNG liquefaction Refining Offshore oil production Oil and gas transmission Low Speed Products Custom and standard drives for process industries such as Steel and aluminum mills Rubber mills Plastics mixing and extrusion Sugar mills Marine propulsion Cement mills 2011 Revenue by End-Market Segment (1) Other 11% General HS 3% Low Speed Markets 17% Parts 7% Energyrelated 62% Total: $195.6mm 1) Source: Management. Low Speed Markets includes general low speed, sugar, metals processing, rubber & plastics and marine markets. 2012 Lufkin Industries, Inc. 23
Attractive End Markets Driven by Global Growth and Development Electricity Generation Capacity Additions by Fuel Type (1) Growth in Global Upstream Capital Spending (2) Gigawatts 50 40 30 20 10 0 2010-2015 2016-2020 2021-2025 2026-2030 2031-2035 Nuclear Coal Renewables/Other Natural Gas South & Central America North America Middle East & Africa Europe Asia Pacific 0.3 0.6 1.6 4.2 5.6 0.0 1.0 2.0 3.0 4.0 5.0 6.0 MMBoe/d ($ in billions) 1,000 750 500 250 0 $444 $358 $545 $599 $433 $476 $665 $534 $740 $598 $823 $671 $85 $112 $122 $132 $141 $152 2010 2011 2012 2013 2014 2015 U.S. Rest of the World Planned Oil Refinery Capacity Addition (2011-2016) (3) Capital Spending in Global Chemicals Processing (4) ($ in billions) 900 800 700 600 $511 500 400 300 $481 200 100 0 $29 $557 $525 $32 $603 $569 $34 $659 $622 $37 $730 $689 $41 $803 $758 $45 2011 2012 2013 2014 2015 2016 U.S. Rest of the World 1) Annual Energy Outlook 2011, U.S. Energy Information Administration. 2) Wall Street Equity Research. 3) GlobalData 2011. 4) American Institute of Chemical Engineers, January 2012 Looking for Growth in the Chemicals Industry. 2012 Lufkin Industries, Inc. 24
FINANCIAL OVERVIEW 2012 Lufkin Industries, Inc. 25
$ Revenue (mil) Successful M&A / Start-Up Model Base NA Svc Auto Arg AL Prods Intl Start-ups France RMT $1,250 Management 2012E Guidance Range (excludes Zenith) (1) $1,000 Zenith $38.9 million Acquisition $750 47% (2) $500 $250 53% (2) $0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012E 2000-2011 Base Revenue CAGR: 12.3% 2000-2011 Total Revenue CAGR: 16.3% 1) Lufkin Industries press release issued 2/9/2012. 2) Calculated as a percentage of reported full year 2011 revenue of $932.1 million. 2012 Lufkin Industries, Inc. 26
Financial Highlights Revenue ($ millions) Capitalization (1) ($ millions) $1,000 $932 $1,000 $750 $741 $189 $646 $196 $750 $312 38% $460 48% $257 27% $556 $521 $168 $500 $159 $172 $500 $737 $710 73% $250 $397 $552 $349 $478 $250 $508 62% $508 52% $0 2007 2008 2009 2010 2011 Oilfield Power Transmission $0 As of 12/31/2011 PF Zenith Acquisition PF Equity Offering Shareholders' Equity Net Debt 1) Please see page [26] for pro forma adjustments. 2012 Lufkin Industries, Inc. 27
Q & A 2012 Lufkin Industries, Inc. 28
APPENDIX A 2012 Lufkin Industries, Inc. 29
Key Milestones 1902 Lufkin founded to manufacture railroad & sawmill equipment 1925 Launched pumping unit manufacturing business 1939 Acquired Martin Wagon, establishing trailer business 1939 Created industrial gear businesses to serve mill customers 1990 Became a publicly traded company 1997 Acquired Fannie Lee Mitchell, an oilfield service company 1998 Acquired Comelor, a French gear manufacturer 1998 Acquired Nabla, establishing oilfield automation business 1999 Acquired Delta-X (expanded oilfield automation) 2003 Acquired remaining interest in Argentina joint venture from Baker Hughes 2008 Exited trailer business 2009 Acquired International Lift Systems (ILS) 2009 Acquired Rotating Machinery Technology (RMT) 2010 Acquired assets from Petro Hydraulic Lift Systems (PHL) 2011 Acquired Pentagon Optimization Services 2011 Acquired assets from Quinn s Oilfield Supply 2012 Acquired Datac Instrumentation 2012 Acquired RealFlex Technologies 2012 Announced acquisition of Zenith Oilfield Technology 2012 Lufkin Industries, Inc. 30
Blue Chip Customer Base 2012 Lufkin Industries, Inc. 31
NOTES 2012 Lufkin Industries, Inc. 32