Wells Fargo Securities 11 th Annual Pipeline, MLP and Energy Symposium December 5, 2012 1
Forward-Looking Statements This document and the accompanying commentary contain forward-looking statements and information regarding the Company, including statements that describe the Company s beliefs, estimates and expectations with respect to the Company. The words will, anticipate, believe, estimate, expect, plan, schedule, could, may, might, should, project or similar words or expressions are intended to identify forward-looking 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. 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. 2
Company Overview Businesses: 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: (11.26.12) $1.79 billion STOCK PRICE: (11..26.12) $53.23 ANNUAL DIVIDEND: $0.50 COUNTRIES SERVED: 40+ EMPLOYEES: (10.1.12) 4,600 HEADQUARTERS: Lufkin, Texas 3
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: $195.6mm 1) 2012 Source: Lufkin Management. Industries, Inc. Low Speed Markets includes general low speed, sugar, metals processing, rubber & plastics and marine markets. 4
Attractive End Markets Driven by Global Growth and Development Electricity Generation Capacity Additions by Fuel Type (1) Growth in Global Upstream Capital Spending (2) Gigawatts 50 40 30 20 10 ($ in billions) 1,000 750 500 $444 250 $358 $545 $599 $433 $476 $665 $534 $740 $598 $823 $671 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 $85 $112 $122 $132 $141 $152 2011 2012 2013 2014 2015 2016 1) Annual Energy Outlook 2011, U.S. Energy Information Administration. U.S. Rest of the World 2) Wall Street Equity Research. 3) GlobalData 2011. 4) American Institute of Chemical Engineers, January 2012 Looking for Growth in the Chemicals Industry. 0 2010 2011 2012 2013 2014 2015 U.S. Rest of the World Planned Oil Refinery Capacity Addition (2011-2016) (3) Capital Spending in Global Chemicals Processing (4) ($ 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 5
Artificial Lift Landscape 6
Artificial Lift Market Share $14,000 $12,000 5% 7% 7% 19% 10% 14% 24% 14% WFT BHI SLB LUFK DOV BORETS GE Others $10,000 $8,000 $6,000 $4,000 $2,000 $0 The artificial lift market will reach a new record in 2012 - $11 billion, up 23% from the prior year. We are projecting another 18% growth in 2013 to almost $13 billion. 2005 2006 2007 2008 2009 2010 2011 2012 2013 The average annual growth over the period has been 15-25%. Source: Spears & Associates, Oilfield Market Report, October 2012 7
Artificial Lift MARKET SHARE BY LIFT TYPE The pursuit of oil in North America has rebalanced the artificial lift market in recent years. For longer than a decade, ESP systems were gaining about 1% more of the market each year, but since 2010 rod lift systems have surged. As the two charts below indicate, in 2011 rod lift systems represented about 25% of the artificial lift market (as measured by dollars of equipment sold per year). In 2012, rod lift will grow to 31% of the market. In the meantime, ESPs have fallen from 54% of the market to 46%, losing all the market share ground it gained in the last decade. Plunger lift and gas lift are growing strongly as well, driven by declining pressures in oil and gas fields around the world. 2011 Market Share By Lift Type 2012 Market Share By Lift Type 2% 4% 3% 5% Rod Lift 7% 25% ESP PCP 54% Hydraulic Gas Lift Plunger Other 2% 5% 5% 4% Rod Lift 7% 31% 46% ESP PCP Hydraulic Gas Lift Plunger Other Source: Spears & Associates, Oilfield Market Report, October 2012 8
Lufkin s Artificial Lift Strategies Preferred Provider of Artificial Lift Solutions Trusted supplier for 80+ years Oily focus Well positioned (Conventional & Unconventional) 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 9
Artificial Lift Product Offerings 2008 Conventional Beam Pumping and Controls PCP Controls Water Injection Controls 10
Artificial Lift Product Offerings and Gaps 2008 Conventional Beam Pumping and Controls Linear Hydraulic Pumping Units Linear Pumping Units Hydraulic Submersible Pump Gas Lift and Plunger Lift PCP Controls ESP Controls Water Injection Controls Completion Products SCADA Communications Well Optimization Downhole Rod Pumps Downhole Gauges Slickline Services Progressive Cavity Pumps Electric Submersible Pumps Additional Completion Products 11
Artificial Lift Current Offerings and Gaps Conventional Beam Pumping and Controls Linear Hydraulic Pumping Units Linear Pumping Units Internal Development Internal Development PHL Water Injection Controls Hydraulic Submersible Pump ILS Gas Lift and Plunger Lift ESP Controls Internal Development PCP Controls Completion Products ILS SCADA Communications Well Optimization DATAC-Realflex Pentagon Downhole Rod Pumps Quinn Zenith Downhole Gauges Slickline Services Quinn Progressive Cavity Pumps Electric Submersible Pumps Zenith Additional Completion Products 12
Oilfield Division Market Drivers Maturing conventional oil production Newly emerging shale plays 13
Bbls/d Oily Type Curve 300 Average Type Curve (Oil) 250 200 150 100 50 Eagle Ford Williston Permian-Hz Permian-Other 0 Year 1 Year 2 Year 3 Year 4 Year 5 Source: HPDI, Company filings, RJ Estimates 14 Source: Raymond James Energy Group: The Energy Game Has Changed Have you Read the New Rule Book?, March 2012, slide 9
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Growth in our core markets 16
Barriers to Entry Source: Morgan Stanley, Oil Services, Drillings and Equipment, October 17, 2012, Page 43 17
Tailwind from Fracking Capacity Source: Morgan Stanley, Oil Services, Drillings and Equipment, October 17, 2012, Page 43 18
Global Shale Opportunities 19 Source: eia, Analysis & Projections, World Shale Gas Resources: An Initial Assessment of Regions Outside the United States, April 5, 2011
Global Shale Opportunities Lufkin Romania Lufkin Argentina 20 Source: eia, Analysis & Projections, World Shale Gas Resources: An Initial Assessment of Regions Outside the United States, April 5, 2011
Country-by-Country Evolution of Oil Production Capacity to 2020 Zenith Rod, PCP Source: Harvard Kennedy School Oil: The Next Revolution 21
2013 Focus Areas 22
Operational Improvements SAP Conversion Monitoring / Management tools Resources focused on system Capacity Ramp Training Machine Tools Supply Chain Argentina 23
Lufkin Romania Operation 24
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 ) 25
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 26
In Summary Strong fundamentals Demand for Artificial Lift driven by: Declining conventional oil production Newly emerging shale plays Lufkin positioned for growth Acquisitions provide product technology Global platforms provide capacity to serve growing markets 27