CES ENERGY SOLUTIONS CORP. Leading Provider
of Consumable Chemical Solutions
February 2024
Forward Looking Information and Statements
Certain statements in this presentation may constitute forward-looking information or forward-looking statements (collectively referred to as "forward-looking information") which involves known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of CES, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. When used in this presentation, such information uses such words as "may", "would", "could", "will", "intend", "expect", "believe", "plan", "anticipate", "estimate", and other similar terminology. This information reflects CES' current expectations regarding future events and operating performance and speaks only as of the date of this presentation. Forward-looking information involves significant risks and uncertainties, should not be read as a guarantee of future performance or results, and will not necessarily be an accurate indication of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking information, including, but not limited to, the factors discussed below. Management of CES believes the material factors, expectations and assumptions reflected in the forward-looking information are reasonable but no assurance can be given that these factors, expectations and assumptions will prove to be correct. The forward-looking information contained in this document speaks only as of the date of the document, and CES assumes no obligation to publicly update or revise such information to reflect new events or circumstances, except as may be required pursuant to applicable securities laws or regulations.
In particular, this presentation contains forward-looking information pertaining to the following: expectations regarding growth for drilling fluids as a result of increasing well complexity and longer lateral lengths; expectations regarding chemical demand related to increased oil production and produced water; potential for continued growth in drilling fluids and production chemical markets; expectations regarding the performance of CES' business model and counter cyclical balance sheet during downturns; expectations regarding the ability for CES to continue to grow revenue, market share and margins; expectations regarding improving results, increasing activity & market share, and the ability to obtain price increases from customers; ability for CES to make strategic inventory purchase in the future; allocation of capital to specific basins and markets including the Permian Basin; allocation of capital with respect to dividends, debt repayment, and the NCIB; expectations regarding cost reductions going forward; certainty and predictability of future cash flows and earnings, including during low points in the business cycle; expectations regarding the ability to implement price increases for customers; estimated timing and expectations regarding future capital expenditures and expansion projects; ability for CES' business to generate significant free cash flow going forward; and expectations regarding CES' ability to collect accounts receivable in light of historical performance and current circumstances.
CES' actual results could differ materially from those anticipated in the forward-looking information as a result of the following factors: general economic conditions in the US, Canada, and internationally; geopolitical risk; fluctuations in demand for consumable fluids and chemical oilfield services, downturn in oilfield activity; oilfield activity in the Permian, the WCSB, and other basins in which the Company operates; a decline in frac related chemical sales; a decline in operator usage of chemicals on wells; an increase in the number of customer well shut-ins; a shift in types of wells drilled; volatility in market prices for oil, natural gas, and natural gas liquids and the effect of this volatility on the demand for oilfield services generally; declines in prices for natural gas, natural gas liquids, and oil, and pricing differentials between world pricing, pricing in North America, and pricing in Canada; competition, and pricing pressures from customers in the current commodity environment; conflict, war and political and societal unrest that may impact CES' operations, supply chains as well as impact the market for oil and natural gas generally; currency risk as a result of fluctuations in value of the US dollar; liabilities and risks, including environmental liabilities and risks inherent in oil and natural gas operations; sourcing, pricing and availability of raw materials, consumables, component parts, equipment, suppliers, facilities, shipping containers, and skilled management, technical and field personnel; the collectability of accounts receivable; ability to integrate technological advances and match advances of competitors; ability to protect the Company's proprietary technologies; availability of capital; uncertainties in weather and temperature affecting the duration of the oilfield service periods and the activities that can be completed; the ability to successfully integrate and achieve synergies from the Company's acquisitions; changes in legislation and the regulatory environment, including uncertainties with respect to oil and gas royalty regimes, programs to reduce greenhouse gas and other emissions and regulations restricting the use of hydraulic fracturing; pipeline capacity and other transportation infrastructure constraints; changes to government mandated production curtailments; reassessment and audit risk and other tax filing matters; changes and proposed changes to US policies including tax policies or policies relating to the oil and gas industry; international and domestic trade disputes, including restrictions on the transportation of oil and natural gas and regulations governing the sale and export of oil, natural gas and refined petroleum products; the impact of climate change policies in the regions which CES operates; the impact and speed of adoption of low carbon technologies; potential changes to the crude by rail industry; changes to the fiscal regimes applicable to entities operating in the US and WCSB; access to capital and the liquidity of debt markets; fluctuations in foreign exchange and interest rates, including the impact of changing interest rates on the broader economy; CES' ability to maintain adequate insurance at rates it considers reasonable and commercially justifiable; and the other factors considered under "Risk Factors" in CES' Annual Information Form for the year ended December 31, 2023 dated February 29, 2024, and "Risks and Uncertainties" in CES' MD&A for the three and twelve months ended December 31, 2023, dated February 29, 2024.
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Investment Highlights
North American | Vertically | Decentralized | Resilient & | Low capital |
provider of | integrated | operations in | intensity & | |
countercyclical | ||||
molecular level | consumables | key attractive | strong free cash | |
balance sheet | ||||
chemical | business model | markets | flow generation | |
solutions |
Share Price (TSX:CEU) 1 | $4.27 |
52-week Share Price Range1 | $2.30 - $4.39 |
Market Capitalization1 | $1.0 billion |
Financial | Enterprise Value1,2 |
Annualized Dividend (per share)1 | |
Highlights | Credit Rating (DBRS, S&P) |
(All Figures in Canadian Dollars) | Senior Secured Credit Facility Net Draw 1 |
Canadian Term Loan Facility | |
Working Capital Surplus3,4 | |
Net Debt3 |
$1.4 billion
$0.12 (~2.8% Yield)
B High (Stable); B (Stable) $120 million
$250 million $633 million ($163 million)
- As at February 29, 2024.
- Using Total Debt as at February 29, 2024.
- As at December 31, 2023.
- Non-GAAPmeasures that do not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. Refer to the section entitled "Non-GAAP Measures and
Other Financial Measures" in CES' MD&A for the three and twelve months ended December 31, 2023, which is incorporated by reference into this presentation and is available on SEDAR at www.sedar.com. | 3 |
Leading Provider of Consumable Chemical Solutions
9 | 102 |
lab facilities | reactors & blend |
tanks |
83 245
scientists,
patents engineers,
chemists & technicians
~2,300
employees
~1,600 US
~700 Canada
2023 Revenue By Geography
C$2.2 Billion | 68% US | |
32% Canada | ||
US operations | Canadian operations | ||
• | Permian | • | Montney |
• | Eagleford | • | Duvernay |
• | Bakken | • | Deep Basin |
• | Marcellus | • | Oil Sands |
- Scoop/Stack
Fully integrated world class basic chemical manufacturing capability combined with customer-centric
problem solving culture for technology oriented customers
4
Solving Problems and Adding Value through Technology & Customer Service
Analyze & Solve Evolving
Client Needs
Study Data &
Samples in
Laboratories
Monitor Effectiveness
DEMULSIFIERS | VISCOCIFIERS EMULSIFIERS | LUBRICANTS CORROSION INHIBITORS PARAFIN MITIGATION SCALE INHIBITORS
BIOCIDES
H2S SCAVENGERS
OXYGEN SCAVENGERS
Identify,
Recommend &
Produce Chemical
Treatments
Deliver
Solution to
Well Site
Use chemistry, polymers and minerals to solve our customers' problems and optimize their production and drilling related
needs to maximize their returns on investments through decentralized sales, service & problem solving approach
5
Improving Trends & Stable End Markets
Drilling Fluid Chemical Requirements Increasing
Vertical | Horizontal |
Well | Well |
Drilling Fluids: | Drilling Fluids: |
2 - 5 % | 5 - 10 % |
of total well cost | of total well cost |
North American Crude Oil Production by Basin1
20 | $120 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
$100 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
MMbbl/d | 15 | ($US/bbl)WTI | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
$80 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10 | $60 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
$40 | Avg. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
5 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$20 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
0 | $- | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||
2015 | 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
YTD | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Canada | Permian | Eagle Ford | Bakken | Anadarko | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Niobrara | GoM | Alaska | Other US | Avg. WTI | ||||||||||||||||||||||||||||||||||||||||||||||||||||
North American Water Production2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
80 | $120 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
70 | $100 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
MMbbl/d | 60 | ($US/bbl)WTI | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
50 | $80 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
40 | $60 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
30 | $40 | Avg. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
20 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10 | $20 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
0 | $- |
2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | ||
United States | Canada | Avg. WTI | YTD | |||||||
Significant exposure to rising North American oil and gas and related water production stabilizes free cash flow generation
through the cycles, while increasing well complexity and longer lateral lengths drives drilling fluid chemical growth
1. | Source: CER, EIA & Bloomberg, year to date information up to October 31, 2023 | 6 |
2. | Source: Enervus & GeoScout, year to date information up to October 31, 2023 |
Strong Competitive Positioning
Worldwide Drilling & Completion Fluids Market Size(1) | Worldwide Production Chemicals Market Size(1) |
Revenue USD ($M)
$12,000 $9,000 $6,000 $3,000
$0 | ||||||||||||
2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |||||
Schlumberger | Halliburton | CES Energy Solutions | ||||||||||
China Oilfield Services, Ltd. | Baker Hughes | Newpark | ||||||||||
Tetra Technologies, Inc. | NOV | Weatherford International | ||||||||||
Secure Energy Services | Others | |||||||||||
Revenue USD ($M)
$9,000 | ||||||||||||
$6,000 | ||||||||||||
$3,000 | ||||||||||||
$0 | ||||||||||||
2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |||||
ChampionX | Baker Hughes | Clariant | ||||||||||
Schlumberger | Lubrizol Specialty Products | CES Energy Solutions | ||||||||||
Innospec | Others | |||||||||||
CES' Historical Market Share Growth | CES' Historical Treatment Points(2) | |
45% | 39% | 38% | 10,000 | |||||||||||||||
36% | 36% | 36% | 36% | |||||||||||||||
40% | 31% | 34% | 34% | 35% | 34% | 32,000 | Canadian Treatment Points | |||||||||||
Market Share (%) | 35% | 28% | 30% | US Treatment Points | 28,000 | 8,000 | ||||||||||||
30% | 24,000 | |||||||||||||||||
6,000 | ||||||||||||||||||
25% | 21% | 20,000 | ||||||||||||||||
19% | 18% | 16,000 | ||||||||||||||||
20% | 16% | 4,000 | ||||||||||||||||
13% | 12,000 | |||||||||||||||||
15% | 11% | 11% | 12% | |||||||||||||||
7% | 8% | 10% | 8,000 | 2,000 | ||||||||||||||
6% | 6% | |||||||||||||||||
10% | 4,000 | |||||||||||||||||
5% | ||||||||||||||||||
0% | ||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
US | Canada | US Treatment Points | Canadian Treatment Points | |||
Top-tier chemical solutions provider with continued growth potential
Note 1: Source: Internally prepared charts based on underlying data provided by Spears & Associates Inc. | 7 |
Note 2: CES Treatment Points represents the average estimated number of unique wells or oilfield sites serviced monthly by CES in the referenced period with production and specialty chemicals. | |
Well Positioned for Growth with
Decentralized Model
DRILLING
FLUIDS
COMPLETION
CHEMICALS
PRODUCTION
CHEMICALS
PIPELINES & MIDSTREAM
INDUSTRIAL/
COSMETICS/OTHER
Allocation of capital dedicated to the most attractive basins and markets while leveraging decentralized entrepreneurial model and basic chemical manufacturing product suite
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Quality Customer Base
Top 50 Customer Breakdown - 2023 (Revenue)1
80% Public Companies
20% Private Companies
Top 50 Public Customers - By Market Capitalization2
$10Bn to $600Bn
$CBn | $1Bn to $10Bn |
$0 to $1Bn |
0% 10% 20% 30% 40% 50% 60% 70%
66% of top 50 public company revenue was from customers with
Market
Capitalizations of
$10Bn to $600Bn
1. As at December 31, 2023
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2. Source: FactSet - as at February 13, 2024
Low Capital Intensity
CES - Historical Capital Spend
280 | |||||||||
260 | |||||||||
240 | |||||||||
220 | |||||||||
Adjusted EBITDAC(1) | 200 | ||||||||
$MM | 180 | ||||||||
160 | |||||||||
Net Capex(2) | 140 | ||||||||
120 | |||||||||
Net Capex as a % of | 100 | ||||||||
80 | |||||||||
Revenue(3) | |||||||||
60 | |||||||||
40 | |||||||||
20 | |||||||||
- | |||||||||
Expansion Projects | 2019 | 2020 | 2021 | 2022 | 2023 | ||||
Permian Infrastructure
Permian Debottlenecking
Canadian Chemical Infrastructure
US Drilling Fluids Vertical
Integration
New Markets
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
Significant expansion capex largely complete
2024 capex estimated to be
~C$70 million
- Non-GAAPmeasure that does not have any standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other entities. Refer to the section entitled "Non-GAAP Measures and
Other Financial Measures" in CES' MD&A for the three and twelve months ended December 31, 2023, which is incorporated by reference into this presentation and is available on SEDAR at www.sedar.com. - Represents total investment in property and equipment less proceeds on disposal of assets, excluding $8.1M in proceeds on the sale of a building recorded in 2021.
3. | Supplementary Financial Measure. Supplementary financial measures are provided in this presentation where management believes they assist the reader in understanding CES' results. Refer to section entitled "Non-GAAP | 10 |
Measures and Other Financial Measures" in this presentation. | ||
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Disclaimer
CES Energy Solutions Corp. published this content on 01 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 01 March 2024 18:54:10 UTC.
