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| 8-K - FORM 8-K - C&J Energy Services, Inc. | d298546d8k.htm |
 C&J Energy Services, Inc.
Investor Presentation
February 9, 2012
Exhibit 99.1 |
 Forward-Looking Statements
Certain
statements
and
information
in
this
presentation
may
constitute
“forward-looking
statements”
within
the
meaning
of
Section
27A
of
the
Securities
Act
of
1933,
as
amended,
Section
21E
of
the
Securities
Exchange
Act
of
1934,
as
amended,
and
the
Private
Securities
Litigation
Reform
Act
of
1995.
The
words
“believe,”
“expect,”
“anticipate,”
“plan,”
“intend,”
“foresee,”
“should,”
“would,”
“could”
or
other
similar
expressions
are
intended
to
identify
forward-looking
statements,
which
are
generally
not
historical
in
nature.
These
forward-looking
statements
are
based
on
our
current
expectations
and
beliefs
concerning
future
developments
and
their
potential
effect
on
us.
While
management
believes
that
these
forward-looking
statements
are
reasonable
as
and
when
made,
there
can
be
no
assurance
that
future
developments
affecting
us
will
be
those
that
we
anticipate.
All
comments
concerning
our
expectations
for
future
revenues
and
operating
results
are
based
on
our
forecasts
for
our
existing
operations
and
do
not
include
the
potential
impact
of
any
future
acquisitions.
Our
forward-looking
statements
involve
significant
risks
and
uncertainties
(some
of
which
are
beyond
our
control)
and
assumptions
that
could
cause
actual
results
to
differ
materially
from
our
historical
experience
and
our
present
expectations
or
projections.
Known
material
factors
that
could
cause
our
actual
results
to
differ
from
our
projected
results
are
described
in
our
filings
with
the
Securities
and
Exchange
Commission
(“SEC”),
including
but
not
limited
to
the
final
prospectus
dated
July
29,
2011
(File
No.
333-173177)
relating
to
our
initial
public
offering
and
Quarterly
Report
on
Form
10-Q
for
the
period
ended
September
30,
2011.
All
readers
are
cautioned
not
to
place
undue
reliance
on
forward-looking
statements,
which
speak
only
as
of
the
date
hereof.
We
undertake
no
obligation
to
publicly
update
or
revise
any
forward-looking
statements
after
the
date
they
are
made,
whether
as
a
result
of
new
information,
future
events
or
otherwise.
Non-GAAP Financial Measures
We
use
both
GAAP
and
certain
non-GAAP
financial
measures
to
assess
performance.
Generally,
a
non-GAAP
financial
measure
is
a
numerical
measure
of
a
company's
performance,
financial
position
or
cash
flows
that
either
excludes
or
includes
amounts
that
are
not
normally
excluded
or
included
in
the
most
directly
comparable
measure
calculated
and
presented
in
accordance
with
GAAP.
C&J
management
believes
that
these
non-GAAP
measures
provide
useful
supplemental
information
to
investors
in
order
that
they
may
evaluate
our
financial
performance
using
the
same
measures
as
management.
These
non-GAAP
financial
measures
should
not
be
considered
as
a
substitute
for,
or
superior
to,
measures
of
financial
performance
prepared
in
accordance
with
GAAP.
In
evaluating
these
measures,
investors
should
consider
that
the
methodology
applied
in
calculating
such
measures
may
differ
among
companies
and
analysts.
Reconciliation
of
non-GAAP
results
to
GAAP
results
for
historic
periods
can
be
found
on
slide
35
of
this
presentation
and
in
our
filings
with
the
SEC,
as
applicable.
2
Disclaimer |
 Company Overview |
 4
Founded by current Chairman and CEO Josh Comstock
Well-positioned to benefit from many of the most important trends in drilling
and completion Focused on complex, technically demanding completions that
deliver superior returns Operates modern, high-pressure rated
equipment Integrated manufacturing capabilities
Recent rapid growth through penetration of prominent E&P customers
Unique financial business model through “take-or-pay plus”
contracts that combine visibility
with spot upside optionality
C&J is a Differentiated Energy Services Company |
 1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
5
Josh
Comstock
founded C&J
Introduced stand-
alone pressure
pumping services
Ordered first
hydraulic
fracturing fleet
Added 5 coiled tubing units, bringing total to 13
Geographic expansion into East Texas
Launched hydraulic fracturing service
Contracted Fleets 1 and 2
Ordered Fleets 3, 4 and 5
Evolution of C&J
Introduced
coiled tubing
services
C&J Timeline
Key Customers
Closed Total Acquisition
Coiled tubing count reaches 18 units
Contracted Fleets 3, 4, 5 and 6
Ordered Fleets 7, 8, 9
2012
Ordered 6 additional
coiled tubing units |
 6
C&J Investment Highlights
Operational
expertise in
service-
intensive
basins
Visible revenue
growth
Modern, high-
specification
equipment
High-quality
service
Focused on technically-demanding, service-intensive basins
Generate higher revenue per unit of horsepower relative to peers
Customized solutions through extensive front-end technical analysis and
planning
Design
engineers
and
job
supervisors
involved
throughout
project
execution
Exclusive focus on high-pressure rated equipment (all rated up to 15,000
psi) Modern fracturing fleet, all entered into service in the past four
years Acquisition of Total provides specialized, in-house manufacturing
capability Substantial hydraulic fracturing and completion services
experience Vested executive team with significant ownership
Experienced
management
Scheduled equipment deliveries to support sustained growth
Term contracts provide visibility with flexibility for spot market upside
|
 Industry Trends |
 Ongoing development of existing and emerging unconventional resource basins
-
Increased horizontal drilling
-
Greater service intensity
Strong North American supply-demand fundamentals
-
Increased demand for expertise to execute complex completions
-
High levels of asset utilization and constrained supply growth
Spread of North American unconventional drilling and completion techniques
-
Conventional field redevelopment applications
-
Emerging international opportunities
8
Key Industry Themes Driving C&J Opportunity |
 Source:
Unconventional
Drilling
data
as
of
September
2011
and
Baker
Hughes
Rig
Count
data
as
of
November
04,
2011.
Strong Drilling Outlook Drives Completion Demand
9
Significant increase in rig count and horizontal drilling activity
Increased service intensity of horizontal wells |
 10
Source: Goldman Sachs Equity Research, management estimates.
Note: Dark blue bars denote current C&J basin of operation.
Advances in Completion Techniques Driving Demand
Average Fracturing Stages Per Well
Average Horsepower Per Well (000’s of HP)
40
38
30
25
11
Haynesville
Eagle
Ford
Granite
Wash
Other
Unconventional
Median
Conventional
16
16
12
13
3
Haynesville
Eagle
Ford
Granite
Wash
Other
Unconventional
Median
Conventional |
 11
Favorable Supply / Demand Fundamentals
Continued increase in horizontal drilling
Longer laterals
Growing number of fracturing stages per well
Improved drilling efficiencies
High-pressure environments
Customized approach to the completion of
complex, technically demanding wells
Redevelopment of conventional fields
Older equipment not well-suited to meet
demanding completion requirements
Significant increase in attrition and
maintenance downtime
-
24-hour continuous service
-
More aggressive sand / proppant use
-
More demanding operating conditions in
higher pressure formations
Supply chain constraints in obtaining new
equipment
Limited industry experience executing the
most complex completions
Demand-Side Drivers
Supply-Side Drivers |
 Business Overview |
 13
Overview of Service Offerings
Services
Hydraulic
Fracturing
Pressure
Pumping
Coiled Tubing
Provide highly customized services for
technically challenging basins
Engineering staff offers extensive
front-end technical evaluation
Demonstrated efficiency gains to client
allows for premium pricing
Ability to handle heavy-duty jobs across
a wide spectrum of environments
Leverage CT business to expand into
additional fracturing opportunities
Provides various functions associated
with well completion and well servicing
Diverse portfolio of value-added
services
Routinely performed in conjunction with
coiled tubing services
Often provides advanced knowledge of
potential coiled tubing work
Focus on most
complex projects in
most challenging
basins |
 14
Highly Experienced Management Team
Josh Comstock
Founder,
Chairman and CEO
Randy McMullen
EVP,
CFO and Treasurer
Brett Barrier
COO
John Foret
VP, Coiled Tubing
Billy Driver
VP, Hydraulic
Fracturing
Brandon
Simmons
VP, Coiled Tubing
Pat Winstead
VP, Marketing
Ted Moore
VP, General Counsel
Industry
Experience
20+ years
Industry
Experience
20+ years
Industry
Experience
10+ years
Industry
Experience
20+ years
Industry
Experience
25+ years
Industry
Experience
18+ years
Industry
Experience
25+ years
Industry
Experience
9+ years |
 15
Modern, High-Specification Equipment
Currently operates six modern 15,000 psi pressure rated hydraulic fracturing fleets
with aggregate of 206,000 horsepower
–
Specifically designed to handle well completions with long lateral segments and
multiple fracturing stages in high pressure formations
Also owns a fleet of 18 coiled tubing units, 21 double-pump pressure pumps
and 9 single-pump pressure pumps
–
Additional 6 coiled tubing units and ancillary equipment to be delivered in
the second half of 2012 for
deployment to new geographic basins –
20 of the 24 coiled tubing units will be 2-inch dimension
Vertical integration through acquisition of Total E&S
(“Total”) Premium Hydraulic Fracturing Fleets
Current Fleets
Year Built
On-Time Delivery
Number of Pressure Pumps
Horsepower Capacity
1
2007
17
34,000
2
2010
12
24,000
3
2010
16
32,000
4
2011
20
40,000
5
2011
16
32,000
6
2011 / 2012
22
44,000
Expected Fleets
Expected Delivery Date
On-Time Delivery
Number of Pressure Pumps
Horsepower Capacity
7
2Q 2012
16
32,000
8
3Q 2012
16
32,000
9
4Q 2012
16
32,000
Total
151
302,000 |
 Company
Coiled
Tubing
Hydraulic
Fracturing
Chesapeake
Encana
Samson
Petrohawk
EOG
Shell
Devon
Plains Exploration
EXCO
Penn Virginia
Company
Coiled
Tubing
Hydraulic
Fracturing
Chesapeake
Apache
Forest Oil
Cordillera
Newfield
Unit
Penn Virginia
16
Geographically Focused in Attractive Basins
= C&J Customer Relationship
Granite Wash
Company
Coiled
Tubing
Hydraulic
Fracturing
Chesapeake
EOG
Petrohawk
Newfield
Anadarko
Shell
SM Energy
ConocoPhillips
Eagle Ford Shale
Haynesville Shale
Existing relationships provide platform for future growth
Prominent shales are in reach of C&J’s existing service centers
|
 Offer customized solutions on
a job-by-job basis
Engineers and fleet managers
onsite throughout process
Culture of flexibility and
collaboration
Completed thousands of
fracturing stages in Eagle
Ford and Haynesville
Operating team with 20+
years of in-basin experience
Relationships with several
proppant and chemical
suppliers
Technical proficiency and
front-end analysis
The Result is Enhanced Economics for Our Customers
Superior
customer
service
New, highly
capable
equipment
Exceptional
execution
High-quality
service
provider
Minimize cycle time and limit
pump downtime
Design fluids that perform well
in various environments
Focus on maintaining
performance data that is used
to supplement and increase
effectiveness of future
assignments
We Offer an Attractive Value Proposition to Our Customers
All fracturing fleets less than 4
years old; rated for 15,000 psi
Optimized configuration of fleet
according to basin specific
requirements
Custom-designed equipment
maximizes efficiency and
durability
Specific competence in
fracturing fluid design and local
application
17 |
 Current Service
Offerings Customer
Stand Alone
Pressure Pumping
Coiled Tubing
Hydraulic
Fracturing
Term Frac Contract
18
Relationships with Industry Leaders
(Through mid-2012)
(Through mid-2012)
(Through early 2013)
(Through mid-2014)
(Through mid-2013)
Large operators have embraced C&J’s technical capabilities
(Early 2014) |
 19
Outperformance Through Efficiency
Pre-job best
practices
Pumping
procedures
Motivated
workforce
Rig-up
flexibility
More frequent communication with customers during well design process
Continuity
of
technical
staff
to
avoid
repetition
and
save
customers’
time
Lab fluids testing in advance for optimal well design
Develop best layout for job site to maximize Hydration Unit and Blender
performance Organize crew into focused teams to complete multiple tasks
simultaneously Conduct field fluid tests during rig process to confirm lab
results Engineers
and
blender
operators
on
site
during
rig
up
to
“jump
start”
technical
review
Real-time monitoring of equipment to spot potential problems early
On-site maintenance of pump units as soon as each one is offline
Proactive replacement of wear items rather than waiting for a failure
Streamline paperwork requirements to allow supervisors to focus on efficiency and
planning
Empowering employees and promoting best practices produces a proud and highly
motivated workforce |
 20
Strategy for Continued Growth
Capitalize on growth in development of shale and other resource plays
Leverage customer relationships to geographically expand
–
Further expansion into new geographic basins
–
Evaluating opportunities to expand operations into new areas throughout the
U.S. Pursue additional term hydraulic fracturing contracts
–
Currently seeking term contracts for Fleets 7, 8 and 9
Maintain flexibility to pursue spot market work
–
Retains upside revenue potential at prevailing market rates
|
 Financials |
 22
Key Drivers of Financial Performance
Business Model
Financial Model
Visibility
Growth
Vertical integration
Risk management
Hourly rates under take-or-pay contracts
Spot market optionality
Utilization drives model
Balance sheet strength |
 23
Significant Historical Growth
Adjusted EBITDA ($mm)
Revenue ($mm)
Revenue ($mm)
1
Assumes
timely
delivery
of
Fleets
6
–
8. |
 24
Strong Margin Profile
EBITDA Margin¹
Annual
Quarterly
1
EBITDA margin based on Adjusted EBITDA.
Margins driven by utilization, not price |
 25
More demanding wells drive higher hourly rates and higher revenues from
chemicals and proppant
More frac stages per well keep fleets onsite longer, allowing more pumping hours
per month
Demonstrated
shorter
time
per
completion
permits
us
to
negotiate
premium
rates
with customers
Less redundant pumping capacity boosts utilization
Average monthly revenue per unit of horsepower:
-
$331 in 2010
-
$387 YTD September 30, 2011
ROCE of 43% in 2010 and 47% YTD September 30, 2011
Operational Strategy Drives Strong Financial Performance
Regional
focus
and
operating
efficiency
generate
higher
revenues
per
unit
of
horsepower |
 26
Contract Coverage for Fracturing Fleets
2011
2012
Operating Regions
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Fleet 1
Haynesville/Eagle
Ford/Granite wash
Fleet 2
Eagle Ford
Fleet 3
Eagle Ford
Fleet 4
Eagle Ford
Fleet 5
Eagle Ford
Fleet 6
Permian
Fleet 7
(Uncontracted)
Fleet 8
(Uncontracted)
Fleet 9
(Uncontracted)
Fleet Under Contracts
Expected Delivery of Future Fleets
Delivery 2Q 2012
Delivery 2Q 2012
Fracturing Term Contracts Provide Visible Growth
Delivery 4Q 2012 |
 27
Overview of Term Contracts
•
1 –
3 year contract life
•
Revenues under term contracts are derived from:
–
Mandatory monthly payments for minimum hours
–
Pre-agreed amounts for each hour of service in excess of the contracted
minimum
–
Service charge to customers for chemicals and proppant materials
•
Take or pay
•
Optionality to deploy equipment when not utilized
•
Contractual protections for term |
 28
Total E&S Acquisition Facilitates Growth Strategy
Total E&S is a manufacturer of hydraulic fracturing equipment, coiled
tubing, pressure
pumping
and
other
equipment
used
in
the
energy
services
industry
and one of C&J’s largest suppliers of machinery and equipment
–
Acquisition closed April 28, 2011
–
Aggregate purchase price of approximately $33.0mm
–
Received $5.4mm cash as part of acquisition, for net transaction
value of $27.5mm
–
$25.0mm financed through incremental revolver borrowings
–
Remainder funded through cash on hand
Strategic benefits include
–
Internal control over supply chain
–
Significantly reduces exposure to third-party supply constraints
–
Shorter cycle times for the delivery of new equipment and replacement parts
–
Provides for greater potential control of costs associated with new
equipment –
Acquisition has reduced C&J’s procurement costs from Total
–
Ability to delay, or indefinitely postpone, delivery time of equipment
–
Platform for R & D, continued equipment design improvements
|
 Strong Balance Sheet and Liquidity
Flexible balance sheet with strong liquidity position
–
$200mm revolving credit facility
29
1
Summary Capital Structure, as of 9/30/2011
($ in thousands)
Reported
Cash and Cash Equivalents
$
50,640
Long-term Debt
Five-Year $200mm Credit Facility
Total Long-Term Debt
Shareholders' Equity
$
338,312
Total Capitalization
$
338,312
$
$
0
1
The credit facility remains undrawn today, leaving the full $200.0 million available
for borrowing. 0 |
 30
C&J Investment Highlights
Operational
expertise in
service-
intensive
basins
Visible revenue
growth
Modern, high-
specification
equipment
High-quality
service
Focused on technically-demanding, service-intensive basins
Generate higher revenue per unit of horsepower relative to peers
Customized solutions through extensive front-end technical analysis and
planning
Design
engineers
and
job
supervisors
involved
throughout
project
execution
Exclusive focus on high-pressure rated equipment (all rated up to 15,000
psi) Modern fracturing fleet, all entered into service in the past four
years Acquisition of Total provides specialized, in-house manufacturing
capability Substantial hydraulic fracturing and completion services
experience Vested executive team with significant ownership
Experienced
management
Scheduled equipment deliveries to support sustained growth
Term contracts provide visibility with flexibility for spot market upside
|
 Appendix |
 Income Statements
32
Year Ended December 31,
Nine Months
Ended September 30,
($ in thousands except per share amounts)
2007
2008
2009
2010
2010
2011
Statement of Operations Data
Revenue
$28,022
$62,441
$67,030
$244,157
$158,361
$538,403
Cost of Sales
14,227
42,401
54,242
154,297
102,872
318,949
Gross Profit
$13,795
$20,040
$12,788
$89,860
$55,489
$219,454
Selling, General and Administrative Expenses
7,427
8,950
9,533
17,998
11,384
36,219
Loss (Gain) on Sale / Disposal of Assets
129
397
920
1,571
1,582
(20)
Operating Income
$6,239
$10,693
$2,335
$70,291
$42,523
$183,255
Other Income (Expense)
Interest Income
$50
$5
$4
$9
$7
$1
Interest Expense
(5,786)
(6,913)
(4,712)
(17,350)
(13,451)
(3,825)
Lender Fees
(341)
(511)
(391)
(322)
(97)
(42)
Loss on early extinguishment of debt
–
–
–
–
–
(7,605)
Other Income
–
–
–
163
106
3
Other Expense
(17)
(68)
(52)
(150)
(47)
(1)
Total Other Expenses
$(6,094)
$(7,487)
$(5,151)
$(17,650)
$(13,482)
$(11,469)
Income (Loss) Before Income Taxes
$145
$3,206
$(2,816)
$52,641
$29,041
$171,786
Provision (Benefit) for Income Taxes
868
2,085
(386)
20,369
11,271
63,189
Net Income (Loss)
$(723)
$1,121
$(2,430)
$32,272
$17,770
$108,597
Basic Net Income (Loss) per Share
$(0.02)
$0.02
$(0.05)
$0.70
$0.38
$2.24
Diluted Net Income (Loss) per Share
(0.02)
0.02
(0.05)
0.67
0.37
2.18
(Unaudited) |
 Cash
Flows 33
Year Ended December 31,
Nine Months
Ended September 30,
2006
2007
2008
2009
2010
2010
2011
Statement of Cash Flows Data
Capital Expenditures
$9,282
$30,152
$21,526
$4,301
$44,473
$18,647
$106,471
Cash Flow Provided by (Used in)
Operating Activities
$855
$8,377
$8,611
$12,056
$44,723
$27,769
$141,190
Investing Activities
(108,760)
(30,054)
(20,673)
(4,254)
(43,818)
(18,622)
(131,312)
Financing Activities
106,700
21,305
11,921
(6,733)
734
(3,217)
37,945
(Unaudited) |
 Balance Sheets
34
As of December 31,
As of
September 30
($ in thousands)
2006
2007
2008
2009
2010
2011
Balance Sheet Data
Cash and Cash Equivalents
$622
$250
$109
$1,178
$2,817
Accounts Receivable, Net
5,557
4,409
13,362
12,668
44,354
Inventories, Net
440
581
861
2,463
8,182
Property, Plant and Equipment, Net
31,593
57,991
71,441
65,404
88,395
Total Assets
$111,467
$133,711
$155,212
$150,231
$226,088
Accounts Payable
690
1,705
6,519
10,598
13,084
Long-term Debt and Capital Lease Obligations,
Excluding Current Portion
51,700
56,773
25,041
60,668
44,817
Total Stockholders' Equity
$56,265
$66,797
$68,099
$65,799
$109,446
(Unaudited)
$50,640
88,678
26,954
188,782
$462,475
51,298
–
$338,312 |
 EBITDA Reconciliation
35
Note:
EBIT,
EBITDA
and
Adjusted
EBITDA
are
non-GAAP
financial
measures,
and
when
analyzing
C&J’s
operating
performance,
investors
should
use
EBIT,
EBITDA
and
Adjusted
EBITDA
in
addition
to,
and
not
as
an
alternative
for,
operating
income
and
net
(loss)
income
(each
as
determined
in
accordance
with
GAAP).
C&J
uses
EBIT,
EBITDA
and
Adjusted
EBITDA
as
supplemental
financial
measures.
EBIT
is
defined
as
net
income
(loss)
before
interest
expense
(net)
and
income
taxes.
EBITDA
is
EBIT
adjusted
for
depreciation
and
amortization.
Adjusted
EBITDA
is
EBITDA
further
adjusted
for
certain
other
items
which
are
not
indicative
of
future
performance
or
cash
flow,
including
lender
fees,
other
non-operating
expenses
and
loss
on
sale/disposal
of
property,
plant
and
equipment.
C&J
believes
EBIT,
EBIDA
and
Adjusted
EBITDA
are
useful
supplemental
indicators
of
its
performance.
EBIT,
EBITDA
and
Adjusted
EBITDA,
as
used
and
defined
by
C&J,
may
not
be
comparable
to
similarly
titled
measures
employed
by
other
companies
and
are
not
measures
of
performance
calculated
in
accordance
with
GAAP.
Year Ended December 31,
Nine Months
Ended September 30,
(Unaudited)
($ in thousands)
2008
2009
2010
2010
2011
Net Income (Loss)
$1,121
$(2,430)
$32,272
$17,770
$108,597
Interest Expense, Net
6,909
4,708
17,341
13,444
3,824
Provision (Benefit) for Income Taxes
2,085
(386)
20,369
11,271
63,189
Depreciation and Amortization
8,836
9,828
10,744
7,855
15,640
EBITDA
$18,951
$11,720
$80,726
$50,340
$191,250
Adjustments to EBITDA
Loss on early extinguishment of debt
-
-
-
-
7,605
Loss (Gain) on Sale / Disposition of Property,
Plant & Equipment
397
920
1,571
1,582
(20)
Adjusted EBITDA
$19,348
$12,640
$82,297
$51,922
$198,835 |