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Corporate Presentation August 2016
TSX : HWO
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DISCLAIMER
These statements are derived from certain assumptions and analyses made by the Corporation based on its experience and perception of historical trends, current conditions, expected future developments and other factors that it believes are appropriate in the circumstances. These statements or predictions are subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from the Corporation’s expectations. These risks and uncertainties include the items discussed under the heading “Risk Factors” in the Corporations' most recently filed Annual Information Form as well as the Corporation’s other public disclosure documents located on SEDAR (www.sedar.com). Consequently, all of the forward-looking information contained within
this presentation and statements made in conjunction with this presentation are qualified by these cautionary statements and there can be no assurance that actual results or developments anticipated by the Company will be realized or that they will have the expected consequences or effects on the Corporation or its business or operations.
Other than as required by applicable securities laws, the Corporation assumes no obligation to update publicly any such forward-looking information or statements, whether as a result of new information, future events or otherwise.
Certain information contained within this presentation and statements made in conjunction with this presentation, including information and statements that contain words such as “seek”, “anticipate,” “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe”, “forecast”, “can” and similar expressions, are forward-looking statements. In particular, forward-looking statements in this presentation include, but are not limited to, statements with respect to future capital expenditures, future financial resources, anticipated equipment utilization levels, future oil and gas well activity, projections of market prices and costs, outcomes of specific events and trends in the oil and gas industry.
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Business Overview
High Arctic Energy Services is a market leader with
diversified operations in Papua New Guinea (PNG) and
Canada.
P N G
• Dominant market position for contract drilling, well completion and rental services in PNG.
• Provides services in PNG to super majors and regional energy companies under long-term contracts.
• Strong track record of 9 years of operations in PNG.
• PNG’s developing LNG industry reduces the impact of short-term oil & gas price volatility.
C a n a da
• Owns and operates Canada’s largest fleet of stand alone snubbing units.
• Opportunity to expand organically or through acquisition 2015 Revenue
PNG $177.8 mm
Canada $32.1 mm
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Shares outstanding
(Aug 15, 2016): 52.6 million
Share Price (Aug 15, 2016): $3.59
Market Cap (Aug 15, 2016): $188.9 million
Net Cash & Marketable Securities
(June 30, 2016): $50.5 million
30 Day Average Trading Volume 76,256
Trailing 12 Month Adjusted EBITDA
(June 30, 2016): $76.4 Million
Annual Dividend $0.198
Dividend Yield 5.52%
CORPORATE SNAPSHOT
Cyrus Capital 42%
Insiders 9%
Public 49%
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Stable Growth T R A C K R E C O R D O F
4
0
50
100
150
200
250
2010 2011 2012 2013 2014 2015 TTM
Canadian Revenue PNG Revenue
32 33
40 42
49
64
76.4
27%
26%
27%
27%
29% 30%
36%
10%
15%
20%
25%
30%
35%
20
30
40
50
60
70
80
2010 2011 2012 2013 2014 2015 TTM
Adjusted EBITDA Adjusted EBITDA (%)
REVENUE (as at June 30, 2016)
ADJUSTED EBITDA (as at June 30, 2016)
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Overview – Stable and Growing • Independent, established democracy and a stable business jurisdiction. • Part of the British Common wealth with a parliamentary government. • Government working with industry to develop nation (even in the current environment)
Papua New Guinea
Oil and Gas Activities – Long History, with New Growth • Oil exploration activities since 1920’s • Long-term LNG development commenced in 2008
Macro Drivers for Growth • Large un-explored resource base • Low cost source of LNG to Asian markets • High quality operators with financial strength • High quality gas (i.e. high heating content) • Domestic natural gas electricity development to support economic growth
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Overview – Stable and Growing • Globally contracted LNG supply is expected to be short of total
anticipated demand by 2020 • Largest growth in demand for LNG is expected to come from
Asia resulting from changes in: • Government policy • Environmental strategy to replace coal • PNG’s LNG projects are advantageously situated to
supply Asian buyers • Large natural gas reserves – current estimates PNG LNG:
9 tcf, Papua LNG: 8.6 tcf, encourages long-term drilling
LNG Development THE PNG ADVANTAGE
East Africa $8.76
West Africa $8.76
US Gulf Coast $10.76
West Australia $8.73
East Australia $14.49
PNG $7.59
Cost of LNG to Japan 10% return (US$/mmbtu)
Source: Wood Mackenzie
Proximity to growing Asian market’s provides incentive to
develop LNG projects despite industry downturn
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PNG Outlook & Development
P’nyang
Juha
Kutubu
Kumul
Gobe Kopi
Triceratops InterOil New Discovery
PNG LNG Operating
Papua LNG Proposed
Port Moresby
Elk / Antelope
Hides and Angore
Valve and pigging station
Oil/gas fields
Oil export platform
LNG Facility
Oil / gas refinery
Proposed pipeline
Pipeline
PNG LNG: • Exxon is the operator.
• Total forecast production includes 9.0 tcf of natural gas and 200+ million bbls of associated liquids over 30 years
• Shipments began Q2 2014
• Exploration to support expansion (e.g. P’nyang)
Elk / Antelope (Papua LNG): • Ownership: TOTAL, InterOil and OSL
• Reserve confirmation test underway to size LNG facility
• Development wells required to feed LNG facility.
OSL: • Targeting 4 to 6 exploration wells/yr. • Focusing investment in PNG to support
10 year growth platform. • Estimated 5 million BOE yet to be
discovered in PNG.
InterOil: • 14,000 unexplored acres.
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NATURAL GAS + OIL PRODUCTION
Customer Base
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Drill ing Landscape P A P U A N E W G U I N E A
Rig Type Owner / Operator Details Classification
Heli Portable
OSL / High Arctic 2 Rigs (103 /104) Tier 1
High Arctic 2 Rigs (115 /116) Tier 1
Contractor A 1 Rig circa mid 1970's Tier 2
Contractor B 1 Rig modified for limited heli use Tier 2
Heli Portable Work Over Rig High Arctic 1 Rig 102 Tier 1
Land Rigs Contractor C 1 Land based rig
Operator 1 Land based rig
High Arctic is the dominant Tier 1 drilling provider in PNG
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PNG Drilling + Work Over Services
Rig 103 / 104 (leased from OSL) • Drilling services and support contracts with OSL through
mid 2016 (three year term)
• Strong relationship with OSL with a history of two 3-year contract renewals
Rig 115 / 116 (High Arctic owned) • AC self-erecting 1500 HP heli-portable triple
• 2 year drilling services contract with InterOil commencing with spud of first well
• Annualized operating revenue per rig of $30M USD
• including camp
Rig 102 (High Artic owned) • Only hydraulic work over rig in PNG
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Matting • Inventory exceeding 10,000 rental mats in PNG. • High Arctic has PNG distributor rights. • The largest rental supplier of Dura-Base mats outside of the USA. • Possible expansion into other countries with similar challenging environments.
PNG Equipment Rentals
Camp Services • Owns and manages two 103 man Heli-portable man camps • Operates and manages two 93 man Heli- portable drilling rig camps
Other Rental Equipment • Cranes (ranging from 30 ton to 160 ton) • Rig moving trucks • Forklifts • River pumps
MATTING CONTRACTS
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41%
6% 53%
Term Contract
Prospective
Idle
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Canadian Operations
Snubbing • 15 Stand Alone Units
• 3 Rig Assist Units
• Currently marketing 8 units
• 2016 addition of fully guided 285k and 170k units
Nitrogen • 11 Low Rate Unit
• 1 High Rate N2 Pumper
• 5 Nitrogen Transport
Rentals • High pressure BOP’s
OUR CUSTOMERS
Dominant Western Canadian Stand Alone Snubbing
Position Provides Platform to Expand
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• High Arctic is a market leader for stand alone snubbing in Western Canada
• Jointed pipe snubbing allows rotation of pipe to over come friction in extended reach horizontal wells
• Increasing number of high pressure horizontal wells has resulted in additional demand for higher capacity units
• Snubbing remains a necessary service for completions of long-reach horizontal wells
Canadian Snubbing Market # OF SNUBBING
UNITS AVAILABLE
AVERAGE WELL DEPTH (WESTERN CANADA)
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High Arctic Owns and Operates Canada’s Largest
Fleet of Stand Alone Snubbing Units
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8
6
2 2 High Arctic
Precision
Quattro
Powerstroke
Northern
Snub Co.
60% 58% 63%
70% 20% 24%
21% 19%
20% 18% 16% 11%
1,500
1,600
1,700
1,800
1,900
2,000
2,100
0%
20%
40%
60%
80%
100%
2012 2013 2014 2015
We
ll D
ep
th
We
ll Ty
pe
(%
)
Horizontal Vertical Other Avg. DepthSources: Geoactivity
Sources: Company Reports, High Arctic
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$ millions (except per share amounts) 2016 2015
Revenue 98.2 93.4 5%
Adjusted EBITDA 36.9 24.5 51%
Adjusted EBITDA % of revenue 38% 26% 43% Net Earning per share (basic and diluted)(1)
0.33 0.22 50%
Fund From Ops. per share (basic)(1)
0.61 0.34 79%
Fund From Ops. per share (diluted)(1)
0.60 0.33 82%
Dividends per share(1) 0.10 0.10 -
Six months ended June 30,
$48.7 $43.5
$0.0
$20.0
$40.0
2015 2016
$14.1 $15.1
$0.0
$10.0
$20.0
2015 2016
$10.5
$13.4
$0.0
$5.0
$10.0
$15.0
2015 2016
REVENUE
ADJUSTED EBITDA
FUNDS FROM OPS.
(1) The restricted shares held by a trustee under the Executive and Director Incentive Share Plan are included in the shares outstanding. The number of shares used in calculating the net earnings per share amounts is determined differently as explained in the Financial Statements.
Q2 Solid 2016 YTD Results
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Financial Performance
INDEXED SHARE PRICE PERFORMANCE ENTERPRISE VALUE / EBITDA HISTORICAL RETURN ON EQUITY
High Arctic’s share price has historically outperformed industry peers
High Arctic consistently delivers strong returns to shareholders
High Arctic is trading at the lower end of the industry valuation spectrum
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Sources: Lightyear Capital, Altacorp
Comps include AKT.A, ESN, TDG, PD, WRG, SVY, XDC
0%
50%
100%
150%
200%
250%
300%High Arctic
Competitors
0%
5%
10%
15%
20%
25%
30%
35% Competitors High / Low
High Arctic
0.0 x
1.0 x
2.0 x
3.0 x
4.0 x
5.0 x
6.0 x
7.0 x
8.0 x
9.0 x
10.0 x Competitors High / Low
High Arctic
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$0.07
$0.15
$0.17
$0.20
$0.12
$0.01 $0.00
$0.10 $0.12
2012 2013 2014 2015 2016 YTD*
Dividends per share Repurchases per share
Growing Distributions T R A C K R E C O R D O F
Established history of dividend growth while maintaining conservative payout ratios
Additional distributions to shareholders through share repurchases
Disciplined distributions, without sacrificing capital resources to execute on growth opportunities
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DISTRIBUTIONS TO SHAREHOLDERS THREE YEAR DIVIDEND GROWTH 1
1 Changes in dividend from June 30 2012 to June 30, 2016 2 Canadian energy services yield cos: AKT.A, CET, CFW, ESI, ESN, FRC, TDG, TCW and WRG
Canadian Energy Services Yield Cos2
2016 YTD figure shown as at July 31, 2016
32%
(100%)
(80%)
(60%)
(40%)
(20%)
0%
20%
40%
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Balance Sheet • No Debt
Credit Facility • Maturity Aug. 31, 2017 • On side with all covenants
Significant Cash Balance
LIQUIDITY
Credit Facility $45 million
Cash $37.7 million
Short-term Investments $12.8 million
(as at June 30, 2016)
Liquidity and Balance Sheet W E L L P O S I T I O N E D W I T H S O L I D
Total $95.5 Million
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Growth Strategy
• Depressed North American activity levels may lead to attractive valuations for acquisition targets. • Valuation gaps starting to narrow • Focus on quality operations, consistent with High Arctic’s operating culture.
• Diversification is key to long-term strength of High Arctic
• Geographic – Management team with strong North American and International experience
• Complementary product lines – capture more of the customer value chain.
• Strong balance sheet and cash flows provide fuel for growth
• Organic growth of Canadian snubbing operations. • Fit for purpose solutions to meet customer needs.
• Goal is to maintain a solid balance sheet
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Strategically Positioned for 2016 and Beyond
• The leader in PNG for contract drilling, well completions and rentals
• Exposure to long-term LNG development reduces exposure to short-term oil and gas volatility
• Conservative balance sheet with no debt
• Strong financial performance and growing EBITDA despite down-turn
• Positioned for opportunistic growth over next 24 months
• The leader in Canada for snubbing services
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A P P E N D I X
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• Partner, Cyrus Capital Partners • Managing Director, Cyrus Capital Partners Europe LLP
• Independent businessman • Former President and CEO of IROC Energy Services Corporation
• Partner at Warren Sinclair LLP, a law firm in Red Deer, AB. • A member of the Central Alberta Bar Association
• Independent geological consultant • Former Country Manager for Global Canada Geophysical Services
• Former EVP and General Counsel of High Arctic Energy Services • Member of the Law Society of Alberta and Institute of Chartered Accountants of Alberta
• Former VP of Operations Sylogist (a public consulting company) • Past executive roles in IT, courier and distribution
Appendix A: Board of Directors
Daniel Bordessa Independent
Thomas Alford Independent
Steven Vasey Independent
Christopher Warren Independent
Simon Batcup Independent
Michael Binnion Chairman of the Board
Dennis Sykora
• President and CEO of Questerre Energy Corporation • Chartered Accountant
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• Former Federal Member of Parliament (Minister of Natural Resources; Minister of Finance) • Former senior investment banker with Merrill Lynch, Nesbitt Thomson and First Marathon
Joe Oliver Independent
• Direct of Investor Relations at Cyrus Capital Partners • Chartered Financial Analyst
Ember Shmitt Independent
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Tim Braun CEO
Brian Peters, CA CFO
Michael Maguire VP, International
Daniel Beaulieu COO, Canada
• Over 35 years of oilfield services sector experience, primarily with large drilling contractors.
• 10+ years with Precision Drilling’s International drilling division
• Former COO of Saxon Energy Services
• Over 15 years of experience in corporate finance, accounting and audit. • Former CFO at IROC Energy Services, EnerMAX Services and Pure Energy Services
• Over 35 years of oilfield services sector experience. • Former business unit manager at Weatherford.
• Over 20 years of oilfield experience, including 7 years at Easternwell • Professional Engineer
Appendix B: Management Team
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Contact us Tim Braun, CEO
Ph: (587) 318-3826
Email: tim.braun@haes.ca
Brian Peters, CFO
Ph: (587) 318-2218
Email: brian.peters@haes.ca
Analyst Coverage AltaCorp Capital Inc. Mark Westby
Industrial Alliance Elias Foscolos
National Bank Greg Coleman
PI Financial Brian Purdy
Website www.haes.ca
Head Office 444 – 5th Avenue SW, Suite 2010 Calgary, AB Canada T2P 2T8
TSX : HWO