www.boyarmiller.com
Perspectives
on the
Energy Industry
Breakfast Forum
March 2014
Thoughts on
Oil & Gas Markets
Dave Pursell
dpursell@tphco.com
713-333-2962
March 2014
Houston, TX
*Disclosures on page 9*
Cold Weather Matters!
___________________________________
Source: EIA
0
1,000
2,000
3,000
4,000
27-Dec 28-Mar 27-Jun 26-Se...
Gas Production Growth
30
35
40
45
50
55
60
65
70
75
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 ...
Hydraulic Fracturing Saved the U.S. Industrial Sector
___________________________________
Source: TPH Research
0
10
20
30
...
Inventories point to a balanced (or better) global market
Global Inventories – Crude Oil & Refined Products
"That's mathem...
Non-OPEC Oil Production
25
30
35
40
45
50
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
9.5
10.0
2005 2006 2007 2008 2009 2010 2011 ...
U.S. Crude Oil Growth!
___________________________________
Source: EIA
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,0...
…And We Can’t Export Crude Oil?!
“According to this map we have gone 4 inches”
Harry, Dumb & Dumber
______________________...
Analyst Certification:
I, Dave Pursell, do hereby certify that, to the best of my knowledge, the views
and opinions in thi...
The information contained herein is confidential (except for information
relating to tax issues) and may not be reproduced...
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- A Manufacture’s Perspective -
Presented by:
Paul DeWeese
CEO – Southwest Oilfield Products
Global Market Climates
A Manufacture’s Perspective
INTRO
Global Market Climates
A Manufacture’s Perspective
FAST FACTS
• Established in 1947 (65+ years)
• Global Footprint
– Headq...
Global Market Climates
A Manufacture’s Perspective
INDUSTRY OVERVIEWS
Well ServicesExploration & Production
 Geographical...
Global Market Climates
A Manufacture’s Perspective
Technology Renaissance
Source: Wyatt Investment Research
In 2013, 17 Mi...
Global Market Climates
A Manufacture’s Perspective
The “C” Word
From a Manufacture’s Perspective…
 Increased adoption of ...
Global Market Climates
A Manufacture’s Perspective
Manufacturing
 Increasing raw material costs
 Labor costs & availabil...
Global Market Climates
A Manufacture’s Perspective
North America
 Rig Activity and Utilization
expected to remain flat in...
Global Market Climates
A Manufacture’s Perspective
LATIN AMERICA
 Despite political instabilities,
2014 rig activity proj...
Global Market Climates
A Manufacture’s Perspective
MIDDLE EAST / AFRICA
 2014 MEA Rig activity is robust;
10% increase ex...
Global Market Climates
A Manufacture’s Perspective
EUROPE
 2014 Rig activity is healthy with
a projected 6% increase
 Pr...
Global Market Climates
A Manufacture’s Perspective
ASIA
 2014 Rig activity is modest with a
projected 4% increase
 Stabl...
Global Market Climates
A Manufacture’s Perspective
CLOSING THOUGHTS
POSITIVE OUTLOOK
• North America Drilling
• Middle Eas...
Questions & Answers
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BoyarMiller Breakfast Forum: Perspectives on the Energy Industry – March 2014

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As part of its ongoing Breakfast Forum series, BoyarMiller will gather industry experts for a panel discussion on the energy industry.

Speakers included: David Pursell with Tudor, Pickering, Holt & Co.; Thomas Bates, Board Member on various corporate boards; and Paul DeWeese with Southwest Oilfield Products.

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BoyarMiller Breakfast Forum: Perspectives on the Energy Industry – March 2014

  1. 1. www.boyarmiller.com Perspectives on the Energy Industry Breakfast Forum March 2014
  2. 2. Thoughts on Oil & Gas Markets Dave Pursell dpursell@tphco.com 713-333-2962 March 2014 Houston, TX *Disclosures on page 9*
  3. 3. Cold Weather Matters! ___________________________________ Source: EIA 0 1,000 2,000 3,000 4,000 27-Dec 28-Mar 27-Jun 26-Sep 26-Dec WorkingGas,bcf Normal Max 2014 Min 2013
  4. 4. Gas Production Growth 30 35 40 45 50 55 60 65 70 75 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 OnshoreGasProduction,bcf/day Onshore Growth Shale Deniers Repent! Bueller? …Bueller? …Bueller? ___________________________________ Source: EIA
  5. 5. Hydraulic Fracturing Saved the U.S. Industrial Sector ___________________________________ Source: TPH Research 0 10 20 30 40 50 60 70 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 GasProduction(bcf/d) All other basins Marcellus, Utica, Eagle Ford
  6. 6. Inventories point to a balanced (or better) global market Global Inventories – Crude Oil & Refined Products "That's mathematics, son. You can argue with me, but you can't argue with figures” Foghorn Leghorn ___________________________________ Source: IEA, TPH Research 2,200 2,400 2,600 2,800 3,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec MillionBarrels 2013 Max Min Norm 2012
  7. 7. Non-OPEC Oil Production 25 30 35 40 45 50 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 2005 2006 2007 2008 2009 2010 2011 2012 Non-OPEC(ex-U.S.)Supply,mmbpd U.S.Supply,mmbpd United States Non-US, Non-OPEC “I can hardly remember how I built my bankroll, but I can't stop thinking of how I lost it” Mike McDermott, Rounders ___________________________________ Source: IEA, TPH Research Non-U.S., Non-OPEC supply is stagnant
  8. 8. U.S. Crude Oil Growth! ___________________________________ Source: EIA 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500 6,000 6,500 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 U.S.OnshoreOilProduction(kbpd)
  9. 9. …And We Can’t Export Crude Oil?! “According to this map we have gone 4 inches” Harry, Dumb & Dumber ___________________________________ Source: Bloomberg, TPH Research $2 $15 $12 $93 $95 $91 BAKKEN $82 WTI OK $87 WTI/MID $87 LLS $91 ARAB-MEDIUM $89 MARS $89 MAYA $86 WCS $73 ANS $98 EASTCOAST $95 BRENT $100 $13 $5 $4 $2 $14 $2 $9 Pipe $14 Rail Minimum $2/bbl Quality Differential $77 $13 $103 $21 $5 $108 $87 $10 $20 $104 $107 $2 $3 $102 $110 $15 $18 $93 $2 $95 $91 $16 $12
  10. 10. Analyst Certification: I, Dave Pursell, do hereby certify that, to the best of my knowledge, the views and opinions in this research report accurately reflect my personal views about the company and its securities. I have not nor will not receive direct or indirect compensation in return for expressing specific recommendations or viewpoints in this report. Important Disclosure: Dave Pursell does not own any securities mentioned in this report. Ratings: B = buy, A = accumulate, H = hold, T = trim, S = sell, NR = not rated For detailed rating information, distribution of ratings, price charts and other important disclosures, please visit our website at www.TPHco.com. To request a written copy of the disclosures please call 800-507-2400 or write to Tudor, Pickering, Holt & Co. Securities, Inc. 1111 Bagby, Suite 4800, Houston, TX 77002. OTHER DISCLOSURES Trade Name Tudor, Pickering, Holt & Co. is the global brand name for Tudor, Pickering, Holt & Co. Securities, Inc. (TPHCSI) and its non-US affiliates worldwide. Legal Entities Disclosures U.S.: TPHCSI is a member of FINRA and SIPC. U.K.: Tudor, Pickering, Holt & Co. International, LLP is authorised and regulated by the Financial Conduct Authority. Registered in England & Wales No. OC349535. Registered Office is 5th Floor, 6 St. Andrew Street, London EC4A 3AE. Canada The information contained herein is not, and under no circumstances is to be construed as, a prospectus, an advertisement, a public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any province or territory thereof. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only in the relevant province or territory of Canada in which such offer or sale is made. The information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored to the needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under the laws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities commission or similar regulatory authority has reviewed or in any way passed judgment upon these materials, the information contained herein or the merits of the securities described herein and any representation to the contrary is an offense. United Kingdom Tudor, Pickering, Holt & Co International LLP does not provide accounting, tax or legal advice. In addition, we mutually agree that, subject to applicable law, you (and your employees, representatives and other agents) may disclose any aspects of any potential transaction or structure described herein that are necessary to support any UK income tax benefits, and all materials of any kind (including tax opinions and other tax analyses) related to those benefits, with no limitations imposed by Tudor, Pickering, Holt & Co International LLP or its affiliates.
  11. 11. The information contained herein is confidential (except for information relating to tax issues) and may not be reproduced in whole or in part. Tudor, Pickering, Holt & Co International LLP assumes no responsibility for independent verification of third-party information and has relied on such information being complete and accurate in all material respects. To the extent such information includes estimates and forecasts of future financial performance (including estimates of potential cost savings and synergies) prepared by, reviewed or discussed with the managements of your company and/ or other potential transaction participants or obtained from public sources, we have assumed that such estimates and forecasts have been reasonably prepared on bases reflecting the best currently available estimates and judgments of such managements (or, with respect to estimates and forecasts obtained from public sources, represent reasonable estimates). These materials were designed for use by specific persons familiar with the business and the affairs of your company and Tudor, Pickering, Holt & Co International LLP materials. This information is intended only for the use of professional clients and eligible counterparties or persons who would fall into these categories if they were clients of Tudor, Pickering, Holt & Co International, LLP, or any of its affiliates. Retail clients must not rely on this document and should note that the services of Tudor, Pickering, Holt & Co International, LLP, are not available to them. Under no circumstances is this presentation to be used or considered as an offer to sell or a solicitation of any offer to buy, any security. Prior to making any trade, you should discuss with your professional tax, accounting, or regulatory advisers how such particular trade(s) affect you. This brief statement does not disclose all of the risks and other significant aspects of entering into any particular transaction. Notice to UK Investors: This publication is produced by Tudor, Pickering, Holt & Co. Securities, Inc. which is regulated in the United States by FINRA. It is to be communicated only to persons of a kind described in Articles 19 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. It must not be further transmitted to any other person without our consent. Any other person should not rely on or act upon the content of this publication. Persons falling within Article 19 include authorised or exempt investment firms, UK or overseas governments, UK or overseas local authorities or international organisations. Person falling within Article 49 include companies or unincorporated associations with net assets or called-up share capital of £5 million or subsidiary companies of the same that have net assets or called-up share capital of £500,000 Tudor, Pickering, Holt & Co. International, LLP is a limited liability partnership registered in England and Wales (registered number OC349535). Its registered Office is 5th Floor, 6 St. Andrew Street, London EC4A 3AE. Tudor, Pickering, Holt & Co. International, LLP (TPH International) is authorised and regulated by the Financial Conduct Authority, and is a separate but affiliated entity of Tudor, Pickering, Holt & Co. Securities, Inc. (TPH Securities). TPH Securities is a member of FINRA and SIPC. Unless governing law permits otherwise, you must contact the Tudor, Pickering, Holt & Co. entity in your home jurisdiction if you want to use our services in effecting a transaction. See http://www.TPHco.com/Disclosure/ for further information on regulatory disclosures including disclosures relating to potential conflicts of interest. Copyright 2014, Tudor, Pickering, Holt & Co. This information is confidential and is intended only for the individual named. This information may not be disclosed, copied or disseminated, in whole or in part, without the prior written permission of Tudor, Pickering, Holt & Co. This communication is based on information which Tudor, Pickering, Holt & Co. believes is reliable. However, Tudor, Pickering, Holt & Co. does not represent or warrant its accuracy. The viewpoints and opinions expressed in this communication represent the views of TPH as of the date of this report. These viewpoints and opinions may be subject to change without notice and TPH will not be responsible for any consequences associated with reliance on any statement or opinion contained in this communication. The viewpoints and opinions herein do not take into consideration individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. Past performance is not indicative of future results. This message should not be considered as an offer or solicitation to buy or sell any securities. Institutional Communication Only. Under FINRA Rule 2210, this communication is deemed institutional sales material and it is not meant for distribution to retail investors. Recipients should not forward this communication to a retail investor.
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  33. 33. - A Manufacture’s Perspective - Presented by: Paul DeWeese CEO – Southwest Oilfield Products
  34. 34. Global Market Climates A Manufacture’s Perspective INTRO
  35. 35. Global Market Climates A Manufacture’s Perspective FAST FACTS • Established in 1947 (65+ years) • Global Footprint – Headquarters / Mud Pump Solutions Manufacturing; Houston, TX – Well Service Equipment Manufacturing; Ft. Worth, TX – 15 SWOP Owned Locations / 20+ Agent locations • Sales Overview – Global Sales Force – Sales in over 80 Countries – Over 450 Customers • Product Portfolio – Mud Pump Solutions: L-Shaped Fluid-Ends, Pistons, Liners, Valves & Seats…. – Well Servicing Equipment: Coil Tubing Units, Nitrogen Pumping, Frac Pumps & Consumables Southwest Oilfield Products is a premier oil and gas equipment manufacturer that provides our global customer base with best-in-class well servicing equipment and mud pump solutions.
  36. 36. Global Market Climates A Manufacture’s Perspective INDUSTRY OVERVIEWS Well ServicesExploration & Production  Geographically Concentrated  North America largest market  Highly fragmented equipment & service market  Continued domestic equipment surplus / Increasing potential internationally  A record 400 shale wells may be drilled beyond U.S. borders in 2014  Technology renaissance in US land drilling boosts efficiency  US rig count relatively flat / Increasing International activity  Positive trend in global offshore drilling fleet  Overall positive outlook due to growing demand from China, Middle East and Latin America
  37. 37. Global Market Climates A Manufacture’s Perspective Technology Renaissance Source: Wyatt Investment Research In 2013, 17 Million More Feet Drilled with 100 less rigs…  Pad Drilling /Walking Rigs  Reduces impact on developable land  More efficient approach than traditional vertical drilling  Increased # of AC Rigs  More accurate control of speed and torque  Improved motor efficiency  Less Noise & Reduced Emissions  7500 PSI Mud Pumps System Upgrades Boost Efficiency  Increased Drilling Efficiency & Depth Range  Broadens Operating Range for Mud Pump System  Increases Rig Versatility
  38. 38. Global Market Climates A Manufacture’s Perspective The “C” Word From a Manufacture’s Perspective…  Increased adoption of foreign manufactured items  5 Years Ago you were kicked off the rig for saying “Chinese-made”  Lower cost has put downward price pressure on American manufactures  “I can buy 2 for the price of 1!”  Improved manufacturing sophistication has yielded better quality
  39. 39. Global Market Climates A Manufacture’s Perspective Manufacturing  Increasing raw material costs  Labor costs & availability  Technology Efficiencies  General Overhead Cost  Healthcare  Environmental  Taxes
  40. 40. Global Market Climates A Manufacture’s Perspective North America  Rig Activity and Utilization expected to remain flat in 2014  Land Rig Rates unchanged at an average of $26K/day, while offshore rates climb 2 – 3%  Rig Efficiency is a key contributor to declined rig counts  Continued shift towards modern drilling rigs(7500psi, AC, Pad Drilling)  Ongoing consolidations, restructuring & bankruptcies  2014 frac pricing rates expected to decrease  US Aftermarket remains strong! 10 12 14 16 18 11Q4 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 14Q4 FracHorsepower(MMHHP) US FRAC SUPPLY & DEMAND Frac Demand Frac Capacity SURPLUS $590 $450 $400 $220 $26 $- $200 $400 $600 $800 Ultra-Deepwater Deepwater Mid Water Floater Jack Up US Land Rig Avg. Day Rate ($K) Sources: Spears & Associates DPO, www.deepwater.com, PacWest Consulting
  41. 41. Global Market Climates A Manufacture’s Perspective LATIN AMERICA  Despite political instabilities, 2014 rig activity projected to increase 6%  Mexico Energy Reform opens door?  Market has significant demand but risk is high due to instability
  42. 42. Global Market Climates A Manufacture’s Perspective MIDDLE EAST / AFRICA  2014 MEA Rig activity is robust; 10% increase expected  Political uncertainty in North Africa continues to impact growth  Strong West Africa Market / Promising E. Africa Development  A very optimistic outlook for 2014.  80% of our WSE business has been destined for M.E.  Highest demand units are:  Coil Tubing Units  Nitrogen Pumpers  We expect aftermarket business to blossom in coming years 479 542 440 460 480 500 520 540 560 Middle East & Africa Rig Count Sources: BakerHughes
  43. 43. Global Market Climates A Manufacture’s Perspective EUROPE  2014 Rig activity is healthy with a projected 6% increase  Primary market of focus is North Sea  Mature but stable market  Russia – High Potential / High Risk  Small Market / Low Potential International Frac HP Europe 5%
  44. 44. Global Market Climates A Manufacture’s Perspective ASIA  2014 Rig activity is modest with a projected 4% increase  Stable regional activity  Significant growth potential in Australia LNG  Positioned to become largest LNG Exporter  Abundance of activity at Keppel FELS  China presents growing well intervention market  Large shale gas reserves is boosting market momentum 0 1 2 3 4 5 6 7 8 2011 2012 2013 2014 2015 2016 2017 2018 0.71 1.46 2.59 3.07 3.45 4.2 5.83 7.57 FracHP(MMHHP) China Frac Capacity Sources: PacWest Energy Consultants
  45. 45. Global Market Climates A Manufacture’s Perspective CLOSING THOUGHTS POSITIVE OUTLOOK • North America Drilling • Middle East Drilling • Middle East Well Service • Global Offshore Market • Asia Drilling • China Well Service CAUTIOUSLY OPTIMISTIC • North America Frac & Well Services Market • Mexico Energy Reform • East & West Africa Development CONCERNS • Venezuela • Argentina • North Africa
  46. 46. Questions & Answers

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