North American Energy May 2012 Investor Presentation

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North American Energy May 2012 Investor Presentation

  1. 1. Investor Presentation May 2012Rod Ruston David BlackleyPresident and CEO Chief Financial Officer
  2. 2. Forward-Looking StatementsThe information provided in this presentation contains forward-looking statementsand information which reflect the current view of North American Energy Partnerswith respect to future events and financial performance. Actual results could differmaterially from those contemplated by such forward-looking statements as a resultof any number of factors and uncertainties, many of which are beyond our control.Important factors that could cause actual results to differ materially from those inforward-looking statements include success of business development efforts,changes in oil and gas prices, availability of a skilled labour force, internal controls,general economic conditions, terms of our debt instruments, exchange ratefluctuations, weather conditions, performance of our customers, access toequipment, changes in laws and ability to execute transactions. Undue relianceshould not be placed upon forward-looking statements and we undertake noobligation, other than those required by applicable law, to update or revise thosestatements.For more complete information about us you should read our disclosure documentsfiled with the SEC and the CSA. You may obtain these documents by visitingEDGAR on the SEC website at www.sec.gov or on the CSA website atwww.sedar.com. 2
  3. 3. Overview Heavy Construction and Mining  Founded in 1953  TSX and NYSE listings: “NOA”  Current share price: $2.89  52 week high/low: $9.74/$2.89  Market capitalization: $108 million  Shares outstanding: 36 million  52 week average daily share volume: 213,300 Pipeline Piling* Data from NYSE in USD as at May 17, 2012 3
  4. 4. Presentation Agenda Corporate update Oil sands realities Opportunities About the company Financial results Segment performance and opportunities 4
  5. 5. CNRL Contract Resolution  $38 million settlement for past cost escalations and change orders  Removal of $10 million letter of credit for 2012  Profitable contract structure with reduced risk  NAEP continues to operate all equipment with guaranteed base margin and upside potential based on performance  ~$40 million of additional net proceeds to NACG  Early buyout of ~30% of contract-related assets  Includes the buyout of contract-related operating leases, owned assets, inventory and maintenance facility  Strengthened working relationship  Opportunities to extend contract beyond 2015  Opportunities to provide broader range of services CNRL recognized that NACG is the best option for overburden removal & mining services 5
  6. 6. Credit Agreement Amendments Recent amendments to credit facility include:  Temporary relief from Consolidated EBITDA-related covenants  Extension of credit agreement maturity date to October 31, 2013  Temporary facility capacity of $20.8 million to be eliminated by June 30, 2012, in line with receipt of proceeds from asset sale to CNRL  Capacity of the revolving facility after June 30, 2012 will be $85 million less any outstanding letters of credit 6
  7. 7. Reality #1:Low Sensitivity to Oil Prices Oil sands mines keep operating despite changes in oil prices Competitive unit costs achieved at full capacity High risk of employee loss/ plant damage during shutdowns 7
  8. 8. Reality #2:SAGD Will Not Replace Mining SAGD and mining are geologically distinct processes Mining  SAGD  Typical size: 100-300k bpd  Typical size: 10-50k bpd  Base load production to feed upgrader  Supplements mining production  Draws on full range of NAEP services  Construction opportunities  Construction and recurring services  Draws on NAEP’s recently acquired opportunities screw piling technology 8
  9. 9. Reality #3:Producers Outsource Seasonal work Part-time labour requirement Short-term equipment requirement Outsource Specialized knowledge & equipment Non core to oil production 9
  10. 10. Reality #4: Demand is Growing 10
  11. 11. The Opportunity Largest heavy construction and mining contractor in high growth oil sands market Poised to benefit from recently announced oil sands development Position further entrenched by recent competitor difficulties Significant barriers to new entrants Proven base of stable recurring services business with recent long-term contract wins 11
  12. 12. Key Customer Contracts  Recently commenced one-year contract  Significant earthworks still to be awarded by the client  3-year master services agreement  3-year muskeg removal contract  4-year master services agreement covering mining services & construction  5-year master services agreement covering mining services & construction  Year 6 of 10-year overburden removal contract 12
  13. 13. About the CompanyLargest Construction & Mining Contractor in the Oil Sands Expertise Revenue by End Market  30+ years in Northern Alberta’s harsh 12% operating environment  Knowledge to come up with best 8% solutions for customers Broad Service Offering 11%  Unique suite of services across project 69% lifecycle Operational Flexibility  Unrivalled equipment fleet Canadian Oil Sands Commercial & Public Construction  Active on every site Industrial Pipeline Long-Term Customer Relationships 12 Months Ended December 31, 2011  Reliability; on-time delivery 13
  14. 14. First On, Last Off Project Development Phase (3-4 years) Ongoing Operations Phase (30-40 years) Initial mine site development, project site  Overburden removal, mine infrastructure development, development, airstrips, pipeline construction reclamation, tailing ponds remediation, equipment and labour supplyBuild Relationship Major ProjectsExplore and Design Initial Development and Recurring Services Secondary Upgrades / Expansions Operation / Ongoing Services 86% of NAEP’s Oil Sands Revenue 14
  15. 15. Mine Services Active Mine Muskeg & Topsoil Overburden OreService NAEP Client Season Haul Truck (tonnes)Ore Mining Year-round 300 - 400Overburden Removal Year-round 240 - 400Muskeg (Removal/Remediation) Winter* 100 - 240Site Construction Summer 100 - 240Tailings Management Summer 100 - 240* Occasionally we will complete this work outside the winter season for our customers 15
  16. 16. Swing SupplierNAEP achieves higher equipment utilization rates by workingon every major site in the oil sands Single CustomerFixedproductioncapacityExcessproductionrequirement Multiple CustomersNAEP demand 16
  17. 17. Active on Every Oil Sands Mining SiteCurrent Activity: 10-year overburden removal Future Opportunities: site development, hauland dyke construction, mine operations and roads, civil construction, MSE walls,projects group support UTS compensation lake, long-term overburden and reclamation (undefined volumes), contract miningFuture Opportunities: plant site civil projects SUNCOR FORT Future Opportunities: Phase 2 Kearl ExpansionFuture Opportunities: mine train relocations, CANADIAN HILLS Project (earthworks), long-term overburden andMSE walls & associated civil scopes NATURAL EXXON reclamation (undefined volumes) KEARL HORIZON SYNCRUDE AURORA TOTAL SHELL/ALBIAN JOSLYN JACKPINE AND MUSKEG RIVERCurrent Activity: site development (ditching, MRM Current Activity: major tailings projectswater diversion, reclamation, haul roads, (AFD Phase 2 & 3 construction, tailingscamp grading, etc.) corridor), plant site civil supportFuture Opportunities: MSE wall, Future Opportunities: major tailings projects, SYNCRUDEcompensation lake, long-term overburden and BASE PLANT haul road construction, debottlenecking & civilreclamation (undefined volumes), contract scopesmining (unknown if Total will contract this SUNCOR MILLENNIUM andscope of self perform) STEEPBANK SUNCOR VOYAGEUR JPM Current Activity: reclamation, major tailings projects (TTD construction)Current Activity: 2012 winter reclamation prep, Future Opportunities: major tailings projects,MLMR shear key construction, base mine starter dyke construction, debottlenecking & civil 70 kmtailings dam, manmade water shed scopesconstruction, mine operations supportFuture Opportunities: overburden andreclamation (undefined volumes), MSE wall Current Activity: overburden removal, reclamation (Dykeconstruction, various construction projects for Fort McMurray 11A, stacking, ditching), ramp removal, heavy civil (STPmining, tailings and projects group finger dyke, Dyke 12 drains, NSE road, equipment rental (8 x 793s) Current or recent NOA job site Future Opportunities: overburden and reclamationFuture Opportunities: civil underground (undefined volumes), light and heavy civil for mining andconstruction Providing estimates tailings operations and projects groups 17
  18. 18. Mining Project LifecyclesProject Development Recurring ServicesEngineering Commissioningand Design and Start-up Proceeding Initial Operational Delayed Construction Phase Syncrude - Base Syncrude - Aurora Syncrude – Aurora South Exxon - Kearl Suncor - Original Lease Suncor - Steepbank Suncor – Voyageur South Suncor - Fort Hills Shell - Muskeg River Mine Shell - Jackpine 1 Canadian Natural - Horizon Total - Joslyn 2-3 3-4 0.5 40+ years years years years 18
  19. 19. Tailings & Environmental Services Engineered Earth Fluids Transfer & Pipeline & infrastructure Hydraulic Transport Structures Pond Closure & Tailings Management Final Reclamation Land Reforming 19
  20. 20. Fluid Fine TailingsInventory ProjectionsNew regulations require dramatic reduction in tailings inventory FFT Inventory (millions m3) Bitumen Production (millions bbls/d)6,000 3.0 Forecast Mined Bitumen Production5,000 2.54,000 2.03,000 1.5 Forecast Fluid Tailings Inventory AFTER Directive 742,000 1.01,000 0.5 0 0 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 Fluid Line Tailings Inventory Fluid Line Tailings Inventory (After Tailings Directive) Bitumen Production Millions of Cubic Metres (LHS) Millions of Cubic Metres (LHS) Million of Barrels per day (RHS) Source: Silver Birch Energy Presentation – Peter’s & Co. Winter Energy Conference January 28, 2011 20
  21. 21. Financial Performance Rolling LTM Revenue Rolling LTM EBITDA*C ($) millions C ($) millions 17% 16% 14% 12% 10% 10% 9% 10% 8% $904 $899 $862 $858 $868 $879 $798 $761 $120 $122$716 $114 $105 $87 $84 $83 $78 $73 Dec Mar Jun Sep Dec Mar Jun Sep Dec Dec Mar Jun Sep Dec Mar Jun Sep Dec 09 10 10 10 10 11 11 11 11 09 10 10 10 10 11 11 11 11 *Consolidated EBITDA as defined within the credit agreement Consolidated EBITDA as percentage of revenue 21
  22. 22. Operating Leases  Significant growth in operating lease portfolio during 2008-2010  Operating lease expense directly impacts Consolidated EBITDA Operating Lease Portfolio Impact of Operating Leases Lease Additions Lease Expense Consolidated EBITDA Lease Expense ($) millions ($) millions 150 200 125 150 100 75 100 50 50 25 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2007 2008 2009 2010 2011 Fiscal Year Fiscal Year* Future lease expense reflects operating lease commitments as at September 30, 2011 22
  23. 23. Operating LeasesPros: Cons: Low cost financing  Accelerated amortization Readily accessible  Consolidated EBITDA impactLarge Truck Example Operating Lease PurchaseLease Term / Asset Life 5 years 12 yearsPurchase Price $5.0M $5.0MResidual / Salvage Value $1.0M $0.3MCumulative Impact (5 years): Lease Expense $5.2M - Depreciation - $2.0M Interest - $1.2M Consolidated EBITDA ($5.2M) - NBV - End of Period $1.0M $3.0M 23
  24. 24. Operating Leases  $66 million of potential equity value in operating lease portfolio  Potential equity value can be realized through future earnings Current Lease Portfolio Value ($) millions 250 $224 200 $66 million of potential equity $158 150 100 50 0 Calculated Net Book Value Actual Lease Buyout Value* Values are as at September 30, 2011 and exclude leases related to the Canadian Natural overburden removal contract 24
  25. 25. Reporting Segments Construction & Mining Piling Pipeline  Recurring services  Leveraged to high-  Suited to cyclical provide stable base growth construction industry with low markets capital commitment  Oil sands project & scalable operating development provides  Offers geographic & model strong growth potential sector diversification  Proven environmental  Long-term customer  Proprietary technology & safety record offers relationships create and expertise creates significant competitive high barrier to entry high barriers to entry advantages 25
  26. 26. Heavy Construction & Mining Revenue and Gross Margin %  Impact of temporary shutdown at Canadian Natural and late winter freeze-up partially offset by new contracts and increased tailings and environmental work ($) millions 800 $716 700 $666 $667 600 $521 500 $490 400 300 200 100 15% 17% 8% 12% 13% 0 FY 2009 FY 2010 FY 2011* 9 mos. 9 mos. FY 2011 FY 2012*Excluding the writedown, FY2011 segment revenue would have been $710 million and segment margin would have been 13.1% 26
  27. 27. Heavy Construction & Mining Outlook Strong recurring services volumes anticipated in the 4th quarter  Resumed overburden removal operations at Canadian Natural  Heavy demand for overburden and muskeg removal work under new and existing contracts Building shear key foundation for mine relocation at Syncrude Recently awarded initial site development contract for Joslyn 27
  28. 28. Oil Sands Opportunities  Production capacity Oil Sands Investment increasing ($) billions 35  All active oil sands mines expected to be operating 30 29 27 27 later this year 26 25  Kearl mine scheduled to begin production in 2012 20 18 18  $124 billion in new 15 14 15 13 investment forecasted 11 over next 5 years 10 5 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Source: Oil Sands Developers Group, CAPP and Nichols Applied Management Actuals Forecast 28
  29. 29. PilingRevenue and Gross Margin %  Q3 revenue up 37%, reflecting increased demand, favorable weather and positive impact of Cyntech acquisition  Continued Q3 and YTD margin improvement ($) millions200180160 $155140 $132120 $106100 $83 80 $69 60 40 20 25% 17% 18% 20% 25% 0 FY 2009 FY 2010 FY 2011 9 mos. 9 mos. FY 2011 FY 2012 29
  30. 30. Piling Outlook Strong activity levels across all regions and sectors Large backlog of projects expected to contribute to strong Q4 activity levels 30
  31. 31. PipelineRevenue and Gross Margin %  Q3 revenue up 57%, as work continued on two contracts in BC and Alberta  Margins compromised by client-driven start-up delays, scope changes and cost escalation ($) millions125 $101 $102100 $85 $80 75 50 $25 25 22% (16%) (4%) (2)% (2%) 0 FY 2009 FY 2010 FY 2011 9 mos. 9 mos. FY 2011 FY 2012 31
  32. 32. Pipeline Outlook Focus on completing two current pipeline projects and moving forward with new maintenance contract Industry fundamentals improving, but current contract structures continue to create cost uncertainty 32
  33. 33. Investment Highlights Largest construction and mining contractor in the oil sands Solid core business of recurring services with high barriers to entry and near-term growth potential Investment in Canada’s oil sands without direct exposure to the price of oil Financially secure with the ability to generate strong cash flow Attractive near-term growth potential 33
  34. 34. Thank you
  35. 35. Appendix
  36. 36. Pipeline Construction Opportunities 2011 TMX Project  TCPL (NW AB, NE BC – 7 projects) 217+ km (20”-48”)  TCPL (Tanghe Creek - Sloat) 38 km (48”)  Enbridge (Husky (Sunrise)) Norealis Pipeline 112 km (24”) Anchor Loop  Enbridge (Wood Buffalo/L18) 95 km (30”) TMX-2  Enbridge – Cdn. Mainline Integrity Program 1,875 digs scheduled TMX-3  Spectra Energy (T-North Looping) 100+ km (36”-48”) Beyond 2011  TCPL (NW AB, NE BC – 4 projects) 500+ km (24”-48”)  Access Pipeline (50/50 JV Devon/MEG Energy) 300 km (42”)  Spectra Energy (NE BC) Looping 300-400 km (24”-36”)  Enbridge (Woodland) Extension 385 km (36”)  Enbridge (Athabasca) Twinning Project 345 km (36”) Edmonton  Enbridge (Bakken Oil Pipeline) 123 km (24”-30”)  Kinder Morgan (TMX Expansion) 800-1,000 km (36”)  Pacific Trails Pipeline (PTP) 462 km (36”)  Enbridge (Northern Gateway) 1,170 km (36/20”)  TCPL Keystone XL 2,673 km (36”)  CO2 Pipeline (Enhance Energy) 240 km (12”) Vancouver  Alliance Pipeline (Fort St. John) 60 km (24”)  Alaska Pipeline est. 2020-2025  Mackenzie Valley Pipeline est. 2020-2025  Nova (Vantage Pipeline) 575 km (10/12”) 36
  37. 37. Active on Every Oil Sands Mining SiteCurrent Activity: 10-year overburden removal Future Opportunities: site development, hauland dyke construction, mine operations and roads, civil construction, MSE walls,projects group support UTS compensation lake, long-term overburden andFuture Opportunities: plant site civil projects reclamation (undefined volumes), contract mining SUNCOR FORT Future Opportunities: Phase 2 Kearl ExpansionFuture Opportunities: mine train relocations, CANADIAN HILLS Project (earthworks), long-term overburden andMSE walls & associated civil scopes NATURAL EXXON reclamation (undefined volumes) KEARL HORIZON SYNCRUDE AURORA TOTAL SHELL/ALBIAN JOSLYN JACKPINE AND MUSKEG RIVERCurrent Activity: site development (ditching, MRM Current Activity: major tailings projectswater diversion, reclamation, haul roads, (AFD Phase 2 & 3 construction, tailingscamp grading, etc.) corridor), plant site civil supportFuture Opportunities: MSE wall, Future Opportunities: major tailings projects, SYNCRUDEcompensation lake, long-term overburden and BASE PLANT haul road construction, debottlenecking & civilreclamation (undefined volumes), contract scopesmining (unknown if Total will contract this SUNCOR MILLENNIUM andscope of self perform) STEEPBANK SUNCOR VOYAGEUR JPM Current Activity: reclamation, major tailings projects (TTD construction)Current Activity: 2012 winter reclamation prep, Future Opportunities:, major tailings projects,MLMR shear key construction, base mine starter dyke construction, debottlenecking & civil 70 kmtailings dam, manmade water shed scopesconstruction, mine operations supportFuture Opportunities: overburden andreclamation (undefined volumes), MSE wall Current Activity: overburden removal, reclamation (Dykeconstruction, various construction projects for Fort McMurray 11A, stacking, ditching), ramp removal, heavy civil (STPmining, tailings and projects group finger dyke, Dyke 12 drains, NSE road, equipment rental (8 x 793s) Current or recent NOA job site Future Opportunities: overburden and reclamationFuture Opportunities: civil underground (undefined volumes), light and heavy civil for mining andconstruction Providing estimates tailings operations and projects groups 37

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