Weir Group Plc · LSE:WEIR

Weir — The Weir Group — Investor Day (June 2011)

82 slides from Weir's investor day presentation, Jun 21, 2011

1. Slide 1: 2011 Capital Markets Day: Weir Oil & Gas Upstream

   The Weir Group PLC 2011 Capital Markets Day: Weir Oil & Gas Upstream 2011 Capital Markets Day: Weir Oil & Gas Upstream London, 21 June 2011 Excellent Engineering Solutions

2. Slide 2: Introduction

   The Weir Group PLC 2011 Capital Markets Day 2 Introduction Keith Cochrane: CEO, The Weir Group PLC Weir Oil & Gas - Weir SPM, Texas, USA Excellent Engineering Solutions

3. Slide 3: Agenda

   The Weir Group PLC 2011 Capital Markets Day 3 Agenda  Introduction Keith Cochrane, Chief Executive  Oil & Gas divisional overview Steve Noon, Divisional Managing Director  Market overview Richard Spears, Spears & Associates  Coffee Break  Introduction to Weir Upstream Gavin Nicol, President, We

4. Slide 4: Forward-looking statements

   The Weir Group PLC 2011 Capital Markets Day: Weir Oil & Gas Upstream 2011 Capital Markets Day: Weir Oil & Gas Upstream London, 21 June 2011 This presentation contains certain forward-looking statements. These forward-looking statements can be identified by the fact that they do not relate only to hi

5. Slide 5: Oil & Gas market; a major contributor to Weir

   The Weir Group PLC 2011 Capital Markets Day 5 Oil & Gas market; a major contributor to Weir Input by sector 100%  Aligned to core Weir strengths 80%  60% Precision engineered equipment 40%  Equipment vital to operations 20%  High temperature, pressure and abrasive applications 0% 2006 2007 2008

6. Slide 6: Oil & Gas; opportunities across the Weir Group

   The Weir Group PLC 2011 Capital Markets Day 6 Oil & Gas; opportunities across the Weir Group Oil Sands dewatering barges  8% of Minerals input from Oil & Gas  Oil Sands  Vertical turbine pumps  Elastomer / rubber products  11% of Power & Industrial input from Oil & Gas Subsea MEG dosage rotary

7. Slide 7: Oil & Gas overview

   The Weir Group PLC 2011 Capital Markets Day 7 Oil & Gas overview Steve Noon: Managing Director, Oil & Gas Division Weir Oil & Gas Services, Dubai Excellent Engineering Solutions

8. Slide 8: Overview: Oil & Gas division

   The Weir Group PLC 2011 Capital Markets Day 8 Overview: Oil & Gas division  Division formed in May 2008  Catalyst: acquisition of SPM, mid 2007  Appointed President SPM, 2007  Appointed Divisional Managing Director, 2009

9. Slide 9: Oil & Gas division overview

   The Weir Group PLC 2011 Capital Markets Day 9 Oil & Gas division overview 2010 Input by business line £m 2008 (1) 2009 (1) 2010 Downstream Upstream Input OE 157 124 289 Services Input aftermarket 176 194 337 Input total 333 318 626 2010 Input by geography % Revenue OE 140 119 194 Emerging markets Re

10. Slide 10: 2010 strategic initiatives: progress update

    The Weir Group PLC 2011 Capital Markets Day 10 2010 strategic initiatives: progress update 2010 strategic initiatives Progress update  Targeting service majors  Expanded market share with majors  Four fold input gains from one service major  Extend SPM overseas  PCS acquisition, South America 

11. Slide 11: 2011 divisional strategic initiatives

    The Weir Group PLC 2011 Capital Markets Day 11 2011 divisional strategic initiatives 2011 strategic initiatives Progress update Upstream Upstream  Redeploy resources  Senior management relocated to SPM  Expansion of capacity  Capacity expansions fast-tracked  Commercialise DestinyTM and Mousetr

12. Slide 12: Oil & Gas division products

    The Weir Group PLC 2011 Capital Markets Day 12 Oil & Gas division products Vertical pumps Process pumps Multistage pumps Frack & cement heads “Stim” vessel Frack Pump Flow Control Power Flowline Safety Restraint System Manifold Trailer Products transmission drawworks Flow Control Centrifugal Flowlin

13. Slide 13: Downstream end markets

    The Weir Group PLC 2011 Capital Markets Day 13 Downstream end markets Equipment market by sector - £6.1bn  Global downstream markets currently depressed 32% Refining  Different cycle to upstream 45% Petrochem Gas to Liquids  Low point in the cycle 11% Oil Sands 12% Source: Douglas Westwood  Nich

14. Slide 14: Services end markets

    The Weir Group PLC 2011 Capital Markets Day 14 Services end markets 2010 output by sector (2)  Strong footprint in the Middle East 23% 2% Drilling &  c.850 staff in the region (1) 45% completion Oil & gas  Largest BOP repair and upgrade capability in Middle East production Downstream  Region‟s l

15. Slide 15: Paradigm shift in pressure pumping

    The Weir Group PLC 2011 Capital Markets Day 15 Paradigm shift in pressure pumping US rig count by type  2004-2008: emergence of shale gas 2000  Hydraulic fracturing & horizontal drilling combined 1500  shale gas economical  2007/2008: rush to exploit high gas price 1000  2008/2009: recession &

16. Slide 16: Oil will continue to drive pressure pumping

    The Weir Group PLC 2011 Capital Markets Day 16 Oil will continue to drive pressure pumping Global oil demand (mbd) Source: EIA/Baker Hughes 100 90  Oil fundamentals are global 80 70  Global market, low spare capacity 60 50  Macro-economic factors driving demand growth 40  Days of “easy oil” have

17. Slide 17: Gas fundamentals remain strong

    The Weir Group PLC 2011 Capital Markets Day 17 Gas fundamentals remain strong US natural gas production (tcf 1) 30  Gas fundamentals are regional 25 20  Medium term gas fundamentals remain strong 15  Strong underlying demand 10 5  ‘Clean’ alternative to coal generation 0  Globally IEA forecasts

18. Slide 18: Good long-term international shale gas opportunities

    The Weir Group PLC 2011 Capital Markets Day 18 Good long-term international shale gas opportunities North America : 1,931  Vast international shale gas Europe: 624 Canada: 388 resource  6-7 x more than US reserves USA: 862 France: 180 Poland: 187 China: 1,275  Shale gas accounts for 25% of Algeri

19. Slide 19: Environmental trends

    The Weir Group PLC 2011 Capital Markets Day 19 Environmental trends  Emerging environmental debate around ‘new’ technique: i. Leakage of frack fluids into the water table ii. Disposal of waste water  Governmental studies underway  UK Energy & Climate Change committee broadly supportive of frackin

20. Slide 20: Weir Oil & Gas upstream market summary

    The Weir Group PLC 2011 Capital Markets Day 20 Weir Oil & Gas upstream market summary  US market now driven by oil and gas demand  Shale oil forecast to become a key part of the US energy mix  Shale gas changing the face of US gas and power market  International shale gas market will develop ove

21. Slide 21: Market overview

    The Weir Group PLC 2011 Capital Markets Day 21 Market overview Richard Spears, Spears & Associates Inc Excellent Engineering Solutions

22. Slide 22: Secular growth in a cyclic industry

    Secular growth in a cyclic industry Richard Spears, Managing Director, Spears & Associates (Tulsa/USA)

23. Slide 23: Pressure pumping is the largest and fastest growing upstream oilfield market

    The pressure pumping market is the largest and fastest growing upstream oilfield market in the world.

24. Slide 24: ~90,000 new wells will be drilled in 2011

    ~90,000 new wells will be drilled in 2011, rising to 100,000 new wells in 2015. Most of these new wells – 90% - are drilled in the US and Canada on land. All are cemented and most are hydraulically fracture stimulated.

25. Slide 25: 16,000 horizontal wells drive fracturing demand

    Of the 90,000 new wells drilled in the world in 2011, 16,000 are horizontal wells drilled on land in the US. These 16,000 new horizontal wells drive most of the demand for hydraulic fracturing services. At $80 oil and $4 gas, Spears projects rising drilling.

26. Slide 26: Two old technologies combined to unlock stranded gas

    Two old, well-known technologies were finally combined less than 10 years ago. This combination allowed stranded gas deposits to be unlocked. And now we’re pursuing oil.

27. Slide 27: Spend on directional drilling plus pressure pumping

    ~$25 billion was spent in 2006 on directional drilling plus pressure pumping. ~$42 billion will be spent in 2011 on directional and pressure pumping. ~$62 billion will be spent in 2015 on directional and pressure pumping.

28. Slide 28: Horizontal drilling growth explains frac horsepower demand

    From 2006 through 2011, the growth of US horizontal drilling has explained most of the growth in frac horsepower demand in North America. Assuming that the link remains in place into the future, the North America frac fleet should hit 22M in 2015.

29. Slide 29: Frac horsepower now driven around the clock

    For decades, frac horsepower was operated intermittently. Today, the 10M HHP fleet is driven around the clock. 20% of the fleet’s pumps are replaced each year now.

30. Slide 30: Aftermarket horsepower dwarfs new build

    At the same time that record frac HHP new builds are underway, existing pumps are demanding aftermarket fluid ends and complete new replacement pumps at an ever- increasing pace. Aftermarket horsepower dwarfs new build horsepower.

31. Slide 31: Market Shares

    Market Shares Weir FMC Gardner SPM Denver Pumps and Fluid Ends 50-60% 5-10% 20-25% Flow (high pressure iron) 25-30% 50% - Source: Spears & Associates estimate Weir is the clear market leader in pumps and strong number 2 in flow. For combined segments Weir is double the size of FMC. Table is based up

32. Slide 32: Frac company fleets have grown since 2006

    Since 2006, the major frac companies have grown their fleets from 2.5 M to 6M. Meanwhile, indy frac companies have grown their fleets from 1.5 M to 7.1M. Weir does well with the majors, but has a BIG share of the indy frac fleet.

33. Slide 33: $33B global pressure pumping services market

    The $33 B global pressure pumping services market is concentrated in North America because most wells are drilled there and about 75% of the frac demand is there. Frac is growing in all regions and should double internationally over the next 10 years.

34. Slide 34: Frac demand will grow outside North America

    Frac demand will grow outside North America, plus new well drilling is growing internationally. These two trends should combine for strong growth in the hydraulic fracturing market outside North America.

35. Slide 35: Summary: pressure pumping market

    Summary: The pressure pumping market is the largest and fastest growing segment of the upstream oil and gas market.

36. Slide 36: Weir Upstream overview

    The Weir Group PLC 2011 Capital Markets Day 36 Weir Upstream overview Gavin Nicol: President Weir SPM Weir Oil & Gas - Weir SPM, Texas, USA Excellent Engineering Solutions

37. Slide 37: The fracking process

    The Weir Group PLC 2011 Capital Markets Day 37 The fracking process The video used on this slide is available via the Webcast Capital Markets Day presentation link on the Weir Group homepage: www.weir.co.uk

38. Slide 38: Overview of Weir Upstream operations

    The Weir Group PLC 2011 Capital Markets Day 38 Overview of Weir Upstream operations  Two businesses based in Texas  Weir SPM, Fort Worth  Weir Mesa, Odessa  Market leaders in pressure pumping market  Supply of OEM and aftermarket equipment and services  Design, production, service support, mai

39. Slide 39: History of SPM

    The Weir Group PLC 2011 Capital Markets Day 39 History of SPM 1964 1973 1986-87 1992-1997 2007 Specialist in Exclusive Acquired Developed the Acquired by high strength pump Wheatly line QWS 2500 Weir Group PLC lightweight manufacturer of check frack pump and aircraft for Western valves, CMW TWS 600S

40. Slide 40: Progress since acquisition

    The Weir Group PLC 2011 Capital Markets Day 40 Progress since acquisition SPM: market share growth  Revenue: on track to more than treble 2009 revenues  Market share: increased share by nearly a third since 2008 2008  Developed market leadership position  On-track for EBITA payback within 5-6 ye

41. Slide 41: How have we achieved this?

    The Weir Group PLC 2011 Capital Markets Day 41 How have we achieved this? Key developments  Seamless integration  1/3 capacity increase from  Consistent execution of acquisition strategy lean and supply chain initiatives  Increased manufacturing capacity  Detailed market understanding led us to

42. Slide 42: Supporting SPM's value proposition

    The Weir Group PLC 2011 Capital Markets Day 42 Supporting SPM’s value proposition  Operational excellence  Ability to flex capacity is unrivaled in the industry  Substantial capacity additions in two consecutive years  Market leading lead times  Customer support  Technical and applications eng

43. Slide 43: Emerging trends & impact on frack pump market

    The Weir Group PLC 2011 Capital Markets Day 43 Emerging trends & impact on frack pump market Trend Affect Shift from unconventional gas to Unconventional oil formations Increasing frack horsepower oil & liquids (conventional & often utilise more stages per well unconventional) compared to unconventi

44. Slide 44: Emerging trends: impact on SPM

    The Weir Group PLC 2011 Capital Markets Day 44 Emerging trends: impact on SPM Step-change in rig count relationship  Combination of increasing horsepower and operating Fleet capacity additions Service intensity increasing intensity producing step-change in market demand  Combined service intensity

45. Slide 45: Aligning SPM to the changing market

    The Weir Group PLC 2011 Capital Markets Day 45 Aligning SPM to the changing market Capabilities Customer needs  High end engineering solutions  Increasingly technical applications  Innovation and engineering +  Capacity to fulfill demand and ability to  Harsher environments invest capex  Highe

46. Slide 46: Products and markets

    The Weir Group PLC 2011 Capital Markets Day 46 Products and markets Bill Tipton: VP, Oil & Gas Division Weir Oil & Gas - OTC, Texas, USA, 2011 Excellent Engineering Solutions

47. Slide 47: SPM at the frack site

    The Weir Group PLC 2011 Capital Markets Day 47 SPM at the frack site Flow Line Safety Restraint System Frack pump Ground iron (flow control) Manifold trailer

48. Slide 48: Well service & frack pumps

    The Weir Group PLC 2011 Capital Markets Day 48 Well service & frack pumps  Applications and markets  600 – 1,000 hp well service pumps used in cementing, acidising and coiled tubing applications  Cement pumps used globally  2,250 – 3,500 hp frack pumps used to pump frack fluids at high pressure

49. Slide 49: Flow control & manifold trailers

    The Weir Group PLC 2011 Capital Markets Day 49 Flow control & manifold trailers  Applications & markets  Transports fluid from the pump to the wellhead  Used globally in a variety of applications including cementing and fracking  Harsher shale operations driving demand and higher attrition rates

50. Slide 50: Safety products

    The Weir Group PLC 2011 Capital Markets Day 50 Safety products  Severe operations driving demand for safety products  SPM nitrogen relief valves: over-pressure protection during high pressure pumping  Patented Safety Iron®  Eliminates dangerous sledgehammers from assembly of flow line  More res

51. Slide 51: Pressure pumping supply chain and customer base

    The Weir Group PLC 2011 Capital Markets Day 51 Pressure pumping supply chain and customer base E&P Companies Pressure pumping services: cementing, acidizing, multistage hydraulic fracturing Service Companies Frack pumpers, control vans, blenders. OPEX – pump & fluid end repairs, pump spares & expend

52. Slide 52: Service position to support opex demand

    The Weir Group PLC 2011 Capital Markets Day 52 Service position to support opex demand Strategically located near our customers

53. Slide 53: Global footprint

    The Weir Group PLC 2011 Capital Markets Day 53 Global footprint

54. Slide 54: Weir innovation process

    The Weir Group PLC 2011 Capital Markets Day 54 Weir innovation process Voice of Customer and  Marketing market analysis  Identifies market needs and demands  Conducts “Voice of Customer” interviews Business Plan  Recommends engineering investments Technology innovation and product development 

55. Slide 55: New Destiny frack pump

    The Weir Group PLC 2011 Capital Markets Day 55 New DestinyTM frack pump Voice of Customer Destiny funding choice results  State-of-the-art design leap Relative Importance to Less More frogs competition Customer  30% lower vibration levels Improve Duty Cycle Customers want duty cycle verified by 3r

56. Slide 56: Engineering excellence

    The Weir Group PLC 2011 Capital Markets Day 56 Engineering excellence Chris Poole: Executive VP, Weir SPM Weir Oil & Gas - Weir SPM, Texas, USA Excellent Engineering Solutions

57. Slide 57: 40 year track record of successful new product introduction

    The Weir Group PLC 2011 Capital Markets Day 57 40 year track record of successful new product introduction 1968 1990 1997 2010 Line of well service Flow line QWS 2500 frack DestinyTM flow control swivel joint pump and TWS TWS2500 frack products product family 600S cement pump pump families 1970 1980

58. Slide 58: Market driven innovation

    The Weir Group PLC 2011 Capital Markets Day 58 Market driven innovation  Recognition of dynamic market changes from 2009  Trend towards unconventional wells  Multi-stage hydraulic fracturing  Harsher shales  Higher pumping pressures  Driving a need for a change in product technology Fluid cyli

59. Slide 59: 2010 new product introductions

    The Weir Group PLC 2011 Capital Markets Day 59 2010 new product introductions  Launch of the 3500: world’s largest continuous duty frack pump  Introduction of Destiny™ frack pump QWS3500 pumps on a „stimulation‟ vessel  Enhanced range of flow line check valves  Expansion of the family of flow li

60. Slide 60: Future product introductions

    The Weir Group PLC 2011 Capital Markets Day 60 Future product introductions  Targeted launches in next 12 months:  Five cylinder derivative of our Destiny™ frack pump  Range of fluid ends with enhanced durability  Innovative range of pump serviceable parts 2012 QWS frack pump  Family of flowlin

61. Slide 61: Operational excellence

    The Weir Group PLC 2011 Capital Markets Day 61 Operational excellence Richard Hinsley: Executive VP, Weir SPM Weir Oil & Gas - Weir SPM, Texas, USA Excellent Engineering Solutions

62. Slide 62: Delivering our product: pumps

    The Weir Group PLC 2011 Capital Markets Day 62 Delivering our product: pumps  High pressure components  Forged, not cast raw materials  Internal and external supply chain  7 internal Weir Group suppliers  500 external suppliers  Lead times up to 6 months

63. Slide 63: Delivering our product: flow control

    The Weir Group PLC 2011 Capital Markets Day 63 Delivering our product: flow control  High pressure components operate up to 15,000 psi  Forged, not cast raw materials  Flow output more than doubled since January 2010

64. Slide 64: Positioning for growth

    The Weir Group PLC 2011 Capital Markets Day 64 Positioning for growth Raw Materials  Machining and Processing  Assembly  Test  Manufacturing and supply chain business  Operational response since January 2010  Monthly output more than doubled  During 2011 investing $40m in plant and equipment

65. Slide 65: Supply chain growth

    The Weir Group PLC 2011 Capital Markets Day 65 Supply chain growth  Expanding suppliers and capability Sales and Operational Planning  “Right Sourcing” Right Source Determination Supply Plan Duplication Domestic and international supply base Supplier and Market Analysis Building capacity  Reco

66. Slide 66: Lean journey: pump production

    The Weir Group PLC 2011 Capital Markets Day 66 Lean journey: pump production Before After

67. Slide 67: Lean journey: flow control

    The Weir Group PLC 2011 Capital Markets Day 67 Lean journey: flow control Before After

68. Slide 68: Delivering our product: integrated lean in action

    The Weir Group PLC 2011 Capital Markets Day 68 Delivering our product: integrated lean in action Purchasing eShipping Kaizen Kaizen Dock to Stock Accounting Kaizen Kaizen Truck to Dock Kaizen Quality Kaizen  Manufacturing methods  Supply chain involvement  Process redesign  Improvements  43% re

69. Slide 69: Capacity investment

    The Weir Group PLC 2011 Capital Markets Day 69 Capacity investment  Expansion plans on site at Fort Worth Investing to support our customers

70. Slide 70: Track record

    The Weir Group PLC 2011 Capital Markets Day 70 Track record  Successfully responded to the market and delivered capacity faster than our competition  Adopted and applied Weir operational best practice  Early investment in capacity  Recruited and trained staff to achieve this growth  Supply base

71. Slide 71: Wrap up

    The Weir Group PLC 2011 Capital Markets Day 71 Wrap up Keith Cochrane: CEO Weir Oil & Gas - Weir SPM, Texas, USA Excellent Engineering Solutions

72. Slide 72: Strong track record of Weir upstream operations

    The Weir Group PLC 2011 Capital Markets Day 72 Strong track record of Weir upstream operations Upstream revenues (US$m) 500 450 400 350  SPM and Mesa integrated smoothly 300 250 200 150 100 50  Weir operational excellence skill set improved performance 0 2008 2009 2010  Expanding capacity Strong

73. Slide 73: Medium term market outlook

    The Weir Group PLC 2011 Capital Markets Day 73 Average US land rig count forecasts Medium term market outlook Source: Broker notes 2,500 2,250  Analysts predicting further growth in North American rig-count 2,000 1,750  Strong fundamental medium term demand 1,500  Horizontal rig count forecast to

74. Slide 74: Weir Upstream positioned for further growth

    The Weir Group PLC 2011 Capital Markets Day 74 Weir Upstream positioned for further growth  Value proposition aligns Weir to a growing market  Embedded competitive advantage  Expertise required across whole value chain  Attractive returns available  Substantial investment in equipment and worki

75. Slide 75: Weir Upstream outlook

    The Weir Group PLC 2011 Capital Markets Day 75 Weir Upstream outlook  Oil & Gas end markets are a major contributor to Weir  2010 input matched minerals end market contribution  Positive medium term outlook for Weir Upstream business  Industry forecasting growth in horizontal rig count  Emergen

76. Slide 76: Q&A Panel

    The Weir Group PLC 2011 Capital Markets Day 76 Q&A Panel Weir Oil & Gas - Weir SPM, Texas, USA Excellent Engineering Solutions

77. Slide 77: Appendix

    The Weir Group PLC 2011 Capital Markets Day 77 Appendix Weir Oil & Gas - Weir SPM, Texas, USA Excellent Engineering Solutions

78. Slide 78: Business structure

    The Weir Group PLC 2011 Capital Markets Day 78 Oil & Gas Division SPM Mesa Gabbioneta China JV Business structure • Forth Worth, Texas • Odessa, Texas • Milan, Italy • Dongying, China • Products: well • Products: Plungers, • Products: API 610 • Products: cement  12 businesses service pumps, flow fr

79. Slide 79: Attendees: Group

    The Weir Group PLC 2011 Capital Markets Day 79 Attendees: Group KEITH COCHRANE JON STANTON VICKY FERRIER Chief Executive Finance Director Group Head of IR & Communications Appointed Chief Executive in November 2009, Joined the Board in April 2010 from Ernst & Joined Weir from SABMiller’s IR function

80. Slide 80: Attendees: Oil & Gas Division

    The Weir Group PLC 2011 Capital Markets Day 80 Attendees: Oil & Gas Division STEVE NOON GAVIN NICOL PAUL COPPINGER Divisional Managing SPM President Incoming SPM Director President Appointed to the Board in November 2009, An A graduate of St. Andrews and Strathclyde Paul has spent 27 years in the oi

81. Slide 81: Attendees: Oil & Gas Division

    The Weir Group PLC 2011 Capital Markets Day 81 Attendees: Oil & Gas Division BILL CURRIE RAY GILBERT RONNIE PHELPS Divisional Finance VP Sales/Service Sales Director Director A Chartered Accountant who has spent his Ray’s experience spans over twenty years with Joined Weir SPM as Sales Director in A

82. Slide 82: Attendees: Spears & Associates

    The Weir Group PLC 2011 Capital Markets Day 82 Attendees: Spears & Associates RICHARD SPEARS Vice President Since joining the firm in 1985, Richard has become one of the Managing Directors of Spears & Associates, a global oilfield market research firm. Richard is on the boards of Universal Pegasus I

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