Flotek’s Technology Portfolio
Flotek’s portfolio consists of four primary technology groups: Energy Chemistry Technologies; Drilling
Technologies; Production Technologies; and Consumer & Industrial Chemistry Technologies. Our Energy
Chemistry Technologies add value in the drilling, completion and production stages of oil and gas wells;
our Drilling Technologies provide solutions during the drilling stage of oil and gas wells; and our
Production Technologies address a number of production challenges for oil and gas companies. Our
diverse mix of products and services touch every stage of the life cycle of a well. Through the acquisition
of Florida Chemical, we have added Consumer & Industrial Chemistry Technologies which provide
cutting-edge, citrus-based chemistry to the flavor, fragrance and industrial services industries. While each
technology requires unique technical expertise, all of our technologies share a commitment to our vision
to provide best-in-class technology, cutting-edge innovation to address the ever-changing challenges of
our customers and exceptional customer service.
Consumer and Industrial Chemistry Technologies
Consumer and Industrial Chemistry Technologies was
added with the acquisition of Florida Chemical. The
Company is one of the largest processors of citrus oils in
the world. Consumer and Industrial Chemistry
Technologies designs, develops and manufactures
products that are sold to companies in the flavor and
fragrance industry and specialty chemical industry. These
technologies are used by beverage and food companies,
fragrance companies, and companies providing
household and industrial cleaning products.
Drilling Technologies
Production Technologies
Energy Chemistry Technologies
Drilling Technologies focus on
designing, manufacturing and
d i s t r i b u t i n g a d i v e r s e
inventory of downhole drilling
equipment with applications
in oil and gas drilling as well
a s m i n i n g , w a t e r a n d
industrial drilling applications.
I n a d d i t i o n , w e p r o v i d e
directional drilling telemetry
services through our best-in-
class Teledrift® technologies.
We continue to introduce new
product innovations including
TelePulse™ and Stemulator®.
Our Production Technologies
are focused on assembling,
distributing, installing and
servicing a broad spectrum of
pumping system components
i n c l u d i n g e l e c t r i c a l
submersible pumps (ESPs), gas
separators and other services.
In addition, our Petrovalve™
patented production valve and
components are used by a
p l e t h o r a o f o i l a n d g a s
p r o d u c e r s i n d o w n h o l e
production assemblies. Our
P r o d u c t i o n Te c h n o l o g i e s
continue to evolve to meet the
needs of both maturing oil and
natural gas production. Our
acquisition of International
Artificial Lift, LLC expands our
u n i q u e
p r o d u c t i o n
technologies to the hydraulic
lift arena, providing next-
generation lift technologies
that are more efficient with a
s m a l l e r e n v i r o n m e n t a l
footprint that we intend to
deploy globally.
Energy Chemistry Technologies
f o c u s o n d e v e l o p i n g ,
manufacturing and distributing
a wide array of specialty
chemistries used in both
p r i m a r y a n d s e c o n d a r y
recovery efforts. Our unique
and patented chemistries are
u s e d
i n c e m e n t i n g ,
stimulation, acidizing, drilling
and production. Our best-in-
class Complex nano-Fluid®
chemistries have been shown
to meaningfully increase
production and well integrity
in unconventional tight gas
and oil formations. Moreover,
o u r a d v a n c e d r e s e r v o i r
modeling capabilities provide
tailored chemistry solutions to
address clients’ proprietary
completion and production
challenges. We also provide
Logistics Technologies which
manage automated material
handling, loading facilities and
blending capabilities
for
energy services companies and
build bulk storage facilities.
“I alone cannot change the world, but I can cast a stone across the waters to create many ripples.”
- Mother Teresa
fell 21% and, as a result, the North
American rig count slid over 62%
during the twelve months that were
that backdrop
2015. To suggest
created challenges for our industry
is, at best, a mild understatement.
While your company was not
i m m u n e t o t h e p r e s s u r e s o f
depressed oil and natural gas prices
and the resulting evisceration of
oilfield activity, our commitment to
maintain a balance sheet with
minimal leverage and our focus on
Flotek’s core, production-enhancing
customized chemistries helped
Flotek remain above the financial
abyss and poised to take advantage
of opportunities even in these most
challenging times.
While our financial position has
provided us a base from which to
continue our growth, it is
the
unwavering dedication and effort of
t h e F l o t e k t e a m t h a t c r e a t e
opportunities for future success. The
day-in and day-out belief by each
member of the Flotek team – from
Wyoming to Williston, Midland to
Marlow and new frontiers beyond
our borders – that they can make a
difference for all our stakeholders:
our clients; our team members and
their communities; the environment;
and, most importantly, you, our
shareholders, is the most important
measure of our success.
There is
little question that our
resolve and resources have been
and will continue to be put to the
test as our industry addresses the
challenges of supply, pricing and
financial strength. Moreover, Flotek
its own set of unique
faces
challenges resulting from missteps
related to the development of its
production measurement software
system.
While some may believe such
challenges are daunting, I assure
you the Flotek team thrives on
addressing the challenges directly,
On behalf of my colleagues at
Flotek Industries, I am pleased to
report to you on the progress of your
Company.
“ Fellow Flotek Shareholder:
A ripple effect is a
situation in which
ripples expand
across the water
when an object is
dropped into it, an
effect from an initial
state can be followed
outwards
incrementally.
By nearly any measure, 2015 was a
challenging year for our industry
and, as a result, your Company. The
ripples that began in 2014 grew to
waves of tsunamic proportion as the
tumult created by rapidly declining
hydrocarbon prices resulted in a
marked deceleration in oilfield
activity. By the time 2015 came to a
close, many of our brethren were
searching for answers as well as for
stability in an environment that
provided anything but.
Just how challenging is the current
environment? Consider that in 2015
crude oil prices dropped over 30%
(and were down over 65% from the
June, 2014 peak), natural gas prices
with resolve that
inside every
challenge is an opportunity to be
discovered and, through precise
execution, harnessed to improve the
value of your company. At the end
of the day I am convinced our team
will be judged more by how we
respond and grow from these
challenges than by the challenges
themselves. And, we are up to the
challenges.
My confidence comes from our
belief that Flotek remains extremely
well positioned as a leader in an
energy services renaissance that will
be driven by a new wave of
technological innovation, focused
on precision, customized chemistry
t h a t c o n t i n u e s
t o i m p r o v e
production in new and existing
wells and is conscious of the
importance of environmental
stewardship, a sense of obligation to
leave the path of energy exploration
as untarnished as possible, proving
that energy development and
environmental principals can
coexist.
While the road ahead will be
uneven, challenging and even
uncomfortable, the prospective
reward makes the journey necessary
and the resolve of the entire Flotek
t e a m w i l l m a k e t h e j o u r n e y
possible. I have no doubt that, once
we arrive at our destination, we will
look back and view the challenges
overcome as the motivation to make
F l o t e k s t r o n g e r, p r o v i d i n g
opportunity to further sharpen our
focus on our core competencies,
seek opportunities that exploit and
expand our key strengths and gain
market share and expand our
reputation as a leading innovator of
value-added oilfield technologies.
The theme of this year’s annual
report captures not only the tone of
our current operating environment
but also the impact of Flotek’s
evolving technology portfolio on
our industry.
A ripple effect is a situation in which ripples expand across the water when
an object is dropped into it, an effect from an initial state can be followed
outwards incrementally.
Clearly, lower commodity prices have created a ripple effect on our
business as well as the businesses of our peers and clients. The ripples have
expanded around the globe and had profound effects on the way we
operate our businesses, in many cases challenging our very existence.
However, as noted earlier, we view those challenging ripples as
opportunities for Flotek to recreate, reinvent and reinvigorate our business,
creating new products and services and forging new partnerships to ensure
we not only remain relevant to our clients but create ripples of our own that
improve our clients’ operations and, as a result, create value for you, our
shareholders.
While the road ahead will be uneven, challenging
and even uncomfortable, the prospective reward
makes the journey necessary; while the resolve of
the entire Flotek team will make the journey
possible.
In 2015, we created several ripples of our own:
•
•
Through the creation of the Flotek Store™, your company broke
tradition with the long-standing yet antiquated business model of
indirect distribution of oilfield chemistry, instead choosing to allow
end-users – our exploration and production clients – to obtain
products directly from Flotek. The ripple effects were numerous
including more exposure to Flotek customers, increased sales and
overall more efficient pricing from traditional distributors. We
believe this is just the beginning of direct distribution opportunities
for Flotek, providing opportunities for more direct collaboration
with exploration and production clients, better market penetration
and an expansion of precision, customized chemistry offerings to
the industry.
The decision to construct the Flotek Global Research & Innovation
Center has positioned Flotek as a leader in global oilfield chemistry
research. As a result, Flotek has expanded its collaborations with
leading North American universities including Texas A&M
University, the University of Kansas, the University of Wyoming, the
University of Calgary, Rice University, the University of Oklahoma
and the University of North Dakota among others. In addition our
commitment to research has resulted in the need for an additional
shift at our existing laboratory to meet the demand for Flotek
analytical services. The ripples will continue into the coming year as
we complete our global research facility and look forward to even
more opportunities – both here and overseas – to help our clients
optimize their drilling, completion and production chemistry and
fluid systems.
• What started with a focus on Canadian opportunities, our international business has rippled around the
globe, covering nearly every continent and dozens of countries from Argentina to the United Arab Emirates.
We are grateful for the work of the recently retired Gary Flock – who spent three-decades toiling in the
international oilfield services arena – who was instrumental in establishing Flotek’s global reach and look
forward to riding the ripples of his vigorous efforts.
• We continued to build the infrastructure in our Production Technologies business through the January
acquisition of International Artificial Lift, LLC, an emerging Texas-based business with new lift technologies
that we believe will give Flotek a distinct product and service offering that is more efficient and less
intrusive than traditional artificial lift products. We recently installed our first next-generation hydraulic lift
systems and believe the success should create ripples across the business as operating results become
available.
These are just a few examples of the efforts by the Flotek team that are both genuine and gallant, especially in an
incredibly challenging operating environment.
In November, a report was released claiming Flotek’s production measurement software, FracMax®, displayed
certain incorrect data. Since the report was released, we have worked diligently to address the issues raised as well
as independently validate the benefits of our precision, customized chemistries.
As is often the case in similar situations, the Securities
and Exchange Commission has opened a fact-finding
inquiry with which the Company is fully cooperating.
There have not been any allegations of wrongdoing.
Various shareholder lawsuits have also been filed,
which the Company is actively defending and will
seek to dismiss. (cid:2)
There is little doubt that the past twelve months have
been some of the most challenging in recent memory.
In fact, the relatively small number of my brethren in
the oilfield that date back to the 1970s are challenged
to recall a more arduous time in the business.
That said, it is incumbent on leaders – in the most
challenging environment – to make the difficult
decisions necessary to ensure the future of the
enterprise, balance conservation and opportunity and position the Company appropriately to be prepared to
exploit opportunities as the cycle recovers. Those decisions are difficult, require resolve and a clear vision of the
future, something that can be very difficult to envision in the daily struggle to survive.
I am confident that we have the right leaders in the right places to maximize our opportunities in this difficult
operating environment. While we remain focused on liquidity, we also are focused on opportunities, confident
that making strategic investments in technology can and will result in the creation of long-term value for our
shareholders.
As a result, we will carefully evaluate all opportunities – both internal and extrinsic – that will result in a more
robust and efficient enterprise, creating ripples of future value. Our eyes are wide open, exploring any and all
value-creating opportunities including acquisitions, partnerships and divestitures that stand in support of our goal
of making a difference for our clients, communities and shareholders.
An important part of the “Making a Difference” ethos for Flotek is giving back. Whether it is our work with Make a
Wish®, veterans concerns or support for Eric Dickerson’s efforts to help boys and young men facing the challenges
of growing up without their fathers, Flotek is unabashedly committed to giving back, being good stewards of our
communities and making a difference in the lives of those we serve. Without that commitment, our commercial
efforts seem less important. Our commitments to our communities give our daily efforts a greater sense of purpose
and meaning and, we hope, create ripples into the communities that make our world a better place. That is what
“Making a Difference” is all about.
I have told the Flotek team in recent weeks, while the challenges and uncertainties in front of us are significant,
they still pale in comparison to what we faced in 2008 and 2009. Moreover, our team is the most talented in the
history of Flotek. Given our track record of addressing, overcoming and excelling during periods of tumult, I am
both confident and excited that the best is yet to come for Flotek.
And, if we cast the right “stones”, we have the ability to create the ripples that will continue to change our industry
and create opportunities for all our stakeholders, especially you, our shareholders.
Finally, I am certain each of you will join me in acknowledging and thanking Todd Sanner, a friend and long-time
Flotek team member for his dedication and service to Flotek. Todd, President of CESI Chemical, our chemistry
research and production subsidiary, gave over three decades to the creation and growth of the cornerstone of
today’s Flotek. His common-sense commitment to the business and his dedication to the people who worked with
him are hallmarks of his leadership. While Todd’s leadership will be missed, his legacy will continue to live within
Flotek for years to come.
I conclude this year’s missives with the same pledge I have made each year since becoming President of your
Company: Along with all of my colleagues at Flotek, I pledge to you, our shareholders, that everything we do will
be based on our belief that it is in the best interest of our stakeholders. First and foremost, we will work tirelessly to
add value and continue to earn your trust.
In short, we will create ripples that make a difference.
Thank you for your continued interest and support of Flotek.
With appreciation,
John W. Chisholm
Chairman, President and
Chief Executive Officer