Newpark Resources
Annual Report 2016

Plain-text annual report

E N D U R A N C E NEWPARK 2016 ANNUAL REPORT Throughout 2016, our endurance was tested like never before. We rose to the challenge. We grew stronger. While Newpark responded to market conditions, we remained focused on our long-term strategies. This focus produced results. We expanded internationally, gained market share and entered new markets. We built out capabilities and capacities, reduced expenses and strengthened the balance sheet. Newpark is built to endure. T H E D E S I G N O F E N DU RA N CE Built for the ages G R E AT PYR AM I D O F G IZA At Newpark, we draw immense inspiration from the world’s most iconic examples of endurance. Perhaps the ultimate of these is the Great Pyramid of Giza. Construction experts postulate that 200,000 skilled craftsmen meticulously placed 2.3 million granite and limestone blocks into place over 20 years, finishing around 2,500 BC. The pyramid stands today much as it did then. While we do not equate Newpark’s 85-year run to that of the pyramid, we admire and seek to emulate this ancient wonder’s enduring design. We have exercised care and discipline in building our company to grow and thrive for the long term. Our investments are driving our ability to advance technologies, expand business, and ensure our strategies will stand the test of time. T H E N ATU RE OF E N DURANCE Longevity against unrelenting assaults T H E G I A N T S E QU O I AS Sequoias are one of the largest living organisms on Earth and can stand their ground for 3,000 years. Their colossal trunks and massive branches give them the stability of a skyscraper and the balance of a ballet dancer. Sequoias naturally withstand fires, storms, disease and other onslaughts of their environment. Bombarded by threats, they endure. This historic down cycle has significantly impacted Newpark, but it is in our DNA to stand strong. We have developed technologies that elevate us above the commodity offerings that make other companies vulnerable. Our differentiated products help withstand the challenges of weakening markets. We operate with unwavering determination, working to be the best in breed within each market that we participate. T H E S PI R IT O F E N DU RANC E The strength of focus S U M M I T I N G E V E R E ST Since 1921 humans have attempted to conquer Mount Everest. Battling capricious weather, deadly crevasses, avalanches, 200-mph winds and oxygen deprivation, eight expeditions failed. Finally in 1953 Edmund Hillary and Tenzing Norgay, supported by an intensely determined team, at last stood atop the 29,029-foot peak. To this day every successful summit is an astonishing display of endurance. Inspired by these legendary triumphs, Newpark too is relentlessly focused on reaching its goals against all odds. Over the past year, we faced the most challenging economic conditions in our industry’s history, leading to hundreds of business failures. Newpark refused to succumb. We were unwavering in planning and executing our strategies. We kept our focus on our ultimate objectives and we have endured. Surviving an economic downturn is, to a large degree, staying the course and doing what made you strong in the first place. But clearly there’s more. It takes vision, responsiveness, and a commitment to stay vital. To advance. To grow. To endure. Responding to the Market Commitment to our core Operate with utmost safety Newpark achieved record safety results in 2016, with a total recordable incident rate of 0.35, beating our previous record from 2015. Record-setting safety results are particularly impressive when cost and personnel reductions are occurring. But at Newpark, it is engrained into our culture to look out for one another and to improve. Keep the long-term vision in focus Despite the most economically challenging market environment we have ever faced, Newpark did not deviate from its strategies. While many companies in our sector were going on life support, pulling back from markets and shutting down regions, we expanded and gained market share. Make strategic investments Develop superior technologies Through the downturn we continued to make strategic capital investments. In 2016, we completed our new fluids manufacturing facility in Texas and will soon complete our Gulf of Mexico shorebase expansion in Louisiana, making Newpark the clear leader in developing, producing and delivering the highest quality fluids systems to support our expanding global E&P customer base. We continue to launch differentiated products in both fluids and mats. In 2016, we launched Dura-Base® EPZ Grounding SystemTM, a proprietary grounded matting system that elevates worksite safety in the electric transmission and distribution markets. Across our product lines, Newpark was awarded four patents in 2016. Protect the balance sheet Regardless of the market cycle, Newpark is prudent in its capital deployment decisions. We only make investments that clearly further our long-term strategies without straining our financial position. During difficult times, this discipline has protected our company and our shareholders. International Expansion A key to our future Albania Algeria Kuwait Uruguay Chile Oman One of the key elements in our international strategy is the focus on national and international oil companies, who continued to develop energy despite temporary commercial market conditions. This approach has been vital to Newpark. Our work for Kuwait Oil Company and Sonatrach in Algeria provided stability for our business throughout the down cycle. In 2016, we built upon those successes, with new contracts in Albania, Chile, Oman and Uruguay. We continue to pursue key NOC and IOC business around the world. International Revenues ($Millions) $300 $250 $200 $150 $100 $50 $0 2012 2013 2014 2015 2016 Fluids Systems Leadership in every aspect With every new product launched and customer project completed, Newpark solidifies its position as the global technology leader in fluids. For example, in 2016 when Total was planning to drill offshore Uruguay in over 11,200 feet of water, a world record depth, they turned to Newpark. They trusted our products, services and technical expertise when drilling such a challenging and ambitious well. Total lauded the project as an operational success. Commitment to Service We believe that leading in service goes hand- in-hand with leading in technology. During the downturn we did not compromise our delivery. We maintained the highest quality personnel and continued to serve all the regions where our customers need us. Developing Technology Operators worldwide must find ways to achieve operating efficiencies to make their drilling investments viable. We continue to help them by introducing new fluids technologies, most recently our Kronos™ and Fusion™ lines. Expanding Market Share By remaining focused on our customers’ needs, we achieved a record market share in North America during 2016. Newpark has emerged as the second largest provider of drilling fluids on the continent, a position that will provide meaningful benefit as the market recovers. 2016 Revenues by Region APAC/EMEA 43% United States 38% Latin America 11% Canada 8% Mats and Integrated Services Strategy driving growth Diversifying and differentiating Newpark has accelerated its penetration into the power transmission and distribution markets. We have structured our business to serve these customers and have developed superior patented products to differentiate ourselves. Increased R&D capability Our Mats R&D Center gives us the capability to continually develop the next generation of value- added, temporary worksite solutions. Combined with our increased manufacturing capacity, we are well-equipped to establish a leadership position in every market we serve. Our mat fleet as an advantage We have the largest fleet of composite mats in North America, and combined with superior logistics, it positions us advantageously to meet customers’ worksite needs. Further, our mats are constructed with fully recyclable raw materials, limiting the maintenance capital requirements to support the fleet. Newpark has continued to pursue opportunities beyond its traditional oil and gas customer base. As the upstream market fell sharply over the past two years, this strategy was proven out. In 2016, over 70% of our mats revenue came from industries outside of oil and gas exploration. We have won new customers and built new stability into our mats business. And as hydrocarbon exploration and production recovers, we remain poised to serve these markets as we always have. 2016 Revenues by Market NAM Exploration 29% NAM Non-Exploration 52% Int’l Non-Exploration 19% Financial Strength Maintaining Discipline While we are encouraged by signs of recovery in commodity markets, Newpark will continue to take a measured approach. We will maintain our strong financial structure, closely managing our discretionary capital and operating expenses. Upon a base of financial stability, we will continue to pursue our long-term strategies – building out our capabilities, expanding our differentiated offerings, going where our customers need us to be, and serving an increasing share of our markets. Financial Highlights Total Revenues (Millions) Mats Revenues (Millions) $1,200 $1,000 $800 $600 $400 $200 $0 $160 $120 $80 $40 $0 Fluids Revenues (Millions) $1,000 $750 $500 $250 $0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 International North America Net Debt (1) (Millions) $220 $165 $110 $55 $0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 (1)Net Debt = Total Debt - Cash TO OUR SHAREHOLDERS Newpark entered 2016 facing one of the most challenging economic environments in our company’s history. Commodity prices continued to decline and rig counts sunk to all-time lows. We are pleased to report that Newpark endured. In fact, we not only endured, we took action to strengthen our company and our competitive position on multiple fronts. In the second half of 2016 we saw the first signs of a recovery in oil and gas markets, as North American rig counts began to increase. We believe the hard work and positive steps we have taken during the down cycle will reap rewards for our company and our shareholders in the market recovery. Strengthening Our Foundation Newpark revenues in 2016 were $471 million, a 30% decrease from 2015. While we never want to experience a down year, these results reflected favorable performance relative to the overall declines seen across the oil and gas industry. We took the necessary steps to reduce our expenses and aggressively manage our working capital. We consolidated facilities, streamlined the structure of our regions, right-sized our inventories and converted our receivables to cash. We also continued the staffing reductions we began in 2015 and executed salary reductions throughout our North American operations. This was a difficult undertaking for the entire Newpark family, but we believe the worst of the downturn may be behind us. As business picked up in late 2016 we have had the opportunity to bring some of our team members back to Newpark. Moving into an improving atmosphere in 2017, our discipline remains, with our annualized North American operating expenses running approximately $40 million lower than they were a year ago. Additionally throughout 2016, while companies in our space were becoming more vulnerable, we were resolute in our determination to protect the balance sheet. Through prudent capital management we were able to continue to fund our long-term strategic investments and emerge from the year in a position of strength. We closed 2016 with $88 million in cash and modest leverage. We refinanced and retired $89 million of our pending debt maturities and put into place a new $90 million asset-based credit facility, an important achievement in an environment where liquidity had all but dried up for many. Newpark stands upon a solid financial foundation that can well support our strategies for growth. Our discipline protected the company through the downturn, and as the recovery gains momentum, we are in a better position than ever to lead and grow. Building Our Competitive Advantage In 2016, Newpark reached two significant milestones in our recent strategic capital projects. Early in the year, we completed our fluids manufacturing facility and distribution center, significantly improving our ability to produce consistent high-quality, differentiated technologies and upgraded our capabilities for new product development and delivery. In the third quarter, we also completed phase one of our Gulf of Mexico deepwater shorebase facility expansion in Port Fourchon, Louisiana, which generated its first revenue in 2016. With this investment we have surpassed our competitors’ capabilities in terms of loadout rates for offshore vessels supporting deepwater drilling projects, where every minute saved reflects cost savings for our customers. The upgraded facility gives Newpark immediate inroads to the important Gulf of Mexico deepwater market, which is dominated by major IOCs, and it gives us a competitive edge against the largest oilfield service companies in the world. The second and final phase of the upgrade will be completed in early 2017. Regardless of market conditions, our strategic capital investments have been a priority for Newpark. They are vital components in our long-term vision for continued technological leadership, service superiority, and sustainable growth. Increasing Our Value to Customers Another pillar of our strategy is to step above commodity offerings and differentiate Newpark through constant innovation. We continued to develop and commercialize new products throughout 2016. We qualified our Kronos™ suite of synthetic-based fluid systems with key deepwater customers, a system specifically developed to solve the unique challenges of deepwater drilling. We acquired Pragmatic Drilling Fluids Additives in Canada, a critical partner in the development of our Fusion™ fluids, adding valuable R&D talent to our bench for developing new fluids chemistries. In our mats business, we launched our patented Dura-Base® EPZ Grounding System™, providing contractors in the electric power transmission and distribution industry a new level of safety on the worksite. EPZ, along with our existing mats technologies, has allowed Newpark to diversify beyond our traditional oil and gas customer base and enter sizable infrastructure markets, including electrical transmission and distribution, pipeline, solar, petrochemical and construction industries. In 2016, over 70% of our mats revenue came from outside exploration markets, and while overall mats revenues were down, our advanced offerings continue to demand strong margins, delivering a segment operating margin of nearly 20%. Geographically, Newpark is more diversified than ever. Despite extreme economic strain in North America, Newpark remained committed to serving its home base, and we have now taken over the number two spot in drilling fluids market share for the North America land market. Overseas, we expanded market share with key NOC customers in Kuwait and Algeria, entered a new contract with Shell in Albania and expanded into Oman. We provided the drilling fluids services to support Total as they drilled in world-record water depths offshore of Uruguay. We also won a five-year contract with ENAP in Chile, a testament to our superior ability to help operators drill in challenging horizontal applications. Facing Our Future We believe the worst of the downturn is behind us, and Newpark stands poised for improved financial performance. As markets recover and the capital budgets of our customers are unlocked, the most complex exploration and completion projects in unconventional formations and deepwater environments will re-commence. These projects are where Newpark shines. We are increasingly acknowledged by prominent operators around the world as a technological leader in helping to solve the toughest drilling challenges. Add to that our reputation for service quality, and Newpark is well positioned to prosper in the improving environment. Regardless of the speed of the recovery, Newpark will continue to do what it always does. We will manage our capital judiciously and remain focused on our strategies. We will continue to build our capabilities, develop new technologies, diversify our markets, and expand internationally. Given the historically difficult conditions we faced, we are proud of our performance in 2016. We are most proud, however, of our achievements in safety. We improved on our previous record from 2015, with a total recordable incident rate of 0.35, well below the industry average. Looking out for each other and our customers is the cornerstone of our culture and we will continue to strive for improvements every day. In closing, we would like to thank our shareholders for your confidence in Newpark. We thank our customers for entrusting their critical projects to our expertise. Finally, we thank our employees for never wavering in their dedication to safely serving our customers. Your commitment, ultimately, is the greatest reason Newpark endures. David C. Anderson Chairman of The Board Paul L. Howes President and Chief Executive Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           DIRECTORS CORPORATE INFORMATION DAVID C. ANDERSON ANTHONY J. BEST G. STEPHEN FINLEY PAUL L. HOWES RODERICK A. LARSON DR. JAMES W. MCFARLAND GARY L. WARREN Chairman of the Board, Newpark Resources, Inc., Chief Executive Officer, Anderson Partners Retired President and Chief Executive Officer, SM Energy Company Retired Senior V.P., Finance and Administration and Chief Financial Officer, Baker Hughes Incorporated President and Chief Executive Officer, Newpark Resources, Inc. President and Chief Operating Officer, Oceaneering International, Inc. Rolanette and Berdon Lawrence Distinguished Chair in Finance, A.B. Freeman School, Business at Tulane University Retired Senior V.P., President, Drilling and Well Services Division, Weatherford International, Ltd. NEWPARK RESOURCES, INC. CORPORATE HEADQUARTERS 9320 Lakeside Blvd., Suite 100 The Woodlands, TX 77381 INVESTOR RELATIONS CONTACT BRIAN FELDOTT Director, Investor Relations Phone: 281-362-6800 Fax: 281-362-6801 E-mail: bfeldott@newpark.com AUDITORS DELOITTE & TOUCHE LLP Houston, Texas TRANSFER AGENT AMERICAN STOCK TRANSFER & TRUST COMPANY 6201 Fifteenth Avenue 3rd Floor Mail Room Brooklyn, New York 11219 Phone: 718-921-8124 ANNUAL MEETING The Annual Meeting of Shareholders of Newpark Resources, Inc. will be held on Thursday, May 18, 2017 at 10 a.m. CDT, at Newpark Corporate Offices 9320 Lakeside Blvd., Suite 100 The Woodlands, Texas 77381 COMMON STOCK LISTED NEW YORK STOCK EXCHANGE Symbol - NR EXECUTIVE OFFICERS PAUL L. HOWES MARK J. AIROLA President and Chief Executive Officer Senior Vice President, General Counsel, Chief Administrative Officer, Chief Compliance Officer and Secretary CORE VALUES INTEGRITY RESPECT EXCELLENCE MATTHEW S. LANIGAN Vice President and President, Mats and Integrated Services GREGG S. PIONTEK Vice President and Chief Financial Officer ACCOUNTABILITY BRUCE C. SMITH Executive Vice President and President, Fluids Systems DOUGLAS L. WHITE Corporate Controller and Chief Accounting Officer Acting honestly, ethically and responsibly in all aspects of our business Dealing fairly and openly with employees, customers, suppliers and community Delivering value through performance, innovation and service quality Using good judgement and taking responsibility for our actions CORPORATE HEADQUARTERS 9320 Lakeside Blvd., Suite 100 The Woodlands, TX 77381 281.362.6800 newpark.com 

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