CYPRESS ENERGY PARTNERS NYSE: CELP Capital Links MLP Investor Presentation March 3, 206
Forward Looking Statements Some of the statements in this presentation concerning future performance are forward-looking within the meaning of U.S. securities laws. Forward-looking statements discuss the Company s future expectations, contain projections of results of operations or of financial condition, forecasts of future events or state of other forward-looking information. Words such as may,, assume, forecast, position, forecast, position, strategy, except, intend, plan, estimate, anticipate, believe, project, budget, potential, or continue, and similar expressions are used to identify forward-looking statements. Forward-looking statements may include statements that relate to, among other things, availability of cash flow to pay minimum quarterly distributions on the Company s common units; the consummation of financing, acquisition or disposition transactions and the effect thereof on the Company s business; the Company s existing or future indebtedness and credit facilities; the Company s liquidity, results of operations and financial condition, future legislation and changes in regulations or governmental policies or changes in enforcement or interpretations thereof; changes in energy policy; increases in energy conservation efforts; technological advances; volatility in the capital and credit markets; the impact of worldwide economic and political conditions; the impact of wars and acts of terrorism; weather conditions or catastrophic weather-related damage; earthquakes and other natural disasters; unexpected environmental liabilities; the outcome of pending or future litigation; and other factors, including those discussed in Risk Factors section of our annual report on Form 0-K. Except for historical information contained in this presentation, the matters discussed in this presentation include forward-looking statements that involve risks and uncertainties. The Company does not undertake and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated and unanticipated events. Forward-looing statements are not guarantees of future performance or an assurance that the Company s current assumptions or projects are valid. Actual results may differ materially from those projected. You are strongly encouraged to closely consider the additional disclosures and risk factors contained in the prospects. 2
Cypress Energy Partners, L.P. (NYSE: CELP) Overview We strive to be the premier midstream energy services company in markets we service by building strong relationships with our stakeholders including customers, partners, employees, regulators, and suppliers Pipeline Inspection (PIS) & Integrity (IS) Services Water & Environmental Services (W&ES) Pipelines are an essential part of our energy infrastructure and required to transport hydrocarbons from the wellhead to various users Pipelines are regulated by DOT and require inspection and integrity services Operated under two controlled subsidiaries Tulsa Inspection Resources, LLC (TIR) - Proprietary database of 5,000+ inspectors Brown Integrity LLC: (Brown) Integrity assessment hydro testing Services cover oil, gas, NGLs, refined products, CO2, LDC/PUC s, storage, gas plants, compressor stations, etc. Attractive recurring revenue opportunities associated with maintenance, repair & operations (MRO) activities Safety is a top priority and CELP enjoys an excellent rating in all divisions Three months ended September 30, 205. Saltwater is a naturally occurring byproduct of the oil and gas production process that must be properly handled to protect the enviroment Saltwater disposal is also regulated CELP has owned saltwater disposal (SWD) facilities High quality new construction & well bores Avg. disposal volume of ~52k barrels/day or ~ 9MM barrels per year (36% utilized) and annual injection capacity of ~53 million barrels without any incremental capital expenditures. 96% of our volumes are produced and piped water (not flowback, which is tied to new drilling) We receive piped water directly from oil & gas wells owned by E&P companies via 9 pipelines into 5 facilities We also have contracts to manage facilities in the Bakken 3
Factors Enhancing our Stability Stable Product Focus W&ES Required Services PIS Stability, Diversity, Growth CELP Produced water focus: Occurs for the life of a well ~ 96% of water in Q3 was produced water Required services: Natural gas, crude and liquid pipelines must be regularly inspected pursuant to various state and federal laws Fixed-fee model: We charge a fixed-fee or daily rate for most services over 80% of revenue was from investment grade customers Piped water growth: Pad drilling, down spacing ~ 37% of Q3 water was piped 9 pipelines (5 Bakken, 4 Permian) Total volumes: Q3 we disposed of ~52k barrels per day Right to acquire in 207 Increased oversight: Drives demand High profile incidents encourage greater investment in integrity Potential mandatory hydrotesting under consideration Resilient business: Low correlation to commodity prices Diversity: Our strategy is to offer services in all key basins and be diversified across oil and natural gas sources ~ 200 customers across North America Brown acquisition: We own 5% of a hydrotesting company with a right to acquire the remaining 49% 4
Conservative & Flexible Balance Sheet CELP runs a conservative balance sheet profile, offering financial flexibility $mm 350 300 250 Debt balance Debt Capacity Capacity with Accordion 200 50 30.2 40.9 40.9 00 75.0 70.0 70.0 75.0 77.6 50 0 Debt summary Q4 '3 Q '4 Q4 3 Q2 '4 Q 4 Q3 '4 Q2 4 Q4 '4 Q3 4 Q '5 Q4 4 Q2 '5 Q 5 Q3 '5 Q2 5 Q3 5 Interest coverage 4.88x 5.20x 5.78x 6.32x 9.4x 8.2x 6.79x 6.05x Leverage ratio 2 0.80x 0.80x 0.79x 0.82x 0.94x 2.85x 2.5x 2.55x Facility capacity $45.0 $50.0 $50.0 $45.0 $22.4 $69.8 $59. $59. Total Credit facility capacity of $200 million (amended 0/2/4) $75 million borrowing base facility & $25 million acquisition facility Provides for $25 million accordion Total availability after TIR drop and Brown Integrity acquisition of ~$59mm All covenants based on 00% adj. EBITDA 2 Accordion subject to additional commitments from lenders and satisfaction of certain other conditions 2 Leverage covenant excludes certain borrowings per credit 5
Our Customers W&ES 25+ customers in the U.S. E&P companies Trucking companies that serve oil & gas producers Crude oil purchasers PIS 70+ customers in North America a majority are investment grade publicly-traded companies Midstream companies Oil & gas producers with gathering systems LDC/PUCs Significant opportunity to leverage recent Brown Integrity acquisition through expansion of service offering to existing and new customers W&ES Pipeline Inspection Pipeline Integrity 6
Investment Highlights Building a Track Record Our company was started in 202 to provide a variety of midstream services to energy companies in North America. We completed our IPO in January 204 and exceeded our distribution per unit estimate in our first year Attractive IRS PLR We have an IRS private letter ruling (PLR) that covers additional diversified opportunities and expansion potential into areas that have not previously been MLP-eligible Highly Experienced Management We have assembled a talented, experienced management team and Board of Directors with 200+ years of energy experience and substantial success building value for investors Aligned Interests Distribution Growth Strong Liquidity CELP insiders retain approximately 65% of the limited partner (LP) and 00% of the general partner (GP), aligning the interests of our executive team and Board of Directors with unitholders When the market stabilizes, our goal remains to grow our distribution per unit by 0% annually over the long term through a combination of organic growth and disciplined acquisitions. We have completed three acquisitions since our IPO We have an attractive credit facility with over $80 million in availability (inclusive of the accordion) 7
Timeline of Achievements Initial Cypress Acquisitions of SWD s December 202 Cypress IPO January 204 Acquired Remaining 49.9% of TIR February 205 202 203 204 205 206 Cypress Energy Partners founded March 202 Acquired Control of TIR June 203 Acquired SWD Bakken December 204 Acquired 5% of Brown Integrity May 205 CELP Quarterly Distribution History 204 205 Q Q2 Q3 Q4 Q Q2 Q3 Q4 Distribution $0.39 $0.40 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 Average Price $23.20 $23.23 $23.97 $9.04 $5.98 $5.63 $2.85 $0.42 Average Yield 6.68% 6.83% 6.78% 8.54% 0.7% 0.40% 2.65% 5.60% 8
Significant Growth Opportunities Acquisitions Diversify Our Business Offering Our broad PLR allows us to diversify into other businesses: Additional inspection services (ILI, pigging, nitrogen, water & environmental and chemicals) Traditional midstream assets Other MLP activities (storage, rail, trans-loading) Solids, recycling, oil reclamation, expanded geography Brown Integrity Drop Down Potential drop down of remaining 49% Brown interest Sell Unused Capacity (W&ES) Facilities are currently only ~ 36% utilized Requires no additional capital spend Infill drilling will increase volumes Focus on piped water (Represents ~25% of volumes) Organic Expand Inspection Customer Base (PIS) Expand TIR inspection customer base of 70+ clients Growing federal and state regulations Currently serve small subset of available market including E&P, midstream, and LDC/PUC Leverage Hydrotesting Acquisition (IS) Expand Brown Integrity to more states Brown operates in six states (vs. TIR in 47 states) Opportunity to expand breadth of services Right to acquire in 207 9
Broad PLR Enhances Our Growth Opportunities Qualifying income under our existing private letter ruling (PLR) Removal, treatment, recycling & disposal of flowback & produced water (SWD s, transportation, pipelines, etc.) Removal, treatment, recycling & disposal of completion fluids, drilling mud, drill cuttings, contaminated soil, tank bottoms, pit water & fracturing fluids Removal, treatment, recycling & disposal of fluids from cleaning storage tanks, trucks and equipment Marketing and distribution of chemicals and salvaged hydrocarbons Infrastructure inspection required by law including oil and gas pipelines and gathering systems, drilling, E&P, mineral and natural resources mining Transportation and heating of frac water Design, own, manage & operate oil and rail transportation assets Remote monitoring and sensoring of E&P assets Recently proposed IRS rules on qualifying income should not have any adverse impact to our existing business. Potential growth opportunities exist associated with our intrinsic activities essential to the energy industry. 0
PIS Growing Market Dynamics Market Dynamics Substantial existing infrastructure is aging 2.3+ million miles of transmission and distribution pipelines plus millions of miles of gathering systems ~60% of U.S. pipelines are over 40 years old. Aging pipeline infrastructure will drive demand for pipeline services Pipelines require substantial recurring maintenance during their lifetime Expanding infrastructure with shifts in energy production and consumption $640+ billion will need to be invested in North American energy infrastructure over the next 20+ years, or an average of ~$30 billion per year 2 ~2% pipeline growth projected in 205 Increased regulation benefits outsourced services Recent regulations and accidents have increased oversight Pipeline inspection and integrity services (i.e. pig tracking, mobile x-ray, ultrasonic testing, etc.) can identify anomalies before they lead to bigger problems 60% 50% 40% 30% 20% 0% Pipelines U.S. Pipeline Age Distribution by Installation Date 0% 2% Pre-950 (65+ yrs) 48% 950-969 (46-65 yrs) 30% 970-999 (6-45 yrs) 0% 2000-2009 (6-5 yrs) Source: Pipeline and Hazardous Materials Safety Administration (PHMSA), U.S. Department of Transportation. 2 Source: INGAA North American Midstream Infrastructure Through 2035, March 204.
PIS The Life Cycle of a Pipeline Record Retention / Documentation Remediation New Construction 40-60 year expected life ------------------------------------------ Require inspection and integrity services for the entire life cycle ------------------------------------------ PHSMA Required Testing: Liquids Pipelines: 5 years Gas Pipelines: 7 years ------------------------------------------ Prudent Operator ------------------------------------------ State requirements continue to vary and evolve Data Review Initial Assessment (baseline) Risk Assessment New Construction Services Current Services Right-of-way acquisitions (limited) Potential Services Barcode scanning Nitrogen services Water & Solid waste services Chemical cleaning Integrity Management Program Current Services Hydrostatic testing Chemical cleaning External corrosion direct assessment Pig tracking Dig staking Inspection NDE Potential Services In-line inspection (ILI) pig Close internal surveys (CIS) Maintenance pigging supplyhouse Leak detection surveys Chemicals and nitrogen services Water & Solid waste services 2
PIS A Large and Growing Service Industry > $2. billion > 47,000 miles > 2,000 digs >,450 runs Over $2. Bn spent on integrity management by operators of liquids pipelines in 203 -------------------------------- +3% vs. prior year Over 47,000-miles of liquids pipeline inspected with in-line smart-pigs in 203 -------------------------------- +34% vs. prior year Key Customers Over,450 in-line inspection smart pig tool runs on liquid pipelines in 203 -------------------------------- +5% vs. prior year Over 2,000 digs for further inspection or liquid pipeline maintenance in 203 -------------------------------- +2% vs. prior year Source: 205 AOPL Annual Liquids Pipeline Safety Performance Report & Strategic Plan. Note: 203 is the most recent year for which data is available 3
PIS Our Midstream Pipeline Services Federal and some state regulations require pipeline operators to develop integrity management programs and conduct inspections, with operators outsourcing elements Inspection Service In-line Inspection Smart pigs & various ILI technologies Pig tracking Integrity Assessment Hydrostatic testing Pneumatic pressure testing PI&IS Other Non-destructive Examination (NDE) Inspection Visual Wellhead Gathering Systems Processing / Treating Facilities X-ray Ultrasonic Pipelines / Transportation Lines / Storage Facilities End Users Data & Integrity Program Management Services Smart pig and other NDE inspection data Anomaly & above ground marker (AGM) reports Automated dig sheet generation Chemicals Staking Services AGM placement Dig site staking Construction & Repair Management Project supervision & coordination of field activities Dig site excavation oversight Defect assessments & mapping / surveying Documentation Nitrogen Services Indicates business activity performed by our PI&IS business Indicates potential expansion opportunity 4
PIS Pipeline Integrity Management Growth Opportunities Inline Inspection Support Cleaning Pigs Chemical Cleaning AGM Survey Pig Tracking Anomaly Staking Excavation Inspection Non-Destructive Examination Repair Inspection Documentation Pig Launcher Solid Waste Disposal Smart Pigs Inline Inspection (ILI) Tools Hydrostatic Testing Chemical Cleaning Inspection Hydrostatic Testing Documentation Source Hydro Water Dispose Hydro Water (Recycle or SWD) Nitrogen Purge Dry Electronic Data & Records Open Valves Current Services Potential Services 5
PIS An Overview of Our Midstream Services How We Generate Revenue Customers typically pay a daily or weekly rate per inspector and per diem expenses Results driven by the number and type of inspectors performing services and the fees charged Inspection services gross margins ~0%. Non-Destructive Examinations (NDE) and hydrostatic testing generates higher gross margins of over 20% Recurring revenue opportunities with maintenance, repair and operations (MRO) activities 46% CAGR in TIR Revenue Average TIR Inspector Headcount Revenue ($mm) $400 $300 $200 $00 $0 85 45 234 380 382 26 200 20 202 203 204 YTD Q3 '5 # inspectors 2,000,800,600,400,200,000 800 600 400 200 Q0 3Q0 507 Q 3Q 76 Q2 3Q2,53 Q3 3Q3,745 Q4,552,406 3Q4 Q5 3Q5 CAGR for period from 200-204 6
W&ES Strategic Footprint Enhances our Position The Bakken and Permian are strategic basins that benefit from high volumes of produced water and flowback and long-life production We own SWD facilities 9 in the Bakken 2 in the Permian Bakken Permian SWD facility SWD facility with piped water Source: Oil and Gas Facilities, Halliburton 204. 2 Percentage of hydraulic frac fluid that returns as flowback. 7
W&ES Essential Midstream Services Oil & gas production produces water & solids that require proper disposal Water acquisition Fracturing fluid mixing Fracturing fluid injection Well completion Production of oil/gas and saltwater Water Handling And Disposal Is A Growing, Multi-Billion Dollar Annual Market * E&P companies prefer to pipe water to SWD s instead of trucking water whenever possible Flowback water transportation Produced water transportation and/ or * Saltwater disposal (SWD) Current CELP activity Saltwater injection Residual oil sales Recycling 8
W&ES Facilities Salt Water Disposal Facility PW Pipeline Chemical Process 804 Ross Mountrail County, ND Injection pump house Saltwater tank Gun barrel tank Unload facility Saltwater transportation truck Injection Well Skim oil tanks Office & lounge Containment Crew quarters Basics of a SWD Facility Regulations require subsurface injection of wastewater deep into the earth. EPA Class II injection wells have multiple layers of protection in design to safeguard the environment A typical facility includes infrastructure for unload, filtration, treatment, storage (water, oil), oil recovery, pumps, disposal wells & associated equipment Process Overview Wastewater arrives to SWD facilities by: Trucking historical approach Pipeline E&P preferred approach 2 Residual (skim) oil may remain in saltwater upon delivery. We remove residual oil through a recovery process and sell the oil Saltwater is eventually injected back into the earth at depths of at least 4,000 Note: SWD wells regulated by U.S. EPA as Class II Injection wells. CELP does not own trucks but serves trucking companies. 2 CELP has 5 facilities that currently receive piped water via 9 pipelines 9
W&ES Business Overview & Opportunity How We Generate Revenue We charge a fee per barrel Management fees for third party SWD Transportation fees for pipelines (future) Selling residual/skim oil recovered 5-30% of an oil and gas wells operating cost is associated with water handling mm barrels 8 7 6 5 4 3 2 0 $.3 $.27 $.7 $.9 $.3 $.06 $.09 $.07 $0.92 $0.77 $0.73 Q3 2Q3 3Q3 4Q3 Q4 2Q4 Revenue per Barrel (right axis) 3Q4 4Q4 Decline in $/bbl primarily oil related Q5 2Q5 3Q5 Disposal Volumes (left axis) $/bbl $.40 $.20 $.00 $0.80 $0.60 $0.40 $0.20 $0.00 Significant Unused Capacity Annual injection capacity of ~53 million barrels Our facilities have more than 64% of available capacity today Represents substantial capacity to generate more revenue and cash flow Utilization of existing capacity does not require any incremental capital needs CELP SWD Facility Utilization Utilized capacity, <36% Unused capacity, >64% Source: Steven Mueller, Southwestern Energy CEO, Houston Strategy Forum 20
Rig Count as of 2/9/6 2
Consolidated Financial Performance (3Q5) Third Quarter 205 Highlights W&ES Summary Distribution: Q3 distribution of $0.40643 ($.63 annualized), total distribution of $4.8 million Increase of +4.9% vs. MQD of $0.3875 EBITDA: Adjusted EBITDA of $7.2 million Coverage: ~.7x based on DCF of $5.6 million Leverage: Conservative leverage of 2.55x MM Bbls 7 6 5 4 3 2 0 6.0 Disposal volumes (Ieft axis) Revenue (right axis) 5.5 4.7 Q3 '4 Q3 '5 3.5 $mm $7 $6 $5 $4 $3 $2 $ $0 Revenue & Adjusted EBITDA PIS Summary $mm $20 $90 $60 $30 $0 5.3 Revenue (left axis) Adj. EBITDA (right axis) 7.2.0 96.4 Q3 '4 Q3 '5 $mm $0 $8 $6 $4 $2 $0 # inspectors Avg. # of inspectors (left axis) 2,000 05.0 Revenue (right axis),500,000 87.8 500 0,648,406 Q3 '4 Q3 '5 $mm $0 $00 $90 $80 $70 Includes 5% of IS (since 5//5) 22
Consolidated Financial Performance (9 Months 5) 9 Months 5 Highlights W&ES Summary Distributions: Completed three distributions ~4.9% above our MQD EBITDA: Achieved +3% growth in Adj. EBITDA, to $7.6 million Balance sheet: Maintained strong liquidity with ~$25.7 million in cash & +80 million debt capacity with accordion Operational: Increased disposal volumes to ~4.5 million bbl (+2.% YoY) for W&ES MM Bbls 20 5 0 5 0 7.2 Disposal volumes (Ieft axis) Revenue (right axis) 4.2 4.5 YTD Q3 '4 YTD Q3 '5.7 $mm $30 $25 $20 $5 $0 $5 $0 Revenue & Adjusted EBITDA PIS Summary $mm $305 $300 $295 $290 $285 $280 $275 $270 5.5 Revenue (left axis) Adj. EBITDA (right axis) 7.6 302.3 28.4 YTD Q3 '4 YTD Q3 '5 $mm $30 $25 $20 $5 $0 # inspectors Avg. # of inspectors (left axis) $mm 2,000 Revenue (right axis) $450,500,000 500 0 285.0 26.,530,42 YTD Q3 '4 YTD Q3 '5 $375 $300 $225 $50 $75 $0 Includes 5% of IS (since 5//5) 23
204 CELP EBITDA to DCF Reconciliation Per our Omnibus Agreement, the 49.9% owners previously absorbed additional costs ( subsidies ) benefiting CELP, including: ) Incremental interest expense for credit facility use 2) 00% of the non-cash amortization fees associated with the CELP credit facility that supports TIR 3) 00% of the cash non-use fees on the credit facility The net impact is that CELP through it s 50.% interest enjoyed ~ 58% of TIR s distributable cash flow ( DCF ) prior to the acquisition of the remaining 49.9% interest (and ~ 40% DCF) in February 205. U.S. Dollars in Thousands YE 2/3/4 Less: Attributable to 49.9% TIR Interest (Period from IPO to 2/3/4) Less: Attributable to GP & Other Non- Controlling (YE 2/3/4) Attributable to Partners (YE 2/3/4) Net Income $ (5,79) $ 4,682 $ 440 $ (20,30) Plus: D&A expense 6,53,276 388 4,849 Impairments 32,546 - - 32,546 Income Tax Expense 468 205 28 235 Interest Expense 3,208 2,65 82 86 Offering Costs / GP Costs 943-943 - Adjusted EBITDA 28,499 8,328,98 8,90 Less: Cash Interest, Taxes & Maint. Capex 3,833 3,006 446 38 Distributable Cash Flow $ 24,666 $ 5,322 $,535 $ 7,809 ~40% 24
CELP An Attractive Investment Opportunity Geographic diversity Independent inspection U.S. energy independence CYPRESS ENERGY PARTNERS Significant industry experience Water & Environmental Services Growing regulatory focus Pipeline Inspection & Integrity Services Fragmented markets Long life assets 25