Archrock, Inc. · NYSE:AROC

Archrock — 2023 Citi Midstream / Energy Infrastructure Conference

53 slides from Archrock's conference presentation, August 2023

  1. Slide 1: ARCHROCK, INC. 2023 Citi Midstream / Energy Infrastructure Conference

    ARCHROCK, INC. 2023 Citi Midstream / Energy Infrastructure Conference August 2023

  2. Slide 2: Forward-Looking Statements

    Forward-Looking Statements All statements in this presentation (and oral statements made regarding the subjects of this presentation) other than historical facts are forward–looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These forward–looking

  3. Slide 3: Archrock – Company Overview

    Archrock – Company Overview Returns oriented energy infrastructure company  Natural gas compression company based in Houston, Texas • NYSE: AROC  Largest outsourced compression provider in U.S.(1) • Market Cap: $2.0 billion(2)  Compression is a must-run service for gas transportation • Enterprise

  4. Slide 4: An Attractive Energy Infrastructure Investment

    An Attractive Energy Infrastructure Investment Archrock Investment Highlights • Gathering focus; a leading provider of large HP, 85% of fleet(1) Midstream / Large HP Focus • Compression is a must-run service for gas transportation • Attractive, long-term & diversified customer relationships • Busine

  5. Slide 5: Significant Value Drivers

    Significant Value Drivers Unique investment proposition today and long-term  Undersupplied Compression Market. Leverage to oil and liquids-rich shale plays driving record-high utilization  Improving Profitability. Expect price increases and strong cost management  Significant Deleveraging. Projec

  6. Slide 6: 2024 Capital Allocation Flexibility

    2024 Capital Allocation Flexibility Prioritizing shareholder returns +5% • Increasing return of capital to shareholders YoY and long-term 1 Dividend increase target • Dividend growth complimented by strong expected dividend coverage Capital of ~2.0x(1) Return $48 million remaining under • Free cash

  7. Slide 7: Industry Fundamentals Support Multi-Year Upcycle

    Industry Fundamentals Support Multi-Year Upcycle Record U.S. natural gas volumes and compression market tightness U.S. Dry Natural Gas Production and AROC Utilization (1) 130 100% Forecast Durable Natural Gas Fundamentals 120 117.9 95% 21% U.S. gas production growth 2022-2030(1) 90% 89% 110 AROC Per

  8. Slide 8: Operations

    OPERATIONS ARCHROCK, INC. (NYSE:AROC)

  9. Slide 9: Archrock's Focus on Midstream

    Archrock’s Focus on Midstream Our midstream focus results in greater stability Characteristic The Midstream Benefit The Result to Archrock Production Focused Relatively stable compression demand • Utilization range between 82% and 95%(1) Longer Contracts Longer-term, fee-based assignments • Average

  10. Slide 10: A Market Leader in Large Horsepower

    A Market Leader in Large Horsepower Leveraging the growing industry trend towards larger HP units 85% Large HP Fleet Allocation(1) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Drivers of Large HP Demand Drilling Efficiency  High probability drilling programs allow for efficient infrastructure planni

  11. Slide 11: Significant Horsepower Density in Oil-Driven Shale Plays

    Significant Horsepower Density in Oil-Driven Shale Plays Associated gas volumes need to be transported, and therefore compressed  Largest U.S. provider of compression services by fleet size  Oil prices continue to support healthy economics for oil-directed Niobrara drilling in shale plays like the

  12. Slide 12: Aftermarket Services Capabilities

    Aftermarket Services Capabilities Solid opportunities to service customer-owned compressors  Ability to serve the entire U.S. compression market  Margin contribution from customers with their own compression solutions  Minimal capital requirements, enhancing overall returns  Leverages existing i

  13. Slide 13: Franchise Transformation Delivering Results

    Franchise Transformation Delivering Results Multi-year high-grading of our fleet, talent, customers and technology Horsepower per Unit(1) Fleet Age(2) 1,200 13 +97% 12.5 1,000 -11% 12 800 11.5 11 600 10.5 400 10 2017 2022 2017 2022 Gross Margin $/HP/Month(3) Compressor Units 10.2 8,000 10.0 9.8 +9%

  14. Slide 14: Contract Operations Customer Base

    Contract Operations Customer Base Strong relationships with top-tier energy companies Revenue ~55% Top 10 Customers Diversification % of revenue from top 10 customers(1) Long-term >15 years Relationships Avg. relationship length with top 10 customers(2) High Quality 6 of 10 Top 10 customers with Par

  15. Slide 15: Leading Provider of Large Compression Horsepower

    Leading Provider of Large Compression Horsepower Highest large horsepower % and average operating horsepower size % Large Horsepower(1) Horsepower per Unit(2) 85% 81% 1109 76% 1051 784 55% 267 AROC Peer A Peer B Peer C AROC Peer A Peer B Peer C Utilization(2) (3) Ending Active Horsepower(2) 99.9% 3.

  16. Slide 16: Strong Capital Allocation Metrics Vs. Compression Peers

    Strong Capital Allocation Metrics Vs. Compression Peers Driving leverage lower, shareholder returns higher and maintaining solid dividend coverage Leverage Ratio(1) Cash Available for Dividend Yield(2) Dividend Coverage(2) (3) 10% 5.1x 8.1x 4.5x 4.2x 8% 4.1x 3.0-3.5x 5% 3% 2.1x ~2.0x >2.0x 1.3x AROC

  17. Slide 17: Fundamentals

    FUNDAMENTALS ARCHROCK, INC. (NYSE:AROC)

  18. Slide 18: Compression Sector Capital Discipline

    Compression Sector Capital Discipline Lower investment driven by free cash flow, shareholder return and deleveraging priorities Publicly-Traded Pure-Play Compression Company Total Capex (1) $MM $700 $664 $661 Avg. 2018-2019: $631 $662 MM $600 $500 $461 $426 $400 Avg. 2020-2024E: $377 MM $300 $264 $1

  19. Slide 19: Secular Natural Gas Demand Drivers Remain

    Secular Natural Gas Demand Drivers Remain Robust medium and long term demand drivers led by natural gas export opportunities U.S. Natural Gas Demand Growth(1) LNG Exports Bcf/d 140 3 2 0.2 123 13 120 106 Pipeline Exports 100 80 60 40 20 Industrial 0 -20 2022 LNG Exports Exports to Industrial Other 2

  20. Slide 20: Financials

    FINANCIALS ARCHROCK, INC. (NYSE:AROC)

  21. Slide 21: Solid Profitability Through Cycles

    Solid Profitability Through Cycles A resilient business model tied to production, not commodity prices Adjusted EBITDA margin (%)(1) (2) Oil Gas $/bbl 35% 38% 41% 35% 39% 43% 47% 46% 43% 45% $/MMBtu $140 $10  Track record of generating 440 $9 attractive EBITDA margins $120 417 415 383 $8  Financia

  22. Slide 22: Growing and Well-Covered Dividend

    Growing and Well-Covered Dividend 39 consecutive quarters of cash dividends Recent Dividends per Share(1) Cash Available for Dividend Coverage(2) 2024E Target Dividend Growth: +5% 2024E Target Dividend Coverage: ~2.0x $0.65 $0.62 3.0x $0.58 2.9x 2.8x 2.2x 2.1x 2.0x 1.9x $0.48 2017 2018 2019 2020 202

  23. Slide 23: Attractive Dividend Profile

    Attractive Dividend Profile Compelling dividend growth and yield Dividend/Distribution Yield(1) 2024E Dividend/Distribution Growth Estimates(2) 8% 6% 5% 5% 4% 3% 4% 2% S&P 500 XLU Utilities 10-Year AROC AMNA AMZ AROC Midstream Index Treasury Midstream Midstream Sector Index MLP Index (1) Based on Bl

  24. Slide 24: Executing on Balance Sheet Goals

    Executing on Balance Sheet Goals Reducing leverage to strengthen balance sheet • Approximately $200 million in absolute debt reduction since the end of 2019 • Target leverage ratio of 3.0-3.5x • Deleveraging expected in 2023 and 2024 through enhanced operational leverage and EBITDA generation 5.2x 5

  25. Slide 25: Solid and Improving Balance Sheet Position

    Solid and Improving Balance Sheet Position Deleveraging and no near-term debt maturities Debt Maturity Schedule(1) ($MM) Balance Sheet & Funding Overview 6.875% senior B  No near-term debt maturities A notes due April 2027 342  Approximately $200 million in debt reduction since B Revolving credit

  26. Slide 26: Financial & Operational Stability

    Financial & Operational Stability Maintaining strong profitability and fleet utilization Revenue ($MM) Gross Margin(1)% Contract Operations Aftermarket Services 245 246 250 248 236 238 230 Contract Operations AMS Total 220 216 214 219 47 42 43 206 199 46 63% 62% 66% 66% 65% 63% 63% 54 52 32 195 196

  27. Slide 27: Increased 2023 Financial Guidance

    Increased 2023 Financial Guidance Forecast reflects strong customer demand and disciplined cost management Prior 2023 Updated 2023 2022 ($MM) Guidance(1) Guidance(1) ($MM) ($MM) Net Income (Loss): $44 $75 – $105 $93.8 – $113.8 Adjusted EBITDA: (2) $363 $400 – $430 $430 – $450 Selling, General & Admi

  28. Slide 28: ESG

    ESG ARCHROCK, INC. (NYSE:AROC)

  29. Slide 29: Sustainability at a Glance

    Sustainability at a Glance Environmental Social Governance -12% 0.32 20% Emissions Intensity Scope 1 and 2 Total Recordable Incident Rate Quantifiable ESG Metrics in Incentive Emissions 2022 v. 2021 Program $18 MM Zero 3/7 Investment in Electric Drive Lost Time Incident Rate Female and Ethnically Di

  30. Slide 30: The Critical Role of Natural Gas in a Greener Economy

    The Critical Role of Natural Gas in a Greener Economy Natural gas is abundant, reliable and cleaner U.S. Natural Gas Production vs. CO2 Emissions 6,500 40,000  U.S. emissions reductions driven by coal to natural gas 35,000 6,000 switching for electricity generation million metric tons billion cubic

  31. Slide 31: Committed to Helping Customers Reduce Emissions

    Committed to Helping Customers Reduce Emissions Leveraging the strength of our core compression franchise as we invest in emissions reduction Improved Compression Engine Emissions Efficiency  Focus on large horsepower  Accelerating investment in electric motor-drive compression  Divesting older,

  32. Slide 32: Best in Class Safety Record

    Best in Class Safety Record Safety culture reflected in excellent 2022 performance  Target Zero™ is foundation of internal HSE program, which reports directly to CEO and reports quarterly safety results to board of directors  Member of ISNetworld®  TRIR of 0.32 in 2022, ahead of 0.50 target  GPS

  33. Slide 33: Proprietary Methane Capture

    Proprietary Methane Capture Successful field pilot of patent-pending technology  Archrock New Ventures Team developed methane capture technology that reduces fugitive emissions from certain parts of the compressor package  Unit blowdowns and compressor packings  Complementary and value enhancing

  34. Slide 34: Investment in ECOTEC

    Investment in ECOTEC Methane emissions management investment and partnership  Acquired a 25% equity stake in Ecotec International Holdings, LLC, a global leader in methane emissions monitoring and management.  Proven technology and emissions detection history with natural gas, utility, landfills,

  35. Slide 35: People and the Community

    People and the Community Engaged in communities across the U.S. a  Archrock Cares prioritizes and coordinates our involvement in community initiatives  Directs allocation of corporate-funded charitable donations.  Paid time off for voting, jury service and volunteer activities  RockFIT Wellness

  36. Slide 36: Governance Highlights

    Governance Highlights Sustainability commitment rooted in strong corporate governance 20% Quantifiable ESG Performance Metrics in 2022 Incentive Program  Separate Chairman and CEO  Majority independent Board Safety  100% independent Board committees Development of  3 of 7 independent Directors a

  37. Slide 37: Key Takeaways

    Key Takeaways We are the leader in U.S. natural gas compression Structural, Midstream / Resilience Long-Term Solid Financial Sustainable Large HP Focus Through Cycles Demand Drivers Position Future 37 ARCHROCK, INC. (NYSE:AROC)

  38. Slide 38: Appendix

    APPENDIX ARCHROCK, INC. (NYSE:AROC)

  39. Slide 39: Our Rich Company Legacy

    Our Rich Company Legacy Successful 65+ year company history with proven success over time South Coast Gas 1950’s 1990 – 2006 2007 – 2014 2015 – Current  South Coast Gas Compression  Hanover Compressor founded  Exterran formed by merger of  Archrock is the renamed U.S. established – legacy entity

  40. Slide 40: Leading Provider of Outsourced Compression

    Leading Provider of Outsourced Compression Compression increases pressure within a pipeline to transport natural gas A Must-Run Service  Equipment that moves natural gas through infrastructure Benefits to customer of outsourcing systems to consuming markets  Compression also used to provide enhanc

  41. Slide 41: Digital Transformation

    Digital Transformation Driving new pinnacles of customer service, employee satisfaction, sustainability and profitability Contract Operations Gross Margin(1) Recent Milestones Expected Benefits 61%  Completed installation of  Increased asset uptime expanded telematics across fleet  Improved effic

  42. Slide 42: The Leader in U.S. Natural Gas Compression

    The Leader in U.S. Natural Gas Compression Leading contract compression position supplemented by AMS capabilities Total Compression Outsourced Owned Market ~30% of market ~70% of market Contract Operations(1) Aftermarket Services (AMS) 0 1,000 2,000 3,000 4,000 AROC 3,578 Category 2 3,347 3,177 Cate

  43. Slide 43: Management Overview

    Management Overview Highly qualified and experienced management team D. Bradley Childers, President and Chief Executive Officer Brad Childers is President, Chief Executive Officer and a director of Archrock, Inc. Previously, he served as Chairman of the Board of Archrock GP LLC, the managing general

  44. Slide 44: Management Overview Cont.

    Management Overview Cont. Highly qualified and experienced management team Jason G. Ingersoll, Senior Vice President, Sales and Operations Support Jason Ingersoll is Senior Vice President of Marketing & Sales of Archrock Inc., where he is responsible for sales teams and processes, including direct s

  45. Slide 45: Archrock Addendum I-A

    Archrock Addendum I-A Archrock, Inc. Gross margin, a non–GAAP measure, is defined as revenue less cost of sales (excluding depreciation and amortization). Gross margin percentage is defined as gross margin divided by revenue. Adjusted EBITDA, a non–GAAP measure, is defined as net income (loss) exclu

  46. Slide 46: AROC Addendum I-B

    AROC Addendum I-B ($ in thousands) Q1-19 Q2-19 Q3-19 Q4-19 2019 Q1-20 Q2-20 Q3-20 Q4-20 2020 Q1-21 Q2-21 Q3-2021 Q4-2021 2021 Q1-2022 Q2-2022 Q3-2022 Q4-2022 2022 Q1-2023 Q2-23 Revenue Contract Operations $182,507 $186,258 $198,337 $204,437 $771,539 $206,974 $187,949 $175,223 $168,772 $738,918 $166,

  47. Slide 47: AROC Addendum I-C

    AROC Addendum I-C Reconciliation of Net Income (Loss) to Gross Margin (in thousands) Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 Q4-20 Q1-21 Q2-21 Q3-21 Q4-21 Q1-22 Q2-22 Q3-22 Q4-22 Q1-23 Q2-23 Net income (loss) $19,456 $11,423 $20,407 $46,044 ($61,187) ($30,381) $18,332 $4,791 $4,169 $8,752 $9,304 $

  48. Slide 48: AROC Addendum I-D

    AROC Addendum I-D Reconciliation of Net Income (Loss) to Adjusted EBITDA ($ in thousands) Q1-19 Q2-19 Q3-19 Q4-19 Q1-20 Q2-20 Q3-20 Q4-20 Q1-21 Q2-21 Q3-21 Q4-21 Q1-22 Q2-22 Q3-22 Q4-22 Q1-23 Q2-23 Net income (loss) $19,456 $11,423 $20,407 $46,044 ($61,187) ($30,381) $18,332 $4,791 $4,169 $8,752 $9,

  49. Slide 49: AROC Addendum I-E

    AROC Addendum I-E Reconciliation of Net Income (Loss) to Adjusted EBITDA ($ in thousands) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Net income (loss) ($355,308) ($37,696) $126,606 $88,661 ($125,697) ($65,243) $18,410 $29,160 $97,330 ($68,445) $28,217 $44,296 (Income) loss from disc

  50. Slide 50: AROC Addendum I-F

    AROC Addendum I-F Reconciliation of Net Income (Loss) to Adjusted EBITDA and Cash Available for Dividend ($ in thousands) Q1-19 Q2-19 Q3-19 Q4-19 2019 Q1-20 Q2-20 Q3-20 Q4-20 2020 Q1-21 Q2-21 Q3-21 Q4-21 2021 Q1-22 Q2-22 Q3-22 Q4-22 2022 Q1-23 Q2-23 . Net income (loss) $19,456 $11,423 $20,407 $46,04

  51. Slide 51: AROC Addendum I-F (cont.)

    AROC Addendum I-F (cont.) Reconciliation of Cash Flows from Operating Activities to Cash Available for Dividend ($ in thousands) Q1-19 Q2-19 Q3-19 Q4-19 2019 Q1-20 Q2-20 Q3-20 Q4-20 2020 Q1-21 Q2-21 Q3-21 Q4-21 2021 Q1-22 Q2-22 Q3-22 Q4-22 2022 Q1-23 Q2-23 Cash flows from operating activities $81,40

  52. Slide 52: Archrock Addendum I-G

    Archrock Addendum I-G Reconciliation of Net Income to Adjusted EBITDA and Cash Available for Dividend Full-Year 2023 Guidance (1) $ in thousands Low High Net income (2) $93,800 $113,800 Interest expense 111,000 111,000 Provision for income taxes 40,000 40,000 Depreciation and amortization 163,000 16

  53. Slide 53: Contact Us

    CONTACT US Investor Relations Megan Repine, VP of Investor Relations (281) 836-8360 investor.relations@archrock.com www.archrock.com/aroc Corporate Headquarters 9807 Katy Freeway Suite 100 Houston, TX 77024 ARCHROCK, INC. (NYSE:AROC)

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