ENERFLEX SYSTEMS LTD. ANNUAL INFORMATION FORM For the ...

ENERFLEX SYSTEMS LTD. – ANNUAL INFORMATION FORM
Both the Fabrication and Service segments rely on the skills and availability of trained and experienced tradesmen
and technicians to provide efficient and appropriate services to the Company and its customers. Hiring and
retaining such individuals are critical to the success of the Company’s businesses. Demographic trends are reducing
the number of individuals entering the trades, making the Company’s access to skilled individuals more difficult.
There are few barriers to entry in a number of the Enerflex’s businesses, so retention of staff is essential in order to
differentiate the Company’s businesses and compete in its various markets.
Internal and external training programs have become a key component to insuring the availability of skilled personnel
in all aspects of the Company’s activities. Both the Fabrication and Service segments are active in apprenticeship
programs and the Company has developed an ongoing retention program. Career development is encouraged
through both in-house training and outside education centers and the Company has recently undertaken an initiative
to identify, train and retain skilled personnel for critical positions.
Energy prices
Energy prices affect Enerflex, as the majority of the Company’s customers generate cash flow from both crude oil
and natural gas. The prices for these commodities are determined by supply, demand, government regulations
relating to natural gas production and processing, and international political events, none of which can be accurately
predicted. During 2004, crude light price per barrel ranged from US$32.48 to US$55.17 and natural gas price per
mcf ranged from CDN$4.32 to a high of CDN$8.74.
As free cash flow available for investment by producers varies with commodity prices, the market for capital goods
required by the Company’s customers is both cyclical and, at times, highly volatile. A sustained period of low natural
gas prices or oversupply, could negatively impact the Company’s fabrication businesses as natural gas producers
would likely curtail investment in production equipment. Periods of extremely high natural gas prices can cause
producers to delay routine maintenance on equipment, impacting the Service segment in the near-term.
Enerflex seeks to mitigate these risks through diversification in both products and services offered and geographical
expansion.
The cyclical nature of the energy industry
Changing political, economic or military circumstances throughout the energy producing regions of the world can
impact the market price of oil for extended periods of time, which in turn impacts the price of natural gas, as
industrial users often have the ability to chose to use the lower priced energy source.
Enerflex is structured to be profitable in both high and low periods of the energy cycle. This is done through product
breadth, international diversification and access to a variety of equipment financing methods. Since becoming a
public company in 1993, Enerflex has generated profits and positive cash flow even in challenging times.
Climatic factors and seasonal demand
Demand for natural gas fluctuates largely with the heating and electrical generation requirements caused by the
changing seasons in North America. Cold winters typically increase demand for, and the price of, natural gas. This
increases customers’ cash flow which can then have a positive impact on Enerflex. At the same time, access to
many western Canadian oil and gas properties is limited to the period when the ground is frozen so that heavy
equipment does not sink. As a result, the first quarter of the year is generally accompanied by increased winter
deliveries of equipment. Warm winters in western Canada, however, can both reduce demand for natural gas and
make it difficult for producers to reach well locations. This restricts drilling and development operations and can
negatively impact Enerflex.
Enerflex seeks to reduce the impact of seasonality through geographic expansion and product diversification.
Credit risk
A substantial portion of the Company’s accounts receivable are with customers involved in the oil and natural gas
industry, whose revenues may be impacted by fluctuations in commodity prices. The Company does not have
significant exposure to any individual customer or counter party other than one major Canadian independent oil and
natural gas producer which accounted for 13.1% of Enerflex’s revenue in 2004. No other customer accounted for
more than 10% of the Company’s revenues.
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