Permian Basin - Oil & Gas Mergers, Acquisitions and Divestitures
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Permian Basin - Oil & Gas Mergers, Acquisitions and Divestitures

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Presentation from Jason Wilcox, an investment banker in Dallas. The presentation provides an overview on the current trends for domestic oil and gas sector within Permian Basin in the United States.

Presentation from Jason Wilcox, an investment banker in Dallas. The presentation provides an overview on the current trends for domestic oil and gas sector within Permian Basin in the United States.

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  • But first…does anyone know what this chart represents?There is a lot of volatilityWho in here believes that whatever this charts represents is easy to predict the future?Very hard to predict the future
  • Goal for a seller is to have a “successful” deal (however defined), which includes achieving maximum price.How does a seller ensure that he achieves maximum price and a “really good” deal?Important to systematically manage a sales process that creates competition among multiple buyers – contrast with a public company daily auction marketWhy create a competitive market? Explain virtues.
  • Here is a case study - it is very indicative of what goes on in the oilfield services middle market.Story begins with an oilfield service company that wasperforming well…Two owners – passive investor wanted out (didn’t have deep enough pockets to support more growth); active operator was aggressive and wanted to growCompany needed capital to purchase “big ticket” equipmentSolicited interest from almost 100 strategic buyers and private equity groupsVery wide range of valuations – very typicalIf don’t create the market, never really know what a company is worthWhen selling a business, very important to test the market among multiple potential buyers – you never know who will see the most “beauty”

Permian Basin - Oil & Gas Mergers, Acquisitions and Divestitures Permian Basin - Oil & Gas Mergers, Acquisitions and Divestitures Presentation Transcript

  • Permian Basin - “Let’s Do A Deal” (M/A/D Trends) Investment Banking Experts for the Energy and Industrial Sector Securities offered through PetroGrowth Energy Advisors, LLC, member FINRA/SIPC.
  • Agenda Introduction ……………………………………………………………………………………. I. Permian Basin Activity is Highly Supportive for Deal Making……......... II.  Exploration & Production A&D Themes  Oilfield Services and Equipment M&A Themes Case Study ………………………………………………………………………………………. III. 2 Boutique Energy & Industrial Investment Bank for the Middle Market
  • Wilcox | Swartzwelder & Co. Overview Leading boutique investment bank providing financial advisory solutions exclusively to mid-market companies in the Energy sector. Principals’ Successful Track Record  Senior level commitment; “boutique” service; high quality advice and deal execution  Combine Wall Street background and training, Ivy League education, industry knowledge, middle market investment banking experience and hard work to get deals done  Deal size generally up to $150 million Industry specialization offers advantages to clients (knowledge, research and relationships)  Access to and ongoing communication with industry buyers/investors/capital sources  Rigorous, proven transaction process that yields superior results Broad experience working with many complex deal types and structures in good and difficult markets  Industry and Transaction Experts Knack for understanding our client’s situation, positioning the company to unlock value, creating a highly credible and compelling “story”, selling it to the right investors / buyers and negotiating a favorable outcome  Bring Wall Street Expertise to Main Street   We Help Clients Create Value Principals bring almost 40 years of experience, more than 100 closed transactions with value in excess of $3.8 billion  Team includes five others providing analytic and back-office support 3 Boutique Energy & Industrial Investment Bank for the Middle Market View slide
  • Principals Jason Wilcox Grant Swartzwelder Managing Director & Co-Founder Managing Director & Co-Founder Career     Career 18 years investment banking Bear, Stearns & Co. Raymond James & Associates Growth Capital Partners     Education    20 years energy investment banking/operations PetroGrowth Advisors The Principal Securities Ensco plc / Arco Oil & Gas Education M.B.A. The Wharton School of U. of Pennsylvania B.S. Economics, Texas A&M University Econometrics, London School of Economics   4 M.B.A. Harvard Business School B.S. Petroleum Engineering, Texas A&M University Boutique Energy & Industrial Investment Bank for the Middle Market View slide
  • Advisory Services Helping clients define objectives, evaluate options and work side-by-side as advisor navigating through the maze of transactional complexities – from start to finish. Mergers & Acquisitions / Company Sales / Divestitures Institutional Capital Raising / Private Placements Oil & Gas Property Sales & Divestitures Financial Advisory Refinancing / Recapitalization / Buyout Merchant Banking / Private Equity 5 Boutique Energy & Industrial Investment Bank for the Middle Market
  • Energy Industry Specialization Benefits Clients Specialization offers numerous advantages to clients – research, industry intelligence, capital markets knowledge, valuations, trends, investor and buyer relationships. Energy Industrial  Oilfield Services & Equipment  Electrical & Power  Upstream Oil & Gas (E&P)  Engineering and Infrastructure  Midstream Pipelines, Gathering, Storage & Blending  Industrial Distribution  Industrial Technology  Downstream Services & Equipment  Process/Flow Controls  Environmental  Specialty Chemicals  Building and Construction  Water / Wastewater • Navigated through multiple cycles, completing transactions in periods of positive momentum as well as extremely difficult circumstances 6 Boutique Energy & Industrial Investment Bank for the Middle Market
  • Extensive Experience With Strategic Buyers Extensive experience marketing to and soliciting/negotiating with strategic players.  Showed deals to over 155 unique energy services and equipment strategic buyers in 2012; have shown deals to over 500 unique strategic buyers of energy and industrial companies.  Ongoing communications with various strategics and track and monitor those groups which have completed M&As and submitted term sheets, bids, letters of intent and legal agreements for our deals; including deal terms, structures and valuation metrics. Energy Services Exploration & Production 7 Industrial Boutique Energy & Industrial Investment Bank for the Middle Market
  • Large Network of Institutional Capital Relationships Strong relationships with a large network of active institutional capital providers and investors focused on segments of the energy and industrial sector.  Showed deals to over 195 private equity groups in 2012; have shown deals to over 500 institutional private equity groups, senior and junior lenders, insurance companies, hedge funds and family offices focused on the middle market.  Maintain ongoing dialog with capital sources; provides real-time market feedback and accurate valuation guidance.  Track and monitor in our proprietary database those groups which have completed M&As in our target sector and submitted term sheets, bids, letters of intent and legal agreements for our deals; including deal terms, structures and valuation metrics. 8 Boutique Energy & Industrial Investment Bank for the Middle Market
  • Experience; Track Record - Example Transactions Experience spans over 100 transactions with aggregate value in excess of $3.8 billion. Two State Oilfield Inc. Production Specialty Services Company Sale to MRC Global (McJunkin Red Man Corporation) Management Buyout and Recapitalization Acquisition of Genesis Gas Gathering Assets Company Sale to Basic Energy Services $20 Million Revolving Credit $45 Million Term Loan $25 Million Second Lien Loan Company Sale to Frac Tank Rentals, LLC, Portfolio company of Lone Star Investment Advisors Recapitalization with Silver Peak Partners and Saybrook Formed NewCo to Acquire Certain Assets from Texas Maximum Production, L.P. Management Buyout of Certain Assets from Nighthawk Oilfield Services Strategic M&A Buyside Advisory Senior Credit Facility Private Placement Senior Debt Financing Financial Advisory to Evaluate Strategic Alternatives Recapitalization with Ancor Capital Partners 9 Boutique Energy & Industrial Investment Bank for the Middle Market
  • What Does the Future Hold for Energy M/A/D Activity?
  • Difficulty of Predicting the Future 11 Boutique Energy & Industrial Investment Bank for the Middle Market
  • Difficulty of Predicting the Future (Oilfield Services Index – OSX) Oil price reaches $141.47/Bbl (June 27, 2008) European debt crisis Government shutdown Recession begins (April 2008) Oil price drops to $33.20/Bbl (January 16, 2009) Recession ends (June 2009) 12 Boutique Energy & Industrial Investment Bank for the Middle Market
  • How Good is Your Crystal Ball? “How frustrating. The crystal ball is down again” Source: New Yorker – August 12, 1991 13 Boutique Energy & Industrial Investment Bank for the Middle Market
  • Permian Basin Activity Highly Supportive for Deal Making
  • Key Exploration & Production A&D Market Themes  Permian is one of the most coveted oil/liquids resource basins in U.S.  Valuations reflect the “Permian Premium”  Strong appetite from teams backed by private equity and small-cap public companies  Robust bidding for the “right” deal (with value given for upside) 15 Boutique Energy & Industrial Investment Bank for the Middle Market
  • Permian Basin Activity Permian Basin Plays Permian Basin Activity (October 30, 2013) 16 Boutique Energy & Industrial Investment Bank for the Middle Market
  • Permian Basin – Highly Coveted Field/Reserve Size (Billion Boe) Characteristics of Permian Basin Spraberry/Wolfcamp Eagle Ford  Oil/liquids Prudhoe Bay  Stacked pays Bakken  Mature infrastructure Delaware Basin  Reserve potential East Texas Basin  Expected production increase  Compelling rates of return relative to other basins 0 2,000 10 20 30 40 50 60 Permian Basin Production (MBoe/d) 1,600 1,200 800 400 0 Jan-10 Jul-11 Jan-13 Jul-14 Jan-16 Jul-17 Source: Bentek & Energy Information Administration 17 Boutique Energy & Industrial Investment Bank for the Middle Market
  • Producer Valuations Reflect “Permian Premium” Permian Index vs. DJSOEP Index (Last 12 Months) 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% -20.0% Oct-12 Jan-13 Apr-13 Jul-13 Permian Index DJSOEP Index Oct-13 Permian Index: Diamondback Energy (FANG), Pioneer Natural Resources (PXD), Energen Group (EGN), Laredo Petroleum Holdings (LPI), Cimarex Energy (XEC), Concho Resources (CXO), Callon Petroleum Company (CPE) and Approach Resources, Inc. (AREX) DJSOEP Index: Dow Jones U.S. Select Oil Exploration and Production (DJSOEP) 18 Boutique Energy & Industrial Investment Bank for the Middle Market
  • Public Markets Reflect “Permian Premium” Valuation for Public Market Producers 12.0x 10.6x 10.2x 9.7x 9.2x Focused (8.5x) 8.6x 8.5x 7.6x 8.0x 7.2x 6.8x 6.6x 6.6x 6.0x 6.1x 6.0x 5.7x 4.7x 4.7x 4.4x 4.4x 4.4x 4.3x 4.0x Multi-Basin (4.7x) 19 SM APA DVN WLL HES NFX CHK EOG XEC RE… CLR AR… CXO COG LPI EQT ATHL PXD 0.0x FA… 2.0x RRC EV / 2014E EBITDA 10.0x Boutique Energy & Industrial Investment Bank for the Middle Market
  • Production Valuation Time Horizon Public Private Equity MLP High-risk, high-rate Flattening decline Low-decline, stable cash flow Net Production (Boepd) 600 500 400 $20,000 / Boepd 300 200 $50,000 / Boepd 100 $80,000 / Boepd $100,000 / Boepd $150,000 / Boepd 0 0 12 24 36 48 60 72 84 96 108 Months 20 Boutique Energy & Industrial Investment Bank for the Middle Market
  • Who is Buying Oil & Gas Deals? U.S. Onshore demand over past 18 months. $13.2 Private Equity Large Caps Permian Basin Valuations $12.9 Small Caps $125,000 - $150,000 / Boepd 6.0x – 8.0x FTM Cash Flow $10.8 Midland Basin Valuations MLPs/Trusts $8.5 Majors $5.1 Non-Traditional $15,000 - $20,000+ / Acre (Core) $10,000 - $15,000+ / Acre (Tier I) $5.0 International JV International $0.0 Delaware Basin Valuations $10,000 - $15,000+ / Acre (Core) $5,000 - $10,000+ / Acre (Tier I) $4.5 $2.5 $5.0 $10.0 $15.0 21 Boutique Energy & Industrial Investment Bank for the Middle Market
  • Private Equity and MLP Appetite Private Equity E&P Focused Capital  50-60 teams backed by PEGs hunting for platforms and ‘bolton’ acquisitions $70 $60 $60.0 $50 $40 $34.0 $30 MLP’s $20  Growth through acquisition $10  Operational platform capabilities to support rapid expansion $0 Private Equity MLP  Distribution pressure 22 Boutique Energy & Industrial Investment Bank for the Middle Market
  • What Makes for a “Good” Oil & Gas Property Sale? Characteristics Informational Needs  3rd party reserve report  Assets > 30% Proved Developed Producing (PDP)  Maps  Production > 150 to 200 BPD  Financials  Predominantly oil / liquids  Clean property title  Not excessive well count  No well concentration > 25% of total production/reserve value Assets to Monetize  Minerals  Repeatable, predictable results  Working interests (operating & nonoperating)  Long life > 10 Years  Royalties  Limited lease expiries near term  Leases (more difficult) 23 Boutique Energy & Industrial Investment Bank for the Middle Market
  • Key Oilfield Services & Equipment M&A Themes  Selective demand by private equity and strategic acquirers for “platform” and “bolt-on” acquisitions: o Manufacturers of niche products in high demand o Waning appetite for oilfield services  Reasonable valuations  Seller motivations  Multiple bidders for deals 24 Boutique Energy & Industrial Investment Bank for the Middle Market
  • Positive Expectations Built into Oilfield Stock Prices OSX - Oil Services Index Capital Expenditures – U.S. $300 2012 - $85 billion 2013 - $100 billion 2014 - $115 billion 2015 - $125 billion $280 $260 $240 $220 Source: IHS, America’s New Energy Future, Sep 2013 $200 $180 $160 Capital Expenditures – Permian Basin $140 2012 - $14 billion 2013 - $15 billion 2014 - $18 billion 2015 - $20 billion $120 $100 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Source: Wood Mackenzie 25 Boutique Energy & Industrial Investment Bank for the Middle Market
  • Permian is Going Horizontal – Higher Service Intensity 400 Permian Basin Horizontal vs. Vertical Rig Count 350 300 250 200 150 100 50 Aug-11 Feb-12 Aug-12 Horizontal 26 Feb-13 Aug-13 Vertical Boutique Energy & Industrial Investment Bank for the Middle Market
  • Who is Buying OFS Deals? U.S. Oilfield Services and Equipment M&A Activity (1/1/13 – 9/30/13).  WS&Co M&A Database: 98 transactions o 50 companies were purchased by strategic buyers (51%) o 31 companies completed a majority recapitalization with a private equity group as a “platform” investment (32%) o 17 companies were purchased by a strategic buyer backed by a private equity group (17%)  Approximately 50% were purchased by strategic buyers and 50% were purchased by private equity groups (or private equity backed companies).  On average there are 10-11 transactions completed each month; however, the pace of transactions has accelerated significantly since Q1'13. 27 Boutique Energy & Industrial Investment Bank for the Middle Market
  • Factors Influencing Owners’ Decision to Sell Since 2009/10, many owners have created significant value; now time to “de-risk” personal wealth  Age (50 – 70)  Need for assistance (capital, talent resources) to manage high growth business  Strong financial performance/good time for exit  Tired; ready to devote time to other things  No succession plan  Competitive threats 28 Boutique Energy & Industrial Investment Bank for the Middle Market
  • What Makes for a “Good” OFS Deal? Valuation Multiples (EBITDA) Characteristics  Niche Manufacturing  Manufacturer of niche product / value-added service provider o  EBITDA > $5 million 4.0x – 6.0x  Value Added Oilfield Services  Customer concentration < 25% o  Operating history > 5 years 3.5x – 4.5x  Commodity Oilfield Services  Growth o 2.5x – 3.5x  Experienced management team; solid accounting/administrative systems  No legal, environmental, tax, regulato ry or HR issues 29 Boutique Energy & Industrial Investment Bank for the Middle Market
  • Who Is the Best Buyer?...the Buyer that Meets Your Goals Financial Buyer Strategic (Corporate) Buyer  “Rate of Return” analysis  “Buy vs. Build” strategic analysis o  Typically a majority purchase; partial liquidity to seller with continued minority ownership Synergies  100% purchase (with structure) o o o Seller note Earn-out Buyer stock  Desire to continue as owner with a financial partner  Corporate governance  Continuation as employee (“Or Not”)  Future growth; ultimate exit (3-7 yrs.) Other Considerations  Clarify your goals in advance  A suitor is not necessarily a qualified buyer  Competitors are rarely the best buyer  Difficult to predict whether a strategic or financial buyer will pay the most 30 Boutique Energy & Industrial Investment Bank for the Middle Market
  • Case Study
  • How Can a Seller Achieve Maximum Price/”Best” Deal? Create a competitive market among multiple, qualified buyers.  Puts pressure on buyers to offer their best deal (eliminates “tire-kickers”)  Creates alternatives; allows seller to simultaneously evaluate multiple offers and determine “best” deal  Allows seller to pick a buyer that meets his goals  Seller maintains negotiating leverage and a position of strength  Broad “market test” ensures achieving the highest market clearing price 32 Boutique Energy & Industrial Investment Bank for the Middle Market
  • Case Study: Middle Market Oilfield Service Transaction  Since “beauty is in eye of beholder”; it pays to broadly test the market  $40 million difference between initial high and low bids Initial Indications of Interest ($mm) $100.0 $90.0 $90.0 $82.5 $80.0 $80.0 $80.0 Financial Sponsor Strategic Buyer $79.7 $75.0 $70.0 $65.0 $65.0 $61.1 $60.0 $60.0 $50.0 $50.0 $40.0 $30.0 $20.0 $10.0 $A B C D E F 33 G H I J K Boutique Energy & Industrial Investment Bank for the Middle Market
  • Thank You! 102 Decker Court, Suite 204 Irving, Texas 75062 972-831-1300 Jason Wilcox: jason@ws-ibank.com Grant Swartzwelder: grant@ws-ibank.com Website: ws-ibank.com 34 Boutique Energy & Industrial Investment Bank for the Middle Market