BoyarMiller Breakfast Forum: The Energy Industry 2015: What’s Next?

1. 2015 State of the Industry THE ENERGY INDUSTRY: WHAT’S NEXT

2. Introduction: Chairman’s Letter As part of our commitment to knowing our energy clients’ business, we collect insights from some of the best minds in the industry. This understanding contributes to how we deliver counsel that exceeds our clients’ expectations and our ability to help them make strategy decisions about their business. The information in this ebook has been invaluable to us and to our clients, and we hope that it will benefit you as well. Read some of the trends and best practices gathered from industry-leading clients and our own energy team. If you find value in it and would like to hear more, join us for our next BoyarMiller Breakfast Forum. Best regards, Chris Hanslik, Chairman 11

3. TABLE OF CONTENTS Practice Leaders Expert Insights Houston Downturn Means More Litigation State of the Industry REGULATORY & POLITICAL CLIMATE: ONGOING DEBATES TRENDS IN ENERGY SERVICES: THIS DOWNTURN IS DIFFERENT THE PRICE OF OIL: A LONG RECOVERY AHEAD 22

4. STATE OF THE ENERGY INDUSTRY Projecting the “shape” of the downturn helps energy industry leaders and investors better understand how steep the drop-off will be and when they can expect recovery. 1980s 2009 TODAY 33 EXCESS CAPACITY YEAR-OVER- YEAR CHANGES IN DEMAND AVAILABILITY OF CAPITAL BANK ISSUES & WORLD ECONOMY S&P 500 15.1 MMb/d Demand declined 1.6 MMb/yr for previous 5 yrs Very low Distressed 700 4.3 MMb/d Demand grew 1 MMb/yr for last 5 yrs High Healthy but cautious 2,100 today vs.1985 today vs.2009 COMPARING DOWNTURNS DOWNTURN STATS THE DOWNTURN SHAPES ND WORST IN 40 YEARS 2 SHARPEST DECLINE IN RIG COUNT IT’S ALL ABOUT SUPPLY This is expected to be the 2nd worst down cycle in 40 years The U.S. rig count has fallen more sharply than in any other U.S. down cycle This is a supply-induced down cycle 1985 20092015 2015

5. 44 EXPERT INSIGHTS Regulatory & Political Climate: Ongoing Debates “We will see the idea of exporting U.S. oil gaining traction, but there is not enough understanding of the issue right now. Maybe the next admin- istration will get more serious about it, but it means a lot of education needs to take place.” WHAT’S NEXT? David Pursell, Managing Director & Head of Securities, Tudor, Pickering, Holt & Co. • ENVIRONMENTAL PROTECTION REGULATIONS CONTINUE. Enforcement of the Endan- gered Species Act, which has cost the Department of Justice more than $15 million in attorney fees in the past four years, will remain constant. Also expect ongoing rail regulation, despite the fact that the amount of crude shipped by rail has declined for several years. • BEWARE HEADLINE-GRABBING ACTIVITY. Investigation of the association of seismic activity with water injection continues, largely because it is a topic that stirs the public. Although water injection does not cause seismic activity, expect it to be explored further. • HYDRAULIC FRACTURING OPPONENTS WILL NOT GO AWAY. Although some minor regulations about produced water storage can be expected, nothing game-changing in the fight against hydraulic fracturing is in the pipeline. Still, assume that opposition to fracturing is here to stay. D.C. WANTS ÛREGULATION: ENDANGERED SPECIES ACT RAIL REGULATION

6. Regulatory Political Climate: Ongoing Debates, continued 55 EXPERTINSIGHTS • HOPE FOR POSITIVE REGULATORY CHANGES. Because pipelines are proven to be the safest mode of crude transpor- tation, the Keystone pipeline will – eventu- ally – pass. We are hopeful that Mexican energy reform will also happen, as it offers much opportunity both for Mexico and for the U.S. companies doing business there. As Managing Director and Head of Securities, David Pursell is responsible for Tudor, Pickering, Holt Co.’s analysis of global oil gas markets, including inventory and price forecasts, supply/demand modeling and rig count/production relationships. He is a board member of private energy companies Oxane Materials and Unconventional Gas Resources. He holds a BS and MS in Petroleum Engineering from Texas AM University. PREDICTION: KEYSTONE PIPELINE WILL PASS

7. 66 Trends in Energy Services: This Downturn is Different “We had a record MA backlog in 2014, so we think there is a lot of pent-up demand. We will begin to see deals that are more appropriate for the current market, so there is a lot of activity coming, but it will probably be slower before it gets better.” WHAT’S NEXT? Matthew G. Pilon, Managing Director, Simmons Company International • RISE OF PRIVATE EQUITY FOCUSED ON ENERGY. One of the key trends of the last few years is the rise of private equity focused on energy. The total private equity energy funds raised since 2010 is about $88 billion – compared to just $8 billion of total public offerings for the energy services and equipment sector. There is a ton of capital out there targeting energy. • GROWTH IN PRIVATE EQUITY INVESTMENT HAS CHANGED THE MARKET. As a result of this shift toward private equity funding, companies have more exit options and less need for IPOs – instead, they transition to the next tier of private equity firm. With all this capital, there is high interest in operating partners and managers. We also see the industry becoming more sensitive to capital markets. • MA ACTIVITY HAS DROPPED – AND WILL DROP FURTHER. Q1 2015 has already dropped significantly, and can be expected to be slow in the next quarters as well, hitting bottom in Q2 or Q3. Many deals from 2014 have been put on hold, and it will take time to fill the pipeline with deals more appropriate to the current environment. Those deals are coming, but the rate of deal announcements will get slower before it improves. • THIS DOWNTURN IS DIFFERENT THAN THOSE BEFORE. The current downturn is absolutely not like the 1980s, and though it looks similar to the drop in 2009, the industry is in a much better situation in terms of rising demand, available capital, and the health of banks and the economy than it has been in the past. Matthew G. Pilon is a Managing Director with Simmons Company International. He has focused exclusively on the energy services and equipment sector since joining the firm in 1994. A former Naval Officer, he holds a BS in Computer Science from the U.S. Naval Academy, an MA with distinction in International Relations from the University of Kent in England, and an MBA from Harvard Business School. EXPERTINSIGHTS

8. 77 The Price of Oil: A Long Recovery Ahead “We have to slow U.S. oil production growth close to zero – not production, but production growth.” WHAT’S NEXT? James K. Wicklund, Managing Director – Energy Research, Credit Suisse LLC • SECOND-WORST DOWN CYCLE IN 40 YEARS IS SUPPLY-INDUCED. Oil prices have been cut in half, and no one is immune to this supply-induced down cycle. This downturn differs from those before because demand can “bounce back,” as it did in 2009; however, changing supply to raise oil prices will require convincing EP companies to stop growing production. • U.S HORIZONTAL RIG COUNT NEEDS TO DROP – AND STAY DOWN. Not only does the U.S. horizontal rig count have to drop by 30-35%, but it also needs to stay there for four to six quarters in order to get U.S. production growth to zero – the target number to get prices back on track. • EXPECT A “BATHTUB”-SHAPED RECOVERY. The world will not need U.S. production growth and rig count at Q4 2014 levels for four more years. This means that once the industry has bottomed, it will likely stay down for one to two years, creating not a V-shaped or U-shaped recovery, but a “bathtub”-shaped recovery. • LOW OIL PRICES ARE NEEDED TO GOVERN PRODUCTION GROWTH. In the past, oil prices were raised to stimulate production so that supply could meet demand. Now, oil prices need to stay low in order to limit production growth. It is very unlikely that 2015 will end with a commodity price high enough to allow production growth at 2014 levels again. Expect to be in a $60 oil world for the next two years. James K. Wicklund spent several years in the oil and gas industry, working in geophysics and engineering in London, Singapore, Australia and the U.S. before joining the financial services industry as a research analyst covering the Oilfield Services sector. As the senior Oilfield Services analyst and Managing Director at Credit Suisse LLC, he has been recognized with various awards, including No. 1 rankings in Institutional Investor, Greenwich Surveys and the Wall Street Journal’s “Best on the Street.” EXPERTINSIGHTS U.S. OIL PRODUCTION GROWTH NEEDS TO BE NEAR ZERO

9. PROTECT YOURSELF: HOUSTON DOWNTURN MEANS MORE LITIGATION 88 Chris Hanslik Andrew Pearce, BoyarMiller In the face of a downturn in the city’s economy driven by crude oil trading below $60, Houston has had cautious optimism because of the quick recovery seen in 2009 – but this down cycle may be different. Crude oil has already dropped farther than it did in 2009, and it may hover in the $60 range for two more years. Houston is already feeling the collateral damage, with 74,000 jobs already lost and more predicted. Beyond jobs, the real estate market in Houston will also be impacted, given that about 58 percent of office space in Houston is directly or indirectly related to the energy sector. The effect of the downturn in oil and its impact on the oilfield services industry, employment, and real estate, will likely be an increase in litigation. When the economy is strong, the desire to incur litigation costs and dedicate time to col- lection efforts can take a backseat to a company’s focus on the growth of its business through new customers, projects and opportunities. But as those opportunities begin to diminish, the focus turns back to outstanding account receivables. We have already seen a number of lawsuits that arose out of demand letters sent months earlier – cases in which the parties did not reach a resolution, but left the matter for another day. Now, that day has come. Similarly, we also see the domino effect of customers who purchase product on a spec market with the goal of flipping the product for a profit. Yet markets in the energy sector can disappear quickly – and when they do, customers may refuse to take delivery of what they previously ordered. The seller is now faced with mitigating its damages by selling product into a depressed market, if it can sell the product at all. This issue is compounded when the seller, in turn, is unable to pay its own suppliers given the default of the buyer. The terms of the parties’ agreements – whether by contract, purchase order, or some other arrangement – then become critically important.

10. 99 We are already seeing the front-end impact of reductions-in-force, defaults on contractual agreements, and other disputes arising out of this downturn. Law360 reported in April 2015 that the “steep drop in oil prices over the past year will spur an increase in wage-and-hour suits against companies in the energy sector, as laid-off workers turn to attorneys who are on the lookout for soft spots – like questionable classifications of workers as overtime- exempt or independent contractors – that could be the basis of lucrative collective action claims.” As we move deeper into this downturn, one important note to consider is whether companies may avoid litigation as part of their effort to reduce their operating costs. The recent reduction in forces are clear signs that companies are already seeking to reduce costs, and the uncertain nature and expense of litigation may dissuade companies from filing suits in smaller matters. The factors contributing to this down cycle are estimated to take six quarters to fix, and a more favorable level of economic activity could take two to three years. In the meantime, it will be a tough environment, with the industry under a lot of pressure. Until turnaround takes place and Houston begins to recover, properly reducing workforces, knowing your contractual termination rights, and fully exploring work-out options become increasingly important. Houston Downturn Means More Litigation, continued

11. Chris Hanslik Firm Chairman Represents companies in all aspects of the energy sector, both domestically and internationally, in disputes ranging from breach of contract and fraud to misappropriation of trade secrets and employment-related disputes. Has secured favorable results in both state and federal courts, as well as international arbitration proceedings for energy clients. Steve Kesten Chair, Business Group Represents multiple international energy and energy services clients with outbound expansion (i.e., U.S. companies expanding internationally) and inbound expansion (international companies expanding to the U.S.), including start-up expansion or expansion by acquisition, as well as in connection with financing and merger and divestiture transactions. Gary Miller Founding Shareholder, Business Group Represents numerous domestic and offshore-based companies in connection with acquisitions and divestitures, financings, joint ventures and general corporate matters in the United States. ENERGY PRACTICE LEADERS 1010

12. Bill Boyar Founding Shareholder, Business Group Represents the various parties involved in the acquisition, disposition, capitalization and financing of national and international businesses. Served as lead counsel for numerous complex, multi-party acquisitions and project financings with significant experience in corporate finance, mergers and acquisitions, private equity and structure finance. Gus Bourgeois Shareholder, Business Group Represents clients doing business domestically and internationally in connection with mergers and acquisitions, finance and multi-jurisdictional transactions, including negotiation of contracts for sales of goods and services (including mas- ter service agreements), technology licensing, joint venture agreements, and employment agreements, with significant experience in assisting foreign businesses in establishing and growing their U.S. operations. 1111 Practice Leaders, continued

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