JW Vitalone Interview Drillers & Dealers Magazine


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JW Vitalone Interview Drillers & Dealers Magazine

  1. 1. D IES RL R L AD ND AE S E LR IU 5 S E S P bi e b u lh d y s w wocu c. m w .l ni o io lc
  2. 2. Executive Q&A With JW Vitalone, Senior Vice President, Investment Banking, Oberon Securities Talking with Ross Stewart Campbell, CEO, The Oil Council th Date: 11 May 2010 Ross Stewart Campbell (RSC) from As to your question I think oil and gas bankers today The Oil Council: JW, many thanks are generally optimistic but even so I think it‟s an for joining us to share your thoughts optimism that might best be considered as „guarded‟. on today’s markets. To cover off The banker that sees the longer-term oil and gas introductions first can you quickly supply-demand outlook influencing a positive introduce Oberon Securities and operating environment for oil and gas companies is your position within it? likely to regard itself as optimistic. JW Vitalone (JWV) from Oberon: However, that banker probably regards the post- Oberon Securities is a New York- recovery financial markets as unsettled and based investment bank that works recognizes that the recovery in commodity prices with small and mid-sized companies has more or less been the result of improving oil across a broad range of industries by prices with natural gas prices improving less so in providing capital formation and M&A the context of increased volatility. advisory services, and assists in obtaining financing through privately In the current environment the banker is likely toplaced equity and debt. The entrepreneurial spirit on guard its longer-term optimism by taking a morewhich Oberon was founded nearly ten years ago selective approach on a near-term basis to its dealalso serves as the basis for our approach of working participation.closely with each individual client to partner withthem and create financial solutions that will best help RSC: Reflecting on the past twelve months JW doachieve its unique financial or strategic objective. you think the role (and responsibility) of an energy investment banker has changed in any way followingRSC: Looking first JW at the current state of play the crises?with oil and gas investment banking, we endured atorrid time in 2008-2009 followed by a record year for JWV: I‟m not sure the role of the energy banker hasmany banks and financial service providers in 2009- necessarily changed over the past year. Like all2010. What is the general sentiment of oil and gas investment bankers their role takes on a number ofbankers in the US today? It is one of optimism, different roles with their client during the course ofcautiousness, or, dare we say it bullishness? completing a transaction. However from our recent experience I‟d say some roles are being taken on more frequently. “I think it‟s an optimism that might best be The role of advisor seems to have defaulted to the top of our list. This has resulted from a higher than considered as „guarded‟.” usual level of constant communication with clients revisiting deal strategies and their likely outcomes, or involving the preparation of responses to anJWV: As you point out Ross, 2008 – 2009 was a increasing number of additional questions posed bytorrid time for both capital seekers and providers investors/lenders to requests for more detailcharacterized by a rapid decline in market liquidity concerning the information our client has provided.and the sharp drop in commodity prices. Broadly speaking I think the role of advisor willAnd as you know that led to a good deal of continue to dominate all others until the capitaldiscussion concerning the possibility of a severe and markets renew their previous comfort with risk.prolonged contraction in global economic growth andthe demand for oil and gas. Those markets On the other hand I‟m not sure that an investmentsubsequently began their recovery as those bank, especially one interested in being successful,concerns became less immediate. will regard its responsibility as something to be www.oilcouncil.com
  3. 3. dialled up or down although I suppose some may What I‟ve found particularly interesting is while it isfeel it appropriate to expand or shrink the list of easy to get management teams all nodding inthose it regards as having a responsibility to based agreement with that premise, there‟s a good chanceon the particular circumstances at the time. there‟s no agreement on what criteria it should consider to determine whether the desiredLet me add that here at Oberon there has been no relationship with a particular bank is possible.change to rather high responsibility bar we set whenwe fist founded the company. But because the situation, objectives and financing goals will be unique to each company, rather thanRSC: Many analysts commented that the crises offering a list of things to look for in their banker, Iremoved a number of oil and gas companies from can suggest that any company will find helpful cluesthe marketplace that were not built on viable by listening carefully to information the banker givesbusiness models and strong management teams. about itself and the things it considers important to being a valued partner.Does the same hold true for energy investmentbanking? Have the strongest banks/advisorssurvived; those with the greatest depth of expertise, “I think the role of advisormost diverse business offerings and strongest clientrelationships? will continue to dominate all others until the capitalJWV: I think there‟s little doubt that to be asuccessful company regardless of the industry markets renew theirrequires a viable business model that a strong previous comfort with risk.”management team executes well.So yes both would also be characteristic of any And I can suggest with great certainty that it‟ssuccessful investment bank. However just as virtually impossible for any oil and gas company toimportant to the investment bank‟s success is its get an appreciation for the relationship it will havedepth of expertise and strength of client relationships with its banker if the company‟s most importantbecause they speak to the essence of the trust and criteria are how that banker compares relative toconfidence that its clients and the markets will others and the time the bank suggests it will take torepeatedly look to. complete the deal.Just as the inefficiencies of certain poorly run RSC: Moving onto current market dynamics andcompanies tend to be obscured by the veil that trends JW, you work internationally but with a largeperiods of consistently higher oil and gas prices will focus on The Americas, what financing trends haveprovide, periods of “irrational exuberance” can you seen emerging in the past 6-12 months,provide the same cover for those poorly run financial particularly for (i) medium-large independents, andservice companies. (ii) smaller independents?A subsequent crisis or sustained business downturn JWV: I think we‟ll need to see a few more datawill have the effect of lifting that cover exposing each points before we can be certain of any particularindustry‟s poorly managed organizations and their trend emerging.inefficiencies. However for investment banks liftingthe curtain is likely to also reveal a misplaced trust Our target market is focused on the smallerand confidence. independents where more often than not when engaged to assist with a capital raise the strategy weRSC: What should an oil and gas company look for present to our client will likely have been stronglyin their financing partners/advisors? influenced by its profitability, balance sheet and existing cap structure.JWV: That‟s a great question Ross but also one thatis hard to answer because when all is said and done However, considering the general nature of our moreit‟s the relationship that is established between the recent strategies we have tended to not includeoil and gas company and its investment bank that reserve-based loans as a possible source of fundswill account for much of a successfully completed because of lenders‟ present level of risk-aversioncapital raise. and the more conservative LTVs now being applied to reserves across all categories. “However for investment RSC: With regards to demand for capital and supply of capital, is there enough money to go around banks lifting the currently? curtain is likely to JWV: Our recent experience involving a couple of also reveal a misplaced capital raises for small independents would suggest trust and confidence.” there is. However it also suggested getting an investor [or lender] to part with their money is a www.oilcouncil.com
  4. 4. different matter as many capital providers continue that investors and lenders tell us they‟re now seeingto approach new opportunities in the context of a –, solid pro forma projections and the promise of arelatively lower tolerance for risk. well-executed strategy are necessary for a proposed deal to make it onto the short list. So within thisSo even though sufficient liquidity exists to fund context capital raises and asset transactions arecapital needs, an oil and gas company preparing to more likely to involve term sheets or deal valuationstap the capital markets will need iron-clad reserve that are “competitive”.reports and financials, a well-articulated businessstrategy backed by a management team capable ofexecuting it, plus a fair amount of patience for the Registration is now open foradded time needed with more extensive duediligence. our New York City (Oct) andRSC: Looking at the companies who have London (Nov) Assemblies.successfully raised capital [and done so with Special discounts for oil & gasfavourable T&Cs] do they exert qualities andcharacteristics that have benefited them in raising companies executives. Bookfunds and completing transactions more successfullythan their competition? now at www.oilcouncil.comJWV: Regardless of their size, those companies thatcome to the market with opportunities where thevalue-added benefit to the company is quickly RSC: We’ve seen a record amount of A&D and M&Arecognized along with attractive risk-adjusted in the marketplace in the past 6-12 months. Do youeconomics readily apparent to the investor or lender still believe there is value to be acquired from theare best positioned for a successful completion of a range of current assets/companies for sale? Or arefinancing or acquisition. we now getting to the point where assets and plays are not only as ‘cheap’ as they were but perhapsOil and gas companies approaching the market ‘more expensive’ than they should be? How inline orhaving a less visible value proposition or economics skewed are current asset/company valuations?have ultimately enjoyed a similar success becauseof a constructive relationship with its banker that JWV: Certainly relevant questions but because ofenabled the company to convincingly validate its the high degree of correlation, directly and indirectly,pursuit of that opportunity. between valuations of oil and gas transactions (or oil and gas company shares) and oil and gas prices,RSC: Are there any recent deals in the marketplace current and future, I think they need context to bethat in their own right are either market leading in best considered.their innovation / deal-structuring / value creation? For example taken from a broader perspective I amJWV: Offhand none of recent vintage come to mind less certain of whether it‟s still possible in today‟swhich I think isn‟t surprising given the generally market to acquire value, than I might be aboutconservative nature of the industry. whether that likelihood exists for the company that has engaged us to assist with the A&D transaction itOn the other hand I think it‟s possible to consider intends to pursue.deals like ExxonMobil‟s acquisition of XTO orChesapeake‟s reordering of it asset portfolio as From our initial due diligence and before bringing themarket leading – either because of their timing or for deal to market we will have identified where ourwhat they reveal about a company‟s perspective of client sees value resulting from that transaction, andfuture commodity prices, its financial health, its with the synergies or operating efficienciescurrent competitive position or its regulatory outlook. anticipated as well as the commodity price environment assumed, how and how much value itRSC: What can small-cap oil and gas companies do expects to realize.better to ensure they can (i) raise capital with morefavourable T&Cs, and (ii) complete A&D and M&A RSC: If I may JW I’ll wrap up by asking your one-transactions to receive optimal deal value? word opinion (bullish, bearish or uncertain) on the future of the following. Bullish, Bearish or Uncertain?JWV: We frequently remind the small independentswe work with of the importance a rock-solid pro JWV: Sure. But because Oberon Securities is aforma cash flow and production growth projections regulated broker/dealer under provisions establishedand evidence suggesting management‟s ability to by the Financial Industry Regulatory Authority, oreffectively execute its business strategy has leading FINRA, I must first preface my one-word responsesup to a successful capital raise or asset transaction. by mentioning that they are my opinions only and not necessarily those of Oberon Securities.However, more recently and despite the apparentample liquidity available to fund both development In addition none of my opinions should not bedrilling and A&D transactions, we tell those clients regarded as investment advice nor as athat because of an apparent increase in deal flow – recommendation to buy or sell. Also I may or may www.oilcouncil.com
  5. 5. not maintain a position in an investment related About JW Vitalone: Prior to joining Oberon Securities, JWdirectly or indirectly to the general topics. spent nearly 15 years as an Energy sector equity research analyst with Wells Fargo Bank, Wachovia Corporation and Palladian Research covering Oil and Natural GasRSC: Understood JW. First up, Barack Obama Exploration & Production, Oilfield Services & Equipment, and Power Generation companies. JW‟s extensiveJWV: Uncertain research experience includes macro analysis of oil and gas markets, fundamental equity analysis and institutional buy-RSC: The US Dollar side marketing. Soon after earning a law degree, JW interned with the European Economic Commission as aJWV: Bearish Charles A. Dana Fellow in International and Comparative Law, where he worked on developing alternative approaches to financing lesser developed countries.RSC: Oil ShaleJWV: BullishRSC: Domestic Natural Gas PlaysJWV: Bullish About Oberon Securities: Oberon Securities a New York based financial advisor addressing the financial needs ofRSC: Small-cap Domestic Focussed Independents small and midsize companies across a broad range of industries. Our company was founded by seniorJWV: Bullish professionals who have extensive experience in corporate finance, venture capital, research and operations. Oberon provides creative financial solutions to innovativeRSC: Small-cap International Focussed companies that are seeking a significant market presenceIndependents in their respective industries. Oberons professionals have an average of more than 10 years on Wall Street; thatJWV: Bullish combined experience and our market focus allow us to bring a level of service and expertise normally availableRSC: Large-cap Domestic Focussed Independents only to large companies. For more information please visit: www.oberonsecurities.comJWV: BullishRSC: Large-cap International Focussed Join Matt Simmons, Ken Hersh,Independents Ed Morse, Tom Petrie, JohnJWV: Bullish Schiller, John Moon, DickRSC: Canadian Oilsands Stoneburner and Luis Giusti inJWV: Uncertain NYC (Oct 26-28). Book now atRSC: JW, thanks very much for your time and your www.oilcouncil.comsharing your thoughts. www.oilcouncil.com