permian basin - oil & gas mergers, acquisitions and divestitures
DESCRIPTION
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.TRANSCRIPT
Investment Banking Experts for the Energy and Industrial Sector
Securities offered through PetroGrowth Energy Advisors, LLC, member FINRA/SIPC.
Permian Basin - “Let’s Do A Deal”(M/A/D Trends)
2 Boutique Energy & Industrial Investment Bank for the Middle Market
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.
Boutique Energy & Industrial Investment Bank for the Middle Market
3
Wilcox | Swartzwelder & Co. Overview
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
We Help ClientsCreate Value
Bring Wall Street Expertise to Main Street
Industry and Transaction Experts
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
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
Leading boutique investment bank providing financial advisory solutions exclusively to mid-market companies in the Energy sector.
4 Boutique Energy & Industrial Investment Bank for the Middle Market
Principals
Career 18 years investment banking Bear, Stearns & Co. Raymond James & Associates Growth Capital Partners
Education M.B.A. The Wharton School of U. of
Pennsylvania B.S. Economics, Texas A&M
University Econometrics, London School of
Economics
Jason Wilcox
Managing Director & Co-Founder
Grant Swartzwelder
Managing Director & Co-Founder
Career 20 years energy investment
banking/operations PetroGrowth Advisors The Principal Securities Ensco plc / Arco Oil & Gas
Education M.B.A. Harvard Business School B.S. Petroleum Engineering, Texas
A&M University
5 Boutique Energy & Industrial Investment Bank for the Middle Market
Advisory Services
Mergers & Acquisitions / Company Sales /
Divestitures
Oil & Gas Property Sales & Divestitures
Institutional Capital Raising / Private
Placements
Financial AdvisoryRefinancing /
Recapitalization / Buyout
Merchant Banking / Private Equity
Helping clients define objectives, evaluate options and work side-by-side as advisor navigating through the maze of transactional complexities – from start to finish.
6 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.
Oilfield Services & Equipment
Upstream Oil & Gas (E&P)
Midstream Pipelines, Gathering, Storage & Blending
Downstream Services & Equipment
Environmental
Building and Construction
Electrical & Power
Engineering and Infrastructure
Industrial Distribution
Industrial Technology
Process/Flow Controls
Specialty Chemicals
Water / Wastewater
Energy Industrial
• Navigated through multiple cycles, completing transactions in periods of positive momentum as well as extremely difficult circumstances
Boutique Energy & Industrial Investment Bank for the Middle Market
Extensive Experience With Strategic Buyers
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Extensive experience marketing to and soliciting/negotiating with strategic players.
Energy Services Exploration & Production Industrial
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.
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Large Network of Institutional Capital RelationshipsStrong 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.
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Experience; Track Record - Example Transactions
Experience spans over 100 transactions with aggregate value in excess of $3.8 billion.
$20 Million Revolving Credit$45 Million Term Loan
$25 Million Second Lien Loan
Management Buyout of Certain Assets from
Nighthawk Oilfield Services
Recapitalization with Ancor Capital Partners
Formed NewCo to Acquire Certain Assets from Texas Maximum Production, L.P.
Company Sale to MRC Global (McJunkin Red Man
Corporation)
Financial Advisory to Evaluate Strategic AlternativesSenior Debt Financing
Two State Oilfield Inc.
Production Specialty Services
Senior Credit Facility
Company Sale to Basic Energy Services
Recapitalization with Silver Peak Partners and
Saybrook
Management Buyout and Recapitalization
Company Sale to Frac Tank Rentals, LLC,
Portfolio company of Lone Star Investment Advisors
Strategic M&A Buyside Advisory
Acquisition of Genesis Gas Gathering Assets Private Placement
What Does the Future Hold for Energy M/A/D Activity?
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Difficulty of Predicting the Future
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Boutique Energy & Industrial Investment Bank for the Middle Market
Difficulty of Predicting the Future (Oilfield Services Index – OSX)
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Recession begins (April 2008)
Oil price reaches
$141.47/Bbl(June 27, 2008)
Oil price drops to $33.20/Bbl
(January 16, 2009)
European debt crisis
Recession ends (June 2009)
Governmentshutdown
Boutique Energy & Industrial Investment Bank for the Middle Market
How Good is Your Crystal Ball?
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“How frustrating. The crystal ball is down again”Source: New Yorker – August 12, 1991
Permian Basin Activity Highly Supportive for Deal Making
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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)
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Permian Basin Activity
Permian Basin Plays Permian Basin Activity (October 30, 2013)
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Permian Basin – Highly Coveted
East Texas Basin
Delaware Basin
Bakken
Prudhoe Bay
Eagle Ford
Spraberry/Wolfcamp
0 10 20 30 40 50 60
Field/Reserve Size (Billion Boe)
Jan-10 Jul-11 Jan-13 Jul-14 Jan-16 Jul-170
400
800
1,200
1,600
2,000Permian Basin Production (MBoe/d)
Oil/liquids
Stacked pays
Mature infrastructure
Reserve potential
Expected production increase
Compelling rates of return relative to other basins
Characteristics of Permian Basin
Source: Bentek & Energy Information Administration
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Producer Valuations Reflect “Permian Premium”
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)
Oct-12 Jan-13 Apr-13 Jul-13 Oct-13-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%Permian Index vs. DJSOEP Index (Last 12 Months)
Permian Index DJSOEP Index
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Public Markets Reflect “Permian Premium”
RRC
PXD
ATH
L
EQT
LPI
COG
CXO
FAN
G
ARE
X
CLR
REXX XE
C
EOG
CHK
NFX HES
WLL
DVN APA SM
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x10.6x
10.2x9.7x
9.2x8.6x 8.5x
7.6x7.2x
6.8x 6.6x 6.6x6.1x 6.0x 5.7x
4.7x 4.7x 4.4x 4.4x 4.4x 4.3x
Valuation for Public Market Producers
EV /
201
4E E
BITD
A Focused (8.5x)
Multi-Basin (4.7x)
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Production Valuation Time Horizon
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 1050
100
200
300
400
500
600
$20,000 / Boepd
$50,000 / Boepd
$80,000 / Boepd $150,000 / Boepd$100,000 / Boepd
Net
Pro
ducti
on (B
oepd
)
Months
Public
High-risk, high-rate
Private Equity
Flattening decline
MLP
Low-decline, stable cash flow
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Who is Buying Oil & Gas Deals?
International
International JV
Non-Traditional
Majors
MLPs/Trusts
Large Caps
Private Equity
Small Caps
$0.0 $5.0 $10.0 $15.0
$2.5
$4.5
$5.0
$5.1
$8.5
$10.8
$12.9
$13.2
U.S. Onshore demand over past 18 months.
Midland Basin Valuations
$15,000 - $20,000+ / Acre (Core)$10,000 - $15,000+ / Acre (Tier I)
Delaware Basin Valuations
$10,000 - $15,000+ / Acre (Core)$5,000 - $10,000+ / Acre (Tier I)
Permian Basin Valuations
$125,000 - $150,000 / Boepd6.0x – 8.0x FTM Cash Flow
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Private Equity and MLP Appetite
Private Equity MLP$0
$10
$20
$30
$40
$50
$60
$70
$60.0
$34.0
E&P Focused Capital 50-60 teams backed by PEGs
hunting for platforms and ‘bolt-on’ acquisitions
Private Equity
Growth through acquisition
Operational platform capabilities to support rapid expansion
Distribution pressure
MLP’s
Boutique Energy & Industrial Investment Bank for the Middle Market
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Assets > 30% Proved Developed Producing (PDP)
Production > 150 to 200 BPD
Predominantly oil / liquids
Not excessive well count
No well concentration > 25% of total production/reserve value
Repeatable, predictable results
Long life > 10 Years
Limited lease expiries near term
3rd party reserve report
Maps
Financials
Clean property title
What Makes for a “Good” Oil & Gas Property Sale?
Characteristics Informational Needs
Minerals
Working interests (operating & non-operating)
Royalties
Leases (more difficult)
Assets to Monetize
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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
Boutique Energy & Industrial Investment Bank for the Middle Market
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Positive Expectations Built into Oilfield Stock Prices
Oct-12 Jan-13 Apr-13 Jul-13 Oct-13$100
$120
$140
$160
$180
$200
$220
$240
$260
$280
$300 OSX - Oil Services Index Capital Expenditures – U.S.
2012 - $85 billion 2013 - $100 billion2014 - $115 billion2015 - $125 billion
Source: IHS, America’s New Energy Future, Sep 2013
Capital Expenditures – Permian Basin
2012 - $14 billion2013 - $15 billion2014 - $18 billion2015 - $20 billion
Source: Wood Mackenzie
Boutique Energy & Industrial Investment Bank for the Middle Market
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Permian is Going Horizontal – Higher Service Intensity
Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 -
50
100
150
200
250
300
350
400 Permian Basin Horizontal vs. Vertical Rig Count
Horizontal Vertical
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Who is Buying OFS Deals?
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.
U.S. Oilfield Services and Equipment M&A Activity (1/1/13 – 9/30/13).
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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
Factors Influencing Owners’ Decision to SellSince 2009/10, many owners have created significant value; now time to “de-risk” personal wealth
Boutique Energy & Industrial Investment Bank for the Middle Market
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Manufacturer of niche product / value-added service provider
EBITDA > $5 million
Customer concentration < 25%
Operating history > 5 years
Growth
Experienced management team; solid accounting/administrative systems
No legal, environmental, tax, regulatory or HR issues
Niche Manufacturing
o 4.0x – 6.0x
Value Added Oilfield Services
o 3.5x – 4.5x
Commodity Oilfield Services
o 2.5x – 3.5x
What Makes for a “Good” OFS Deal?
Characteristics Valuation Multiples (EBITDA)
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Who Is the Best Buyer?...the Buyer that Meets Your Goals
Strategic (Corporate) Buyer
“Buy vs. Build” strategic analysiso Synergies
100% purchase (with structure)o Seller noteo Earn-outo Buyer stock
Continuation as employee (“Or Not”)
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
Financial Buyer
“Rate of Return” analysis
Typically a majority purchase; partial liquidity to seller with continued minority ownership
Desire to continue as owner with a financial partner
Corporate governance
Future growth; ultimate exit (3-7 yrs.)
Case Study
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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
How Can a Seller Achieve Maximum Price/”Best” Deal?
Create a competitive market among multiple, qualified buyers.
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Case Study: Middle Market Oilfield Service Transaction
A B C D E F G H I J K $-
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
$90.0
$100.0
$90.0
$82.5 $80.0 $80.0 $79.7 $75.0
$65.0 $65.0 $61.1 $60.0
$50.0
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)
Financial SponsorStrategic Buyer
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Thank You!
102 Decker Court, Suite 204Irving, Texas 75062
972-831-1300
Jason Wilcox: [email protected] Swartzwelder: [email protected]
Website: ws-ibank.com