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Energy Capital Management
December 2011
Energy Capital Management
ECM Summary
Background
• Statoil (www.statoil.com)
� International oil & gas and renewable energy company, market cap USD 70bn
� Global leader in technology adoption, not an owner of technologies
� Alignment with independent venture capital firm provides significant benefits
• ECM Fund I
� Managing Statoil’s legacy portfolio (currently 11 companies)� Managing Statoil’s legacy portfolio (currently 11 companies)
� Established in 2008
� Technology agreement with Statoil
• ECM Growth Fund I
• Investing in European oil service companies
• Fund size $200m (8-10 investments)
• ECM offices in Oslo (Norway) and Aberdeen (UK)
Energy Capital Management
ECM is an independent venture capital firm focused on
technology investments in the oil & gas and renewable energy sectors
ECM will deliver superior returns by leveraging the team’s
experience, international network and unique access to Statoil
Current Portfolio Overview
EXPLORATION
RESERVOIR
OIL & GAS
DRILLLING & WELL
OPERATION
OTHER
Team profiles
Arne Frøiland
• 8 years venture capital experience
• 9 years experience in the energy sector
• Played a key role in Spectraseis, Multifield Geo, Energreen, Geomodelling and Octio
• MSc in Physics from NTNU (Norway) , MBA from London Business School (UK)
• 13 years venture capital experience
• 13 years experience in the energy sector
• Played a key role in Petrofac, RGIT, Revus Energy, Spring Energy and SPS
• Bachelor of Science (Hons) Accountancy & Computer Science from Dundee (UK)
Mike HillPartner
DNV, Hydro, Statoil , ECM
3i, Hitecvision, ECM
Hans MiddelthonPartner
Arne FrøilandPartner
• 10 years venture capital experience
• 8 years experience in the energy sector
• Played a key role in Dockwise, Noreco, DES, RXT and Epcon
• Masters in Economics from Fribourg (Switzerland), MBA from London Business School (UK)
3i, ECM
• 4 years venture capital experience in the energy sector (ECM, Statoil, Hydro)
• 3 years operational experience (Hydro oil & gas, Kongsberg Automotive)
• MSc Physics INSA, Toulouse (France)
Caroline Slind SvaeAssociate
Energy Capital Management
ECM Growth Fund I
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Energy Capital Management
Opportunity highlights
ECM Growth Fund I
• Investing in European oil service companies
• Fund size $200m (8-10 investments)
Investment team
• Strong money making track record
• Deep sector understanding and network
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• Deep sector understanding and network
Sector characteristics
• Compelling market fundamentals
Returns potential
• Robust deal flow with limited competition
• Focused value creation model
• Differentiated access to end customers
• Established exit routes and strong buyer appetite
ECM Growth Fund I
Mandate
Sector Oil & gas service (upstream)
Geography European headquartered companies
Product Growth capital and small Buyouts
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Product Growth capital and small Buyouts
Company stage Positive EBITDA
Deal size Average commitment $20m per company
Equity stakes >25% and “controlling” rights
Energy Capital Management
Team
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Team
Key attributes
Investment track record • 39 years of VC/PE experience
• 46 VC/PE deals completed
• 3.1x on 23 exited investments in the energy sector
• Involvement in full VC/PE value chain
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Sector depth • 39 years of relevant oil & gas sector experience
• Involvement in full oil & gas value chain
Market position • Excellent sector network
• Differentiated access to end users
• Offices covering Europe’s leading oil & gas hubs
Team
Investment team
VC/PE Energy Prior positions
Mike Hill Partner Aberdeen 14 yrs 14 yrs HitecVision; 3i; Coopers & Lybrand
Hans Middelthon Partner Aberdeen 11 yrs 9 yrs 3i; Commerzbank
Arne Froiland Partner Oslo 10 yrs 11 yrs Statoil; Hydro; DNV; Private Investor
Caroline S. Svae Associate Oslo 4 yrs 5 yrs Statoil; Hydro; Kongsberg Automotive
[No-name] [TBC] [TBC] [TBC] [TBC] [TBC]
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Advisory board
Prior positions
[No-name] Chairman UK [TBC]
[No-name] Member UK [TBC]
[No-name] Member Norway [TBC]
Team
Track record – example of exited deals
IPOLondon Stock Exchange
5,3X
2002-2005
Trade saleCooper Cameron
2,5X
2003-2007
IPOOslo Stock Exchange
4,9X
2003-2005
Trade salePetrofac
2,2X
2003-2004
IPOOslo Stock Exchange
2,1X
2007-2009
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IPOOslo Stock Exchange
2,6X
2004-2005
IPOOslo Stock Exchange
2,5X
2005-2007
Trade SaleMI Swaco
2,5X
2004-2006
Trade SaleTGC Nopec
2,2X
2006-2010
Trade /SecondaryGE/Ferd
4,4X
2004-2007
Energy Capital Management
Market
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Tight oil supply and demand balance
20
40
60
80
100
120
Oil flows (mln bbl pd)
Biofuels, other
NGLs declining at 2% pa
Crude declining at 7% pa
Flat demand
2010 demand level, 88 mln bpd
47 mmbbl/d39 mmbbl/d
Current decline rate from existing fields
Urgent need for increased production capacity
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0
20
2010 2012 2014 2016 2018 2020
Oil flows (mln bbl pd)
Flat demand
IEA Demand forecast WEO2010 (Nov '10)
• 6% annual depletion and 1,2% annual increase in demand required more than 50% of daily production in 2020 from new capacity
• Saudi Arabia’s current output capacity of close to 10m bbl needs to get on stream every second year until 2020 in order to meet expected demand growth
Source: Lambert Energy Advisory
Focused Investment Approach
The Oil & Gas industry value chain
Upstream DownstreamMidstream
Exploration
• Investing only in the upstream part of the oil & gas value chain
• Focus on Exploration and Production
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Development
Production
• Focus on Exploration and Production
• Key investment themes to support :
• Increased exploration success
• Improved production rates
• Reducing the cost of exploration and production
• Extending the life of producing fields
• Governments energy policies (tax) will most likely support these themes goingforward and be ECM ‘sweet spots’ for investingAbandonment
Strong underlying drivers
• Increasingly complex and deeper reservoirs. E&P companies seek into deeper and more complex sediments. Thus, there is an urgent need of technologies and services that can handle extreme temperatures, pressures, “enlighten” the reservoirs and increase drilling reach.
• Smaller discoveries. The “Elephant Discoveries” made in the second half of the last century have matured and are being replaced by smaller fields. This trend is driving an ever increasing drilling activity search for solutions that decreases the drilling cost and makes these discoveries commercially viable.
• Rapid cost inflation. The need to drill deeper in harsher environments with more geological uncertainty has significantly increased the cost per well. To address this this challenge the
Upstream trends and challenges
Exploration
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• Low recovery rates. Today the oil & gas industry only manages to recover on average 35% of the oil in place in producing fields. A one percentage point increase in recovery equates to approximately three years global consumption.
• Harsher environments. As the oil & gas industry matures it has had to move production to more hostile terrains such as the Arctic. Close to 25% of total remaining reserves are expected to be found in these areas, but the industry needs to overcome substantial technological and environmental challenges to access these prospects.
• Mature basins. The industry as a whole is experiencing an output decline in the region of 6% from its producing fields. It is vital for industry players as well as regulators in mature basins to address the sharp decline with the view to extend field life.
uncertainty has significantly increased the cost per well. To address this this challenge the industry is putting substantial resources into solutions that can drive down costs and increase the probability of success.
Production
Significant target universe
Urgent need for new solutions and services
More complex and deeper reservoirs
Smaller discoveries
Cost inflation
Improved Prospect definition
Fast Track Development
G&G workflow integration
Low cost exploration drilling
Reservoir Imaging
Subsea monitoring and processing
Reservoir Characterization
“Light” drilling, Subsea drilling
4D/4C Seismic, EM, Graviometry
Modelling of “shale plays”
Business Needs Service Areas (examples)E&P Challenges
Exploration
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Cost inflation
“Smarter” exploration drilling
Low recovery rates
Mature basins
Water treatment solutions
Integrity monitoring
Subsea water treatment
Deeper Reservoirs
Improve reservoir permeability
Monitoring cap rock and seabed
Longer step outs and tie backs Flow assurance, Inspection
Steering, LWD
Risers, HP/HT solutions, materials
Stimulation, fracturing and flooding
Intervention, MWD, CommunicationSmart drilling
Production
Harsher environment
Energy Capital Management
Return potential
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>250*
c75*
Equity “need”No. of opportunities*
$40m-$100m ($10m+ EBITDA)
$10m-$40m equity(Positive EBITDA)
Return potential
Robust deal flow
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>1,500*
(Positive EBITDA)
$1m-$10m equity(Negative EBITDA)
*ECM estimates
HighReplenishment
Start-ups/Seed
Low• Target larger deals• Buyout focus• US & ME weighting
Low• Target larger deals• Buyout focus• Norway centric
Low• Target larger deals • Growth & buyout offerings• Reduced sector focus
• Target larger deals
Limited competition
Return potential
Competitivethreat
Comments
Low• Target larger deals• Buyout focus• US centric
N/A • Limited deal size overlap
Medium• Smaller deals • Venture focus
Low• Smaller deals• Venture focus
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0 10 20 30 40 >50
Investment sweet spot MUSD
Return potential
Value driver Example
Board Vetco: Strengthened board through introduction of Egil Myklebust as Director
Management Epcon: Strengthened management through introduction of Arne Aune as new CEO
Corporate governance Geomodeling: Introduced best in class corporate governance procedures (with strongfocus on Chinese operations)
Focused value creation model
ECM’s value creation activities is built on the team’s deep sector knowledge combined with its extensive investing experience:
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focus on Chinese operations)
Business strategy Energreen: Spun out Energreen Waste Heat Recovery and refocused core business
Organic growth Petrofac: Introduced Petrofac to UK clients and partners
International expansion Verdande: Secured Baker as strategic partner for international growth strategy
Mergers & Acquisitions Dockwise: Merged company with Sealift to establish clear market leader
Cost management Trac ID: Worked extensively with management to address cash flow challenges
Funding structure Octio: Asset sale (seismic vessel) and restructuring of debt
Exit planning DES: Positioned DES early vis a vis subsea companies (most likely acquirers)
Return potential
• ECM currently actively manages 7 oil & gas technology investments for Statoil (www.Statoil.com)
• ECM is a preferred venture capital partner for Statoil which facilitates:
• Information sharing on sector trends
• Opportunity sharing
• Technology and commercial reviews of investment opportunities
• Discussions regarding product testing and/or commercial purchases
• Customer support in exit discussions
Differentiated access to end user
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Proprietary dealflow
Acceleratemarket adoption
Enhance credibility
De-risk investment case
Origination Execution Asset management Exit
• This relationship has the potential to enhance returns of ECM Growth Fund I:
Return potential
Acquired by strategic buyer 2009
Acquired by MI Swaco 2009
Acquired by PGS 2007
Acquired by Schlumberger 2010
Acquired by FMC 2009
Acquired by Schlumberger 2009
IPO London 2005
Acquired by Cooper Cameron 2007
Acquired by Schlumberger 2009
Acquired by Watherford 2007
NOVA Technology Corp
Acquired by Baker Hughes 2006
Acquired 45% by FMC 2008
Acquired by GE 2010
Acquired by Siemens 2011
Acquired by MI Swaco 2006
Established exit routes and strong buyer appetite
Acquired by Halliburton 2009
Acquired by MI Swaco 2006
Acquired by FMC 2009
Acquired by Petrofac 2008
IPO Oslo 2005
Acquired by Halliburton 2008
Acquired by RECS Ltd 2007
Applied Geophysical Services
Acquired by PGS 2007IPO Oslo 2005
IPO Oslo 2007
Acquired by Schlumberger 2010
10% stake acquired by Schlumberger 2009
Acquired by Schlumberger 2009
InnerLogix
Acquired by Schlumberger 2007
V.I.P.S
Acquired by Schlumberger 2007
Acquired by Schlumberger 2005
Zeroth Technology Ltd
Acquired by Baker Hughes 2005
Acquired by Torr 2007
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Acquired 45% by FMC 2008
Acquired by Seawell 2010
Universal Wireline
Acquired by Seawell 2010
Acquired by TGS Nopec 2011
Conclusion
Compelling market fundamentals
Excellent team
Compelling market fundamentals
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High returns potential
Contact Details
Energy Capital Management AS
Bankplassen 1a, N-0151 Oslo, Norway70 Queens Road, AB15 4YE, Aberdeen, UK
Arne FrøilandPartner+47 90 74 86 [email protected]
Caroline SvaeAssociate+47 97 00 82 [email protected]
Hans MiddelthonPartner+44 77 78 81 77 [email protected]
Mike HillPartner+44 77 01 07 53 [email protected]
Kristin P. SolvangOffice Manager/Finance+47 41 21 45 [email protected]