Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
Texas Energy Council Symposium“The Future for Oil & Gas Service Companies”
March 6, 2012
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
Wilcox | Swartzwelder & Co. Overview
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Corporate Mergers and Acquisitions
Oil & Gas Property Acquisitions and Divestitures
Capital Raising & Private Placements
Merchant/Principal Investing
Leading boutique investment bank providing financial advisory solutions exclusively to mid-market companies in the Energy, Industrial and Infrastructure sector.
Services
Approach
Track Record
Bring Wall Street expertise to Main Street Senior level commitment; “boutique” level service High quality advice and deal execution Energy Industry focus
40 years of experience, completing more than 100 transactions with value in excess of $3.6 billion
Navigated through multiple energy cycles, completing transactions in periods of positive momentum as well as difficult circumstances
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
Industry Specialization – “3Ns” Across the Energy Chain
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Specialization offers numerous advantages to clients – research, industry intelligence, capital markets knowledge, valuations, trends, investor and buyer relationships.
Energy Industrial Infrastructure
The Future for Oil & Gas Service Companies
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
Recent Media Descriptions of U.S. Oil and Gas Industry
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“Renaissa
nce”
“Revolutionary”“Early Stage”“Death of Peak Oil”
“New Era”“Transformational”
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
Difficulty of Predicting the Future
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Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
Difficulty of Predicting the Future (Oilfield Services Index – OSX)
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Oil price reaches $141.47/Bbl
(June 27, 2008)
Oil price drops to $33.20/Bbl
(January 16, 2009)
Recession begins (April 2008)
Recession ends (June 2009)
European debt crisis
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
How Good is Your Crystal Ball?
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“How frustrating. The crystal ball is down again”Source: New Yorker – August 12, 1991
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
Indications of What the Future May Hold
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Windows are relatively short and the oil and gas service sector can change rapidly.
Follow the money ($$$)
Commodity prices and Oil & Gas producer expectations
Transition from natural gas to oil/liquids
Basin economics and rates of return
Technology Efficiencies, Production Gains and Larger Recoveries
NAM Oil & Gas service industry performance is strong
Strained availability of services in certain highly active basins; shifting of operations to oil/liquids areas - more competition coming
What the stock market is indicating; margins may have peaked
Notable transactions
Case Study: Middle-market oilfield services transaction
Primary Drivers of Activity
Implications
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
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Commodity Prices: Oil/Liquids…Not Natural Gas!
Bloomberg Consensus Forecasts 2012E 2013E
Oil $107.71 $102.35
Natural Gas $2.98 $3.94
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
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Rig Count Gets “Oilier”
Source: Baker Hughes Rig Count
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
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Producer Expectations – 2012 Outlook
Source: The American Oil & Gas Reporter – Outlook 2012 (January 2012) Source: Barclays Capital annual oil & gas upstream spending survey (December 2011)
U.S. Producer Spending 2012 ($MM)
Budget Size 2011 2012 % Increase
<$50 million $787 $984 25.0%
$50-$100 million 1,038 1,402 35.0%
$100-$1 billion 22,293 23,726 6.4%
>$1 billion 87,617 96,333 9.9%
Total Spending $111,735 $122,445 9.6%
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
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Sensitivity of Drilling Based on Commodity Prices
Source: The American Oil & Gas Reporter (January 2012)Drilling Decreases
Natural Gas Prices at Which Operators Alter 2012 Drilling
Oil Prices at Which Operators Alter 2012 Drilling
Drilling Increases
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
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Capital flowing to basins offering highest rates of return.
Basin Economics – All Basins Not Created Equal
Rate of
Return
Source: Credit Suisse (Jan. 3, 2012)
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
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Rig Count is Bearing Out the Trend (Year-Over-Year Change)
Permian Basin +112 rigs
471 total rigs31% change
Eagle Ford Basin +94 rigs
241 total rigs64% change
Bakken Shale +45 rigs
202 total rigs29% change
Marcellus Shale +11 rigs
134 total rigs9% change
Haynesville Shale -75 rigs
86 total rigs-47% change
Fayetteville Shale -2 rigs
23 total rigs-8% change
Barnett Shale -24 rigs
56 total rigs-30% change
Cana Woodford +10 rigs
63 total rigs19% change
Granite Wash+2 rigs
77 total rigs3% change
Mississippi Lime +28 rigs
55 total rigs104% change
Source: Baker Hughes Rig Count
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
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Horizontal Drilling Geo - steering Measurement-While-Drilling (MWD) Logging-While-Drilling (LWD) Pad development
Multi-Stage Hydraulic Fracturing/Enhanced Completion Techniques Longer laterals More stages Zipper frac
Results (Oil & Gas “Manufacturing”) Higher service intensity (oil 2-3x > gas) Improved predictability and repeatability
lowers risk and increases productivity
Technology Advances are Transformational
Rig Count (Horizontal vs. Vertical)
Improved efficiencies resulting in substantial production gains.
Lateral Length (ft.) Frac Stages
Bakken 2008 – 5,000 12
2011 – 10,000 32
Eagle Ford
2008 – 3,700 11
2011 – 6,000 18
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
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Domestic Natural Gas and Oil Production Has Turned the Corner
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
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Proof is in the Production – Sharply Accelerating Domestic Oil Supply
Source: Raymond James Equity Research (February 13, 2012)
Can the U.S. become energy independent?
MBP
D
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
We Are Really Good, But It Hurts: Barnett as Analog to Haynesville?
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Haynesville service activity is in decline…will it resemble what happened in the Barnett?
Roughly 400-500 drilled-but-uncompleted well inventory; won’t complete until gas prices improve
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Production Rig Count
Barnett Shale Production vs. Rig Count
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
Oil & Gas Service Companies Shifting to Oil/Liquids Areas
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Chesapeake announces decrease in active rigs in Haynesville (dry gas); where do these rigs go?
Increased competition and pricing pressure
Increased input costs (margin compression) Labor Raw materials Logistics and transport costs from dry gas to
oil/liquids basins
Pressure pumpers (hydraulic fracturing companies) – recent reports suggest pricing and margins coming down as “Big 3” (Schlumberger, Halliburton, Baker Hughes) defend market share
Southwestern Cutting Fayetteville Drilling for MarcellusFebruary 29, 2012
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
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People/Housing (Williston, North Dakota Wal-Mart)
Oilfield service equipment – logistics/transportation/relocations from dry gas regions
Commodities used for drilling and completing wells (e.g. Proppant)
Infrastructure (pipeline, rail, trucks, roads, water)
Strained Availability of Services
Source: Bakken Investor Conference 2011 – North Dakota Association of Oil & Gas Producing Counties
Bakken Needs Truck loads required per completed well 2,024
Quantity of frac sand per well 3 million pounds1,500 tons15 railcars
Barrels of fresh water per well 50,000
Barrels of oil handled daily by tank trucks 200,000 – 300,000
Quantity of tank trucks moving oil daily 1,000 – 1,500
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
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Oil & Gas Service Company Performance
Oilfield Service Revenue ($ in billions) Oilfield Service EBITDA and EBITDA Margin ($ in billions)
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
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What the Stock Market is Indicating
OSX Index S&P 500 Index
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
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Notable Oil and Gas Service Transactions
Transactions
URS acquires Flint Energy Services February 20, 2012
Superior Energy Services merges with Complete Production October 11, 2011
Archer Limited acquires Great White Energy Service August 23, 2011
Archer Limited acquires Allis Chalmers Energy February 24, 2011
Key Energy Services purchases Edge Oilfield Services/Summit Oilfield August 7, 2011
Key Energy Services sells pressure pump business to Patterson – UTI July 6, 2010
C & J Energy Services Initial Public Offering July 26, 2011
C & J Energy Services Purchases Total Equipment and Service April 28, 2011
Ensign Energy Services acquires land drilling division of Rowan July 20, 2011
Basic Energy Services purchase of Maverick Companies July 11, 2011
Select Energy Services, LLC acquires The Western Company of Texas July 5, 2011
Frac Tech Sale of Majority Interest to Temasek & RRJ Capital April 19, 2011
Baker Hughes Inc. purchases BJ Services Company April 29, 2010
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
Case Study: Middle Market Oilfield Service Transaction
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“Beauty is in eye of beholder”; if considering a transaction, it pays to broadly test the market
$40 million difference between initial high and low bids
Initial Indications of Interest ($mm)
Financial SponsorStrategic Buyer
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
Conclusion: The Future of Oil & Gas Service Companies
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Follow the $; capital flowing to areas offering highest returns given commodity prices
Transitioning from natural gas to oil/liquids
Technology will continue to advance leading to greater efficiencies, increased production, larger recoveries
Oil & Gas service company performance is strong, but momentum is slowing and margins will come down
Services will remain strained in highly active basins but competition will increase, thereby helping satisfy demand
Public equity markets indicate closer to top of cycle than bottom
M&A window remains open
Primary Drivers of Activity
Implications
Investment Banking Experts for the Energy, Industrial and Infrastructure Sector
Thank You!
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Jason N. Wilcox, Managing Director
Wilcox l Swartzwelder & Co.
433 E. Las Colinas Blvd, Suite 1200Irving, Texas 75039
972-831-1300
E-Mail: [email protected]
Website: ws-ibank.com
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