Domestic Oil and Gas Industry Trends

“Let’s Do A Deal”
(Domestic Oil & Gas M/A/D Trends)

Investment Banking Experts for the Energy and Industrial Sector
Securities offered through PetroGrowth Energy Advisors, LLC, member FINRA/SIPC.

Wilcox | Swartzwelder & Co. Overview
Leading boutique investment bank providing financial advisory solutions exclusively to
mid-market companies in the Energy sector.

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



Industry and
Transaction Experts

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



Bring Wall
Street Expertise to
Main Street





We Help Clients
Create Value

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

2

Boutique Energy & Industrial
Investment Bank for the Middle Market

Advisory Services
Helping clients define objectives, evaluate options and work side-by-side as advisor
navigating through the maze of transactional complexities – from start to finish.
Mergers & Acquisitions /
Company Sales /
Divestitures

Institutional Capital
Raising / Private
Placements

Oil & Gas Property
Sales & Divestitures

Financial Advisory

Refinancing /
Recapitalization /
Buyout
Merchant Banking /
Private Equity

3


Energy Industry Specialization Benefits Clients
Specialization offers numerous advantages to clients – research, industry
intelligence, capital markets knowledge, valuations, trends, investor and buyer
relationships.
Energy

Industrial

 Oilfield Services & Equipment

 Electrical & Power

 Upstream Oil & Gas (E&P)

 Engineering and Infrastructure

 Midstream
Pipelines, Gathering,
Blending

 Industrial Distribution
Storage &

 Industrial Technology

 Downstream Services & Equipment

 Process/Flow Controls

 Environmental

 Specialty Chemicals

 Building and Construction

 Water / Wastewater

• Navigated through multiple cycles, completing transactions in periods of positive
momentum as well as extremely difficult circumstances

4


Extensive Experience With Strategic Buyers
Extensive experience marketing to and soliciting/negotiating with strategic players.
 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.

Energy Services

Exploration & Production

5

Industrial


Large Network of Institutional Capital Relationships
Strong 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.

6


Experience; Track Record - Example Transactions
Experience spans over 100 transactions with aggregate value in excess of $3.8 billion.
Two State
Oilfield Inc.

Production
Specialty
Services

Company Sale to MRC Global
(McJunkin Red Man
Corporation)

Management Buyout and
Recapitalization

Acquisition of Genesis Gas
Gathering Assets

Company Sale to
Basic Energy Services

$20 Million Revolving Credit
$45 Million Term Loan
$25 Million Second Lien Loan

Company Sale to
Frac Tank Rentals, LLC,
Portfolio company of Lone
Star Investment Advisors

Recapitalization with
Silver Peak Partners and
Saybrook

Formed NewCo to Acquire
Certain Assets from Texas
Maximum Production, L.P.

Management Buyout of
Certain Assets from
Nighthawk Oilfield Services

Strategic M&A
Buyside Advisory

Senior Credit Facility

Private Placement

Senior Debt Financing

Financial Advisory to Evaluate
Strategic Alternatives

Recapitalization with Ancor
Capital Partners

7


What Does the Future Hold for
Domestic Oil & Gas M/A/D Activity?

Difficulty of Predicting the Future

9


Difficulty of Predicting the Future (Oilfield Services Index – OSX)
Oil price
reaches
$141.47/Bbl
(June 27, 2008)

European debt
crisis

Government
shutdown

Recession
Recession
begins
begins
(April 2008)
(April 2008)

Oil price drops to
$33.20/Bbl
(January 16, 2009)

Recession ends
(June 2009)

10


How Good is Your Crystal Ball?

“How frustrating. The crystal ball is down again”
Source: New Yorker – August 12, 1991

11


Key Exploration & Production Themes & Trends
Historical Transaction Activity to Provide a Glimpse of the Future
Commodity Price Expectations Supportive for Oil/Liquids
Land Grab is Over; Move Toward Full-Scale Development & Optimization
Who is Buying O&G Deals?
Where Are the O&G “Hot Spots”?
Public Markets Value O&G Assets Much Higher than Private Market Valuations
What Makes a “Good” O&G Property Sale?

12


2013 M&A Volume Down
Energy Transactions by Year ($ billions)
$350

$120

$300

$100

$250

$80

$200
$60
$150
$40

$100
$50

$20

$0

$0
2007

2008
Asset Volume

2009
2010
Corporate Volume

13

2011
JV Volume

2012
2013 YTD
WTI YE Price


Conventional Oil Valuations Have Been Steady & High
Production Metrics vs. WTI Price
$180,000
$160,000

$145.18/Bbl

$140,000

$108.54/Bbl

$113.93/Bbl

$120,000

$33.87/Bbl

$100,000
$80,000
$60,000
$40,000
$20,000
$0
1H08

2H08

1H09
2H09
1H10
2H10
Production Metrics ($/Boepd)

14

1H11

2H11
1H12
WTI ($/Bbl)

2H12

1H13


Conventional Gas Valuations Have Started to Increase
Production Metrics vs. Henry Hub Spot Price
$16,000
$13.58/MMBtu

$14,000

$3.67/MMBtu

$12,000

$1.91/MMBtu

$2.51/MMBtu

$10,000
$8,000
$6,000

$4,000
$2,000
$0
1H08

2H08
1H09
2H09
1H10
Production Metrics ($/Mcfepd)

2H10
1H11
2H11
1H12
Henry Hob Spot Price ($/MMBtu)

15

2H12

1H13


Oil & Natural Gas Price Expectations – Forward Curve
5-Year Oil & Gas Forward Curves
$100

2014 Budgets Based on Avg. $89 WTI
$4.60

$95

 Increase spending: WTI > $107

$4.40

 Decrease spending: WTI < $74

$4.20

$90

2014 Budgets Based on Avg. $3.66 HH

$85
$80
$75

 Increase spending: HH > $4.57

$70

$4.00

$65
$60

 Decrease spending: HH < $3.16

$3.80

Capital Expenditures – U.S.

$55
$50

$3.60

Feb-14 May-15 Aug-16 Nov-17 Feb-19
WTI-Cushing Oil
Henry Hub Natural Gas
Source: CME Group

2012 - $137 billion
2013 - $143 billion
2014 - $155 billion
Source: Barclay’s Research 2014 Global E&P Spending Outlook

16


17

$0

$100

Three Forks-McKenzie Co.

Uinta

Bakken-Montana

Bakken-Divide & Burke Cos

Bakken-North Nesson

Perm. (DB)-Avalon/Upper…

Three Forks-Sanish

$52 $52 $53 $53 $56
$47 $47 $50 $50
$42 $43

Eagle Ford-Oil

$80

Utica Oil

Niobara-Vt.

Perm. (DB)-1st Bone Spring

Perm. (MB)-Wolfberry

Perm. (DB)-Cline (Long)

Perm. (DB)-Delaware Sands

Perm. (DB)-Wolfbone

Perm. (DB)-Hz Wolfcamp

Perm. (DB)-3rd Bone Spring

Cana Woodford Combo

$34

Niobara-Hz.

$60

Bakken-Mountrail

$40

Bakken-Sanish

Not All Basins Are Created Equal - Oil
Oil Price Required for 10% Single-well IRR
$91

$81
Current WTI Price: $94.43
$68 $69 $72
$59 $61 $61 $61

$20

Source: HPDI, industry research, TPH assumptions


Not All Basins Are Created Equal – Gas
Gas Price Required for 10% Single-well IRR
$7
$6
$5
$4
$3
$2

$6.00
$5.70
$5.35
$5.72
$5.37
$5.24
$4.54
$4.15
$3.89
$4.24
$3.75
$3.94
$3.76
$3.65
$3.08
$3.15
$2.60
$2.33
$2.04
$2.05
$1.99
Current HH Price: $4.52

$1

Anadarko

Powder River

STX

San Juan CBM

Arkoma

Eagle Ford-Dry Gas

Woodford

Barnett Core Dry

Piceance Core

Pinedale

Cana Woodford Gas

Barnett Core Wet

Fayetteville

Haynesville-Tier 1

Granite Wash-North

Eagle Ford-Cond.

Haynesville-Core

Horn River

SW Marcellus Wet

Hz. Miss.

Granite Wash-South

$0

Source: HPDI, industry research, TPH assumptions

18


Land Grab Over; Focused on Development & Proved Reserves
Pre 2007
“Conventional Era”
2 – 4 years
 Improve existing
production

Holding  Cut costs
Period
 Development plan

Exit
Options

2007 - 2012
“UCRP Land Grab”

2012…
“UCRP Execution Phase”

1 – 3 years
 Limit drilling to
exploratory wells

3 – 5 years
 Optimize drilling &
completion process

 Hope to find “gold”

 Cut costs
 Development
plan/manufacturing

Plentiful
Greater fool theory
 Sell to public companies  Significant interest while
the music was playing
in need of drilling
(“flipping”)
inventory

Multiple years of inventory;
plenty of acres
 Focus on high-grade
inventory; eliminate
non-core properties
 Must spend meaningful
capital to increase
“producing value”

 Less need to fully
delineate

19


Move Toward Efficiencies & Optimization
U.S. Horizontal vs. Vertical Rigs

Frac Stages Over Time

1,600

4 Stages, 500 Meters

1,400
1,200

16 Stages, 1,600 Meters

1,000
800

40 Stages, 3,000 Meters

600
400
200
0
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
Horizontal

Vertical

20


Who is Buying Oil & Gas Deals?
U.S. Onshore demand over past 18 months.
Small Caps

$13.2

Private Equity

$12.9

Large Caps

 Private equity teams
searching for conventional
opportunities

$10.8

MLPs/Trusts

$8.5

Majors

 Large caps primarily
interested in “core” oil
resource play positions

$5.1

Non-Traditional

$5.0

International JV
International
$0.0

 Small caps fueled by robust
high yield market

 MLPs searching for longlife, low-decline assets

$4.5
$2.5
$5.0

$10.0

$15.0

21


Private Equity and MLP Appetite
Private Equity

EV of E&P Focused Capital

 50 – 60 teams backed by PEGs
hunting for platforms and ‘bolton’ acquisitions

$70
$62
$60
$50
$40

$34

$30

MLP’s

$20

 Growth through acquisition

$10

 Operational platform capabilities
to support rapid expansion

$0
Private Equity

MLP

 Distribution pressure

22


Production Valuation Time Horizon
Public

Private Equity

MLP

High-risk, high-rate

Flattening decline

Low-decline, stable cash flow

Net Production (Boepd)

600
500
400
$20,000 / Boepd
300
200
$50,000 / Boepd
100

$80,000 / Boepd

$100,000 / Boepd

$150,000 / Boepd

0
0

12

24

36

48

60

72

84

96

108

Months
23


Upstream M&A Increasingly Concentrated in “Hot Spots”
2012 – 2013 Resource Deals Focus Areas
 Equity markets rewarding
basin consolidators

Gulf
MS Lime, 4
Coast, 2
Marcellus, 6
Granite
Wash, 7
Niobara, 2
Multi, 3

 By far, the majority of buyers
already have established
positions and are acquiring to
consolidate core position

Permian, 21

Haynesville,
2

Bakken, 17

Utica, 10

Woodford, 7

Eagle
Ford, 24

Barnett, 6
Source: IHS Herold

24


Example: Permian Basin – Highly Coveted
Field/Reserve Size (Billion Boe)
Characteristics of Permian Basin

Spraberry/Wolfcamp
Eagle Ford

 Oil/liquids

Prudhoe Bay

 Stacked pays

Bakken

 Mature infrastructure

Delaware Basin

 Reserve potential

East Texas Basin

 Expected production increase
 Compelling rates of return relative
to other basins

0

2,000

10

20

30

40

50

60

Permian Basin Production (MBoe/d)

1,600
1,200
800
400
0
Jan-10

Jul-11

Jan-13

Jul-14

Jan-16

Jul-17

Source: Bentek & Energy Information Administration

25


Valuations Reflect the “Permian Premium”
Permian Index vs. DJSOEP Index
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
-10.0%
-20.0%
Oct-12

Jan-13

May-13
Permian Index

Aug-13
DJSOEP Index

Nov-13

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)

26


Valuations Reflect “Permian Premium”
Valuation for Public Market Operators
12.0x
10.6x
10.2x

9.7x

9.2x

Focused (8.5x)

8.6x 8.5x
7.6x

8.0x

7.2x

6.8x 6.6x 6.6x

6.0x

6.1x 6.0x
5.7x

4.7x 4.7x 4.4x 4.4x 4.4x
4.3x

4.0x

Multi-Basin (4.7x)

SM

APA

DVN

WLL

HES

NFX

CHK

EOG

XEC

RE…

CLR

AR…

CXO

COG

LPI

EQT

ATHL

PXD

0.0x

FA…

2.0x

RRC

EV / 2014E EBITDA

10.0x

Company
27


Large Arbitrage Between Public and Private Market
Public Co. Trading Multiples vs. Median Transaction Multiples
$35.0
$30.0
$25.0
$20.0
$15.0
$10.0
$5.0
$0.0
Permian ($/boe)

Appalachia ($k/acre)
Public Market Valuations

Mid-Continent ($/Boe)

Bakken ($/acre)

A&D Market Valuations

Source: FactSet and Herold. Permian includes ATHL, AREX, FANG, LPI, CXO and PXD; Appalachia includes COG, AR, EQT, GPOR, REXX, RRC and
SWN; Eagle Ford includes ROSE and SN; Bakken includes CLR, KOG, OAS, TPLM, and WWLL. Appalachia includes Marcellus and Utica deals while
Mid-Continent includes Granite Wash, Mississippi Lime and Woodford shales as well as Mid-Continent conventional deals.

28


Valuation for Coveted Unconventional Resource Plays
Bakken
$15,000 - $25,000 / Acre (Core)
$7,000 - $15,000 / Acre (Tier 1)
$4,000 - $7,000 / Acre (Tier 2)

Utica
$10,000 - $14,000 / Acre (Core)
$6,000 - $10,000 / Acre (Tier 1)
$4,000 - $6,000 / Acre (Tier 2)

Niobara
$5,000 - $10,000 / Acre (Core)
$3,000 - $5,000 / Acre (Tier 1)

Permian – Delaware Basin
$15,000 - $20,000 / Acre (Core)
$10,000 - $15,000 / Acre (Tier 1)
$5,000 - $10,000 / Acre (Tier 2)

Anadarko
$10,000 - $15,000 / Acre (Core)
$6,000 - $10,000 / Acre (Tier 1)

Permian – Midland Basin
$15,000 - $20,000 / Acre (Core)
$10,000 - $15,000 / Acre (Tier 1)
$5,000 - $10,000 / Acre (Tier 2)

Eagle Ford
$25,000 - $35,000 / Acre (Core)
$15,000 - $25,000 / Acre (Tier 1)
$7,500 - $15,000 / Acre (Tier 2)

29


Regional Conventional Oil & Natural Gas Valuations
Rockies
$90,000 - $120,000 / Boepd
5.0x – 7.0x FTM Cash Flow

Appalachia
$5,000 - $7,000 / Mcfepd
Mid-Continent
$6,000 - $8,000 / Mcfepd

Rockies
$5,000 - $7,000 / Mcfepd

Mid-Continent
$100,000 - $125,000 / Boepd

East Texas
$90,000 - $120,000 / Boepd

California
$100,000 - $125,000 / Boepd

Ark-La-Tex
$6,000 - $8,000 / Mcfepd

Permian
$125,000 - $150,000 / Boepd
Barnett
$5,000 - $7,000 / Mcfepd

30

Gulf Coast
$4,000 - $6,000 / Mcfepd


What Makes for a “Good” Oil & Gas Property Sale?
Characteristics

Informational Needs
 3rd party reserve report

 Assets > 30% Proved Developed
Producing (PDP)

 Maps

 Production > 150 to 200 BPD

 Financials

 Predominantly oil / liquids

 Clean property title

 Not excessive well count
 No well concentration > 25% of
total production/reserve value

Assets to Monetize
 Minerals

 Repeatable, predictable results

 Working interests (operating & nonoperating)

 Long life > 10 Years

 Royalties

 Limited lease expiries near term

 Leases (more difficult)

31


How Can a Seller Achieve Maximum Price/”Best” Deal?
Create a competitive market among multiple, qualified buyers.
 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

33


Building A Competitive Market Case Study
 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)
$100.0
$90.0

$90.0
$82.5

$80.0

$80.0

$80.0

Financial Sponsor
Strategic Buyer

$79.7
$75.0

$70.0

$65.0

$65.0

$61.1

$60.0

$60.0

$50.0

$50.0
$40.0
$30.0
$20.0
$10.0
$A

B

C

D

E

F

34

G

H

I

J

K


Thank You!

102 Decker Court, Suite 204
Irving, Texas 75062
972-831-1300

Jason Wilcox: jason@ws-ibank.com
Grant Swartzwelder: grant@ws-ibank.com
Website: ws-ibank.com

35


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