Sector Update | June 2014

phone 972.831.1300 | web WS-iBank.com

Energy & Industrial Sector Observations

Upstream merger, acquisition activity hits record $39bn in Q1 2014. Not only was deal volume up 75% over Q1 2013, but the quarterly deal count of 116 was up 24% over Q1 2013. Oil and gas M&A deals in North America reached its highest level since Q4 2012. According to a recent CBO Capital report, “North America has emerged as the world’s most popular destination for lucrative upstream M&A transactions. The North American deal market reflects the impact of large capital needs on resource play development.” Last quarter, shifting buyer profiles were evident. Smaller, alternative buyers and private equity groups were prominent. M&A activity of small exploration and production companies accounted 86% of deals in Q1. (Business Day – May 21, 2014)

Permian Basin oil production expected to continue. At Hart Energy’s Permian Basin Conference in Fort Worth, Pioneer Natural Resources CEO Scott Sheffield and other notable petroleum analysts said they have an optimistic outlook for oil production levels in the Permian Basin, which already produces 1.5 million barrels of oil per day. Darrel Koo, an energy researcher at ITG Investment Research in Canada, predicts that the Permian Basin’s oil production will grow to 2.5 million barrels per day, which includes oil prices at around $90 a barrel, by 2025. Koo says with higher prices and other favorable conditions that could rise even higher to 3.2 million barrels per day. Eagle Ford Shale and Bakken Shale have also grown to more than a million barrels per day, but Sheffield expects those fields to peak between 2016 and 2020 and the Permian Basin to keep climbing. The Permian Basin covers the same surface area as the Bakken, but its oil-bearing formations are much thicker. The formations are stacked atop one another for thousands of feet, promising growth as each is explored and developed. (Fort Worth Star Telegram – May 21, 2014)

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Broader Middle Market M&A Trends

-

1,000

2,000

3,000

4,000

5,000

6,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 LTM

Historical M&A Volume(Completed Deals < $500 Million)

10 Year Avg. = 3,683 7.9x

9.4x

8.4x9.2x

8.4x

7.1x7.4x

8.5x

7.4x8.2x

7.8x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 LTM

Transaction Valuations(EBITDA Multiple; Completed Deals<$500 Million)

2

Sector Update | June 2014

phone 972.831.1300 | web WS-iBank.com

Energy Stock Price Performance

Red – New York Stock Exchange Composite Blue – Oilfield Services Index Green – Exploration & Production

U.S. Rig Count

(As of May 30, 2014)

Industrial Stock Price Performance

Red – New York Stock Exchange Composite Blue – Industrial and Infrastructure

U.S. Industrial Manufacturing (ISM)

(As of June 1, 2014)

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

0

250

500

750

1,000

1,250

1,500

1,750

2,000

2,250

Jan-07Jul-07Jan-08Jul-08Jan-09Jul-09Jan-10Jul-10Jan-11Jul-11Jan-12Jul-12Jan-13Jul-13Jan-14

Oil Gas % Oil

25.0

30.0

35.0

40.0

45.0

50.0

55.0

60.0

65.0

70.0

75.0

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14

PM

I

Mar-14 Apr-14 May-14

PMI 53.7 54.9 55.4

Basin

Rig

Count

YoY Rig

Change

%

Change

Permian 548 75 16%

Eagle Ford 214 -19 -8%

Williston 178 -12 -6%

3

Sector Update | June 2014

phone 972.831.1300 | web WS-iBank.com

Notable Energy & Industrial Transactions

Announce-ment Date

Acquiror Target Target/Transaction Description Transaction Value ($M)

Energy & Industrial Manufacturing and Services

5/27/14 Applied Industrial Technologies

Knox Oil Field Supply Texas-based supplier of downhole pumps, rods, valves and fittings, and general supplies --

5/21/14

Sandvik AB Varel International/ Arcapita

Texas-based manufacturer of drill bits and other downhole products $740.0

5/16/14 Huntington Ingalls Industries

UniversalPegasus Texas-based provider of engineering and project management services --

5/15/13 Signet Maritime Harvey Gulf International Marine

Acquisition of 8 offshore towing vessels that range in size from 153 to 75 metric ton bollard pull --

5/15/14 Catapult Energy Services/NGP

Covenant Testing Technologies

Texas-based provider of flowback and well testing services to the Permian Basin and Niobrara Shale --

5/15/14 NGP Energy Technology Partners

Wellsite Rental Services

Louisiana-based provider of rental equipment such as tubing, handling tools, specialty trailers, cooling & heating trailers, automated slips, and variable bore rams

--

5/13/14 Corinthian Capital Group LLC

Renegade Investments, LP

Recapitalization of Texas-based provider of above-ground maintenance service for oil and gas well-sites and automation and employment services related to well-sites

--

5/13/14 Buckhorn Energy Services, LLC

Oaks Disposal Services LLC

Acquisition of 5 salt water disposal wells in the Permian Basin --

5/8/14 ShawCor Desert NDT Texas-based provider of non-destructive testing and infrastructure integrity management services to the upstream and midstream sectors

$260.0

5/8/14 Beckman Production Services/SCF Partners

RedZone Coil Tubing/ Stephens Capital Partners/ Winston Bradford

Texas-based provider of large diameter coil tubing services (Permian, Mississippi Lime, Cana Woodford, & Granite Walsh) --

5/7/14 Citadel Energy Services, LLC

Undisclosed Seller Acquisition of 5 freshwater wells in the Bakken --

5/7/14 Extreme Plastics Plus/Hastings Equity Partners

Three Amigos Rentals

Provider of water containment systems used for oil & gas drilling and fracturing activities in the Permian Basin --

5/7/14 Tesco Tech Field Services Texas-based provider of parts, maintenance, and repair services for top drive units as well as offers hydraulic top drive rental units to customers

--

5/6/14 United Rentals Blue-Stream Services Rents diesel generators, air conditioners & cooling towers and provides related services, locations in LA and TX --

5/6/14 Prospect Capital Arctic Energy Services (dba Arctic Oilfield Services)

Recapitalization of provider of flowback production well testing services, frac water transfer services and filtration equipment rentals

$61.0

5/1/14 Ferrellgas Partners Sable Environmental Texas-based provider of fluid logistic services such as saltwater disposal facilities (Eagle Ford) $125.0

4

Sector Update | June 2014

phone 972.831.1300 | web WS-iBank.com

Notable Exploration & Production and Midstream/Downstream Transactions

Announce-ment Date

Acquiror Target Target/Transaction Description Transaction Value ($M)

Exploration & Production and Midstream/Downstream 5/16/14 Panhandle Oil and

Gas Inc. Undisclosed Seller Acquisition of 1,775 net acres located in the core of Eagle

Ford Shale with 58 producing wells, 113 undeveloped locations, and proved reserves of 1.7MMboe, 1.7MMcfe gas, and 0.297MMbngl

$80.4

5/15/14 Triangle Petroleum Corp.

Undisclosed Seller Acquisition of 46,100 net acres in the Williston Basin that produce 1,175 boe/d with proved reserves of 4,450 Mboe $120.0

5/9/14 New Gulf Resources LLC

Halcon Resources Acquisition of 83,000 net acres in Leon, Grimes, Madison, and Walker Counties, Texas that produce 3,600 boe/d $450.0

5/8/14 Atlas Resource Partners LP

Undisclosed Seller Acquisition of total reserves of 47MMboe, including proved reserves of 25MMboe and producing 2,900 boe/d in Northwest Colorado

$420.0

5/7/14 Devon Energy Corp Cimarex Energy Acquisition of 50,000 net acres in the Cana-Woodford Shale with current production of 5,800 boe/d (37% liquids) and proved reserves of 23 MMboe

$249.0

5/7/14 EnCana Freeport-McMoRan Oil & Gas

Acquisition of 45,500 net acres of Eagle Ford Shale with an estimated drilling inventory of more than 400 locations and proved reserves totaling 59 MMboe

$3,100.0

5/7/14 EnerVest LTD/ FourPoint Energy LLC

Undisclosed Seller Acquisition of 47,000 net acres in the Western Anadarko Basin with net production of 31.8 MMcfe/d (43% liquids) from 642 wells

$275.0

5

Sector Update | June 2014

phone 972.831.1300 | web WS-iBank.com

Wilcox | Swartzwelder & Co.

Wilcox Swartzwelder & Co. is a boutique investment bank, specialized in delivering high quality financial advice exclusively to owners of middle market companies and oil and gas properties in the energy and industrial sector.

Advisory services include company sales, mergers and acquisitions, private placements of debt and equity, oil and gas property acquisitions and divestitures, institutional capital raises, and general corporate finance matters. Through its merchant funding activities, the Firm acts as direct investor providing flexible capital to support small, entrepreneurial companies.

Principals have more than 40 years of combined investment banking experience, closing over 100 transactions with an aggregate value in excess of $3.9 billion. They have also acted as investors with capital at risk, operators and board members in multiple companies, having navigated through various business cycles and completed transactions in both up and down markets.

The Firm is fully licensed and registered. Securities are offered through PetroGrowth Energy Advisors, LLC, a registered broker-dealer and member of FINRA/SIPC.

Notes:

The information and views contained in this report were prepared by Wilcox Swartzwelder & Co. LLC and should not be construed as an offer to buy or sell or a solicitation to buy or sell any financial instruments or to participate in any trading strategy. The information contained herein is believed to be reliable, but Wilcox Swartzwelder & Co. LLC makes no representation as to its accuracy or completeness.

Indices: Dow Jones U.S. Select Oil Equipment and Services Index (DJSOES), Dow Jones U.S. Select Oil Exploration and Production (DJSOEP), Industrial Select Sector SPDR (XLI), NYSE Composite Index (NYA)

Data Sources: Dealogic, Capital IQ, Stockcharts.com, Baker Hughes, RigData, Rig Zone, Energy Information Agency (EIA), Association of Energy Service Companies (AESC), Institute of Supply Management (ISM), Wilcox Swartzwelder Proprietary Energy and Industrial M&A Database

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