m&a trends for the energy industry april 2015

Sector Update | April 2015

phone 972.831.1300 | web WS-iBank.com

Energy & Industrial Sector Observations

Wood Mackenzie: Deeper Cuts Could Trigger Large-Scale M&A Activity. Rapid strategic response has driven industry cash flow breakevens down by $20/bbl to $72/bbl, stabilizing the sector, but low prices will need deeper cuts and could trigger large-scale M&A. Further cuts would be required to achieve cash flow neutrality if oil prices remain around current levels. For some companies, this will mean selling assets. (Oil and Gas Financial Journal – April 13, 2015)

M&A Recovery Expected in 2nd Half of 2015. M&A activity has predictably slowed to a crawl following the oil price downturn. In these early months of the down cycle, simply put sellers and buyers are too far apart on future price expectations to strike M&A deals. Once the dust clears and there is more certainty about global oil supply and demand, these expectations will recalibrate and the M&A markets will begin functioning at a normal pace. M&A markets will gain momentum as companies re-size their portfolios to meet the shifted paradigm of cash flows. In part, the jump start to a higher sustained deal flow will be driven by creditors as they go through their spring borrowing base redetermination processes. Also, once the markets gain confidence that, at a minimum, a bottom has been achieved on oil prices, then buyers and sellers will at least have a floor to begin narrowing the spread on price expectations for asset valuations. (Oil and Gas Financial Journal – March 11, 2015)

IEA: US Oil Output Party to Last to 2020. The US will remain the world's top source of oil supply growth up to 2020, even after the recent collapse in prices, the IEA said, defying expectations of a more dramatic slowdown in shale growth. IEA Executive Director Maria van der Hoeven said while OPEC may win back some customers while prices are low, it would not regain the market share it held before the 2008 financial crisis. (Reuters – February 10, 2015)

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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 2014 LTM

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

10 Year Avg. = 3,647 7.9x

9.4x

8.4x 9.2x

8.4x

7.1x 7.4x

8.5x

7.4x 8.2x 8.6x 8.3x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 LTM

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

2



Energy Stock Price Performance

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

U.S. Rig Count

(As of March 27, 2015)

Industrial Stock Price Performance

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

U.S. Industrial Manufacturing (ISM)

(As of April 1, 2015)

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

1/2/2009 12/31/2009 12/30/2010 12/29/2011 12/21/2012 12/20/2013 12/19/2014

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 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

PM

I

Basin

Rig

Count

YoY Rig

Change

%

Change

Permian 290 -239 -45%

Eagle Ford 137 -87 -39%

Williston 97 -97 -50%

Jan-15 Feb-15 Mar-15

PMI 53.5 52.9 51.5

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Notable Energy & Industrial Transactions

Announce-ment Date

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

Energy & Industrial Manufacturing and Services

3/31/15 Natural Gas Partners Kinetic Energy Services

Equity financing from Natural Gas Partners; Kinetic seeks to acquire, integrate and grow energy service & equipment companies that provide well completions and production enhancement solutions

--

3/31/15 USIC Premier Services/ Willbros Group

Acquisition of Willbros subsidiary, Premier Services, a New-York based provider of emergency management support, GIS/data management, electrical, gas and tower services

--

3/25/15 Quorum Business Solutions/ Silver Lake Partners

Fielding Systems, LLC Provider of cloud-based applications, including field data capture, production reporting and remote Supervisory Control and Data Acquisition (SCADA) monitoring

--

3/18/15 Power Solutions International

Buck’s Engines Oklahoma-based provider of alternative fuel engines that run on natural gas, propane and LPG fuels for irrigation, gas compression, oil production, power generation and other application

$9.6

3/17/15 Legacy Measurement Solutions

Pelagic Tank Oklahoma-based provider of production and process equipment (e.g. waste gas incinerators, free water knockouts, vertical heater treaters and separators)

--

3/13/15 L.B. Foster Inspection Oilfield Services/ Calvert Street Capital Partners

Texas-based provider of non-destructive testing, inspection and conversion (i.e. threading, refacing, cleaning & repairing) $230.0

3/12/15 Frank’s International Timco Services Louisiana-based provider of tubular running services and rental equipment to onshore and offshore customers --

3/10/15 Verisk Analytics Wood Mackenzie Provider of research and consulting services for the energy, chemical, metals and mining industries $1,850.0

3/10/15 NGP Energy Technology Partners

Signum Instruments Texas-based provider of electrical & geo-mechanical open home formation evaluation tools with a focus in harsh & small diameter environments

--

3/9/15 Opportune Ralph E. Davis Associates

Provider of petroleum engineering, geological studies (both domestic and international), certification of reserve reports, acquisition/divestiture support, and preparation of technical financial analyses

--

3/5/15 NGL Energy Partners Undisclosed seller Acquisition of three saltwater disposal facilities $39.0

3/4/15 Brand Energy MATCOR Pennsylvania-based provider of proprietary cathodic protection products and corrosion services for infrastructure assets (i.e. oil, gas and water pipelines, deep wells, above ground storage tanks and power plants)

--

3/3/15 Riverside Company/ True North Equity

Summit Environmental Services

Riverside and True North formed IFS Group, a new platform company that acquired Summit Environment which provides cleaning, excavation and field services

--

4



Notable Energy & Industrial Transactions (Cont’d)

Announce-ment Date


Energy & Industrial Manufacturing and Services (Cont’d)

3/3/15 Carrick Capital Partners

Seven Lake Technologies

California-based provider of enterprise software solutions, including drilling & rig scheduling, iPad-based field data capture, well lifecycle process and master data management

$20.0

2/25/15 OFS Capital TRS Services Capital investment for Texas-based company that maintains and repairs, through a 45,000 sq. ft. facility, stationary components of gas turbines

--

2/23/15 Cypress Energy Partners

Tulsa Inspection Resources

Acquisition of the remaining 49.9% of Oklahoma-based provider of inspection and integrity services for pipelines and related facilities

$52.6

2/19/15 Royal Dutch Shell WellDog Acquisition of a minority stake in Wyoming-based company that designs and installs downhole pressure sensing systems

--

2/19/15 Blackeagle Energy Services

Polaris Drilling, Inc Colorado-based provider for trench-less underground construction, specializing in installation of steel casing, PVC pipe or copper tubing using horizontal boring machine or hammer drill method

--

2/18/15 Republic Services, Inc Tervita, LLC Provider of vertically integrated environmental waste solutions with customers in the Permian, Eagle Ford and Bakken

--

2/9/15 Dawson Geophysical TGC Industries Merger of Dawson Geophysical, provider of onshore seismic data acquisition and processing services, and TGC Industries, which provides similar seismic and processing services

--

2/3/15 Oceaneering International, Inc

C&C Technologies Louisiana-based provider of ocean-bottom mapping services in deepwater areas and marine construction surveys

$230.0

2/3/15 Forum Energy Technologies

J-Mac Tool Texas-based manufacturer of hydraulic fracturing pumps, power ends, fluid ends, and other pump accessories --

5



Notable Exploration & Production and Midstream/Downstream Transactions

Announce-ment Date


Exploration & Production and Midstream/Downstream 3/31/15 Warburg Pincus Independence

Resources Management

Start-up E&P company based in Houston targeting acquisition and play extension opportunities in the Mid-Continent and Rockies

$500.0

3/24/15 EnLink Midstream Partners, LP

Devon Energy Corp. Acquisition of Victoria Express Pipeline, a 56-mile multi-grade crude oil pipeline, as well as the pipeline’s destination facilities at the Port of Victoria, including an eight-bay truck unloading terminal, 200,000 barrels of above ground storage, of which 50,000 barrels are under construction, and rights to barge loading docks

$220.0

3/23/15 Undisclosed buyer Southwestern Energy Acquisition of assets located in East Texas and the Arkoma Basin $218.0

3/20/15 Howard Midstream Energy Partners

Southwestern Energy Acquisition of natural gas gathering assets located in Pennsylvania, consisting of 100 miles of pipeline with 600 MMcfe/d of capacity and 53,000 horsepower of compression

$500.0

3/18/15 Breitling Energy Corp.

Undisclosed seller Acquisition of assets located in northwestern Oklahoma consisting of 3,200 acres and five wells --

3/17/15 EnCap Flatrock Midstream

Modia Midstream, LLC

Equity commitment for provider of independent terminaling, storage and distribution solutions to refiners, petrochemical manufacturers, marketers and producers of crude oil, condensate, NGLs, refined products and other bulk liquids

$750.0

3/11/15 Midstates Petroleum Co.

Pintail Oil & Gas/ Ridgemont Equity Partners

Acquisition of assets located in Louisiana consisting of 12,700 acres producing 1,300 boe/d $44.0

3/2/15 Plains All American Pipeline, LP

Legion Terminals, LLC Acquisition of crude terminal currently under construction located in North Dakota with 500 Mbbls of storage --

2/26/15 American Impact Energy

Undisclosed seller Acquisition of assets located in the Permian Basin consisting of 18,000 acres, 6 horizontal wells and 100 new drillsites

--

2/19/15 NGL Energy Partners Magnum NGLs, LLC/ Haddington Ventures, LLC

Acquisition of owner/operator of NGL storage facility located in Utah with multiple existing salt caverns and capacity of greater than 10 MMbbls

--

2/19/15 Repsol Talisman Energy Acquisition of Canadian-based company with producing and exploration assets in North America, South America and Europe

$8,300.0

2/16/15 Kinder Morgan Hiland Partners Acquisition of assets located in North Dakota and Montana consisting of crude oil gathering and transportation pipelines and natural gas gathering and processing systems

$3,000.0

Notable Exploration & Production and Midstream/Downstream Transactions (Cont’d)

6



Announce-ment Date


Exploration & Production and Midstream/Downstream (Cont’d) 2/16/15 Enterprise Partners Oiltanking Partners Unit-for-unit merger of Oiltanking Partners, engaged in

independent storage and transportation of crude oil, refined petroleum products and liquefied petroleum gas, with Enterprise Partners, a provider of midstream energy services

$6,000.0

2/3/15 Southwestern Energy Statoil Acquisition of assets located in the Marcellus consisting of 515,000 acres producing 4,000 boepd $365.0

2/3/15 EnLink Midstream Coronado Midstream Acquisition of assets including three cryogenic gas processing plants with a capacity of approximately 175 MMcfe/d and a 270-mile gas gathering pipeline system in the North Midland Basin

$600.0

2/3/15 Southwestern Energy WPX Energy Acquisition of operations located in northeast Pennsylvania including the release of certain firm transportation capacity

--

7



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

Copyright © 2015 Wilcox Swartzwelder & Co. LLC, all rights reserved.

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m&a trends for the energy industry april 2015

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