Sector Update | February 2015

phone 972.831.1300 | web WS-iBank.com

Energy & Industrial Sector Observations

Ernst & Young: Impacts from Oil Price Collapse. By the second half of 2015, US production growth expected to slow somewhat, but, critically, not to reverse. Upstream operators will put significant pressure on oilfield services supplies to reduce costs, while oilfield services firms will fight to retain market share through both innovation and consolidation. "Looking forward, the oil price collapse will spur increased transaction activity during 2015 for a couple of reasons," said Mitch Fane, Transaction Advisory Services leader for E&Y LLP. "On one hand, upstream companies with strong balance sheets operating in low-cost basins will be well-positioned to not only weather the dip in prices, but also scoop up assets from those with less liquidity or more capital intensive assets. At the same time, companies across the O&G segment will be pressured to review and reshape their portfolios to optimize capital and create higher returns." (Oil and Gas Financial Journal – January 22, 2015)

Woods Mackenzie: Themes That Will Shape O&G Corporate Landscape. The cost of new capital for smaller companies will rise sharply in 2015. Asset write-downs will lead to higher leverage ratios and increased financial stretch for some companies. Intense cost-cutting to occur with an estimated need to cut costs by $170 billion or 37% to maintain net debt at 2014 levels at a Brent oil price of $60 a barrel. Distressed sales – asset and corporate – could precipitate the emergence of a true buyers’ market in 2015. Large-scale corporate consolidation is more likely than at any point since the late-1990s. Many companies will hold fire on expensive frontier drilling in anticipation that lower drilling and appraisal costs could materially improve full cycle economics. (Oil and Gas Financial Journal – January 23, 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. = 3,635 7.9x

9.4x

8.4x 9.2x

8.4x

7.1x 7.4x

8.5x

7.4x 8.2x

8.6x 8.6x

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

Sector Update | February 2015

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 January 30, 2015)

Industrial Stock Price Performance

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

U.S. Industrial Manufacturing (ISM)

(As of February 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

Nov-14 Dec-14 Jan-15

PMI 58.7 55.1 53.5

Basin

Rig

Count

YoY Rig

Change

%

Change

Permian 368 -125 -25%

Eagle Ford 164 -61 -27%

Williston 128 -51 -28%

25.0

30.0

35.0

40.0

45.0

50.0

55.0

60.0

65.0

70.0

75.0

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

PM

I

3

Sector Update | February 2015

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

1/29/15 Flotek Industries, Inc International Artificial Lift, LLC

Texas-based developmental-stage company that specializes in the design, manufacturing and service of next-generation hydraulic pumping units

--

1/23/15 Quintana Energy Services

Cimarron Acid and Frac, LLC/ Annapurna Capital Management

Oklahoma-based provider of hydraulic fracturing and acidizing services related to well completion with 73,000 hydraulic horsepower of pressure pumping equipment

--

1/20/15 L.B. Foster Co. Chemtec Energy Services, LLC

Supplier of blending, injection, and custody transfer metering skids --

1/16/15 FNB Capital Partners/ Ridge Capital/ Kayne Anderson

White’s Holdings, LLC Pennsylvania-based provider of rental drilling equipment and related services as well as welding services --

1/15/15 Superior Drilling Products, Inc

Tenax Energy Solutions

Acquisition of the exclusive manufacturing, marketing, and sales rights, along with the current inventory of the OrBIT completion drill bit product line

--

1/7/15 Rock Hill Capital JP Hydro, LLC Texas-based provider of hydrostatic and pneumatic testing, and torqueing and pigging services along Gulf Coast and Texas

--

1/7/15 Gulf Coast Specialty Energy Services, LLC/ Grey Mountain Partners

Specialized Environmental Resources, LLC

Louisiana-based provider of geotechnical and environmental drilling, environmental remediation, amphibious excavation and marine transportation --

1/5/15 Oil States International

Montgomery Machine Company

Texas-based provider of machining and proprietary cladding technology and services to manufacture high-specification components for offshore industry

--

4

Sector Update | February 2015

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 1/20/15 Matador Resources,

Co. Harvey E. Yates, Co. Acquisition of assets located in the Delaware Basin section

of New Mexico $114.5

1/13/15 EnLink Midstream LPC Crude Oil Marketing, LLC

Acquisition of purchaser, transports, and sells approximately 60,000 bbs/d of crude oil with assets that include 13 pipeline and refinery injection stations located in the Permian Basin

$100.0

1/12/15 TPH Partners Laurel Mountain Energy, LLC

Formation of a Pennsylvania-based upstream company focused on developing assets within the Marcellus and Utica formations

$8,240.0

1/9/15 BP Partners Pinnacle Midstream, LLC

Equity commitment for company to acquire and develop midstream assets and provide related services $20.0

1/9/15 Natural Gas Partners Crossing Rocks Energy Partners, LLC

Equity commitment to acquire, develop, and monetizing North American oil and gas assets in the Mid-Continent, East Texas and Permian basins

--

5

Sector Update | February 2015

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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