ELLIOTT S PROPOSED ACQUISITION OF QEP: IMPLICATIONS AND INSIGHT. Brian Lidsky, Sr. Director, Market Intelligence February 14, 2019

Transcription

1 ELLIOTT S PROPOSED ACQUISITION OF QEP: IMPLICATIONS AND INSIGHT Brian Lidsky, Sr. Director, Market Intelligence February 14, 2019

2 Disclaimers Forward-Looking Statements This presentation may contain forw ard-looking statements. In this context, forw ard-looking statements often address future commodity prices and M&A or E&P activity and often contain w ords such as expect, anticipate, intend, plan, believe, seek, see, w ill, w ould, target, similar expressions, and variations or negatives of these w ords. Forw ard-looking statements by their nature address matters that are, to different degrees, uncertain and are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed in any forw ard-looking statements. Nothing in this presentation should be considered a guarantee of future results. Important risk factors that may cause such a difference include, but are not limited to, trends in oil and gas production and exploration activity; government regulations, including those that negatively affect the production of oil and gas using hydraulic fracturing; industry and market trends; general changes in law s or regulations w hether or not specific to the oil & gas industry; and general economic conditions w hether or not specific to the oil & gas industry. While this list of factors is considered representative, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted factors may present significant additional obstacles to the realization of forw ard looking statements. We assume no obligation to publicly provide revisions or updates to any forw ard looking statements, w hether as a result of new information, future developments or otherw ise, should circumstances change, except as otherw ise required by securities and other applicable law s. No Investment Advice This presentation is being provided solely for informational purposes and nothing herein shall be considered investment advice. We cannot guarantee the completeness, timeliness or accuracy of the information contained herein. Any decisions based upon the information contained in this presentation are the sole responsibility of the decision maker. INVESTMENTS IN OIL AND GAS PROPERTIES, EQUITIES, AND COMMODITIES INVOLVES SUBSTANTIAL RISK INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THESE RISKS INCLUDE PRICE FLUCTUATIONS AND UNFORESEEN EVENTS THAT MAY AFFECT OIL & GAS VALUES. No Solicitation This presentation is not, and nothing in it should be construed as, an offer, invitation, or recommendation in respect of the securities of Drilling Info Holdings, Inc. or any other company, or an offer, invitation or recommendation to sell, or a solicitation of an offer to buy, any securities in any jurisdiction. Neither this presentation nor anything in it shall form the basis of any contract or commitment. This presentation is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any investor. All investors should consider such factors in consultation w ith a professional advisor of their choosing w hen deciding if an investment is appropriate. 2

3 INTRODUCTION M&A Trend Where Have We Been? Elliott offer for QEP and Rationale QEP assets and Performance Elliott Offer Implied Valuation for QEP Acreage Market Comps and QEP Neighbors A Bigger Question: What is driving Wall Street? Concluding Thoughts 3

4 WHERE HAVE WE BEEN? M&A TREND FOR OILY ASSETS ASSETS Elliott Offer for QEP

5 ELLIOTT OFFER FOR QEP : JANUARY 7, 2019 $8.75/share CASH : Rationale as stated in Elliott Letter The $8.75/share cash proposal represents a 44% premium to prior day price 5

6 ELLIOTT OFFER FOR QEP : JANUARY 7, 2019 $8.75/share CASH : Rationale as stated in Elliott Letter The $8.75/share cash proposal represents a 44% premium to prior day price Despite transition to Permian pure-play, QEP remains deeply undervalued 6

7 ELLIOTT OFFER FOR QEP : JANUARY 7, 2019 $8.75/share CASH : Rationale as stated in Elliott Letter The $8.75/share cash proposal represents a 44% premium to prior day price Despite transition to Permian pure-play, QEP remains deeply undervalued QEP as a public-company investment has not worked 7

8 ELLIOTT OFFER FOR QEP : JANUARY 7, 2019 $8.75/share CASH : Rationale as stated in Elliott Letter The $8.75/share cash proposal represents a 44% premium to prior day price Despite transition to Permian pure-play, QEP remains deeply undervalued QEP as a public-company investment has not worked States QEP s assets demonstrate a clear focus on only core-of-the core position 8

9 ELLIOTT OFFER FOR QEP : JANUARY 7, 2019 $8.75/share CASH : Rationale as stated in Elliott Letter The $8.75/share cash proposal represents a 44% premium to prior day price Despite transition to Permian pure-play, QEP remains deeply undervalued QEP as a public-company investment has not worked States QEP s assets demonstrate a clear focus on only core-of-the core position Recommends that QEP hire an advisor to oversee the process with us and potentially others 9

10 ELLIOTT OFFER FOR QEP : JANUARY 7, 2019 $8.75/share CASH : Rationale as stated in Elliott Letter The $8.75/share cash proposal represents a 44% premium to prior day price Despite transition to Permian pure-play, QEP remains deeply undervalued QEP as a public-company investment has not worked States QEP s assets demonstrate a clear focus on only core-of-the core position Recommends that QEP hire an advisor to oversee the process with us and potentially others Call to immediately assemble a Data Room for the Permian assets 10

11 ELLIOTT OFFER FOR QEP : JANUARY 7, 2019 $8.75/share CASH : Rationale as stated in Elliott Letter The $8.75/share cash proposal represents a 44% premium to prior day price Despite transition to Permian pure-play, QEP remains deeply undervalued QEP as a public-company investment has not worked States QEP s assets demonstrate a clear focus on only core-of-the core position Recommends that QEP hire an advisor to oversee the process with us and potentially others Call to immediately assemble a Data Room for the Permian assets Conditioned upon QEP s Haynesville sale closing (DONE Closed Jan 10) 11

12 QEP ASSETS CORE OF MIDLAND BASIN 50,700 NET ACRES AND 52,100 BOE/D PRODUCTION GOR Map on Wolfcamp A Structure 74% Oil, 15% NGLs, 11% Gas 12

13 ENGINEERING CHECK: WHAT IS HAPPENING ON AND AROUND QEP S ACREAGE? 3 Benches: Lower Spraberry, Wolfcamp A & B prolific in area QEP s southern block has virgin rock offset by producers Most of acreage is HBP by legacy verticals Plenty of Pad Development by offset operators 13

14 Cum Oil, Mbbl Proppant per Foot QEP RESULTS : DATA SUGGESTS GOING WITH HIGHER PROPPANT INTENSITY WILL IMPROVE PERFORMANCE QEP Type Curves by DI Landing Zone Operator Completion Comparison Solid Production from 2 Benches: Lower Spraberry, Wolfcamp A Other Operators increase economics with higher proppants Data suggests going from 1,500 # proppant per foot to 2,500 # proppant per foot in the Wolfcamp A increases IRR and decreases breakeven by $5.50/bbl This translates to adding $5,000/acre in value 14

15 WHAT IS THE IMPLIED VALUATION OF ELLIOTT OFFER: $11,415 PER ACRE The Math Offer Price : $2.55 billion (Cash + Assumed Debt) $2.1 billion cash (237MM shares at $8.75/share plus $475 million net debt (adj. for $2.4 billion proceeds from QEP s Haynesville & Bakken sales) Production Value Oil = $1.73 billion $45,000 x 38,458 bbl/d NGLs = $156 million $20,000 x 7,813 bbl NGL/d Gas = $77 million $2,250 x 34,400 Mcf/d TOTAL $1.97 billion: Blended $37,800 daily BOE Acreage Value $578 million $2.55 billion offer price less $1.97 billion production value Implies $11,415 per acre $587,000,000 / 50,200 net acres * * Note: Prior to Elliott s offer of $8.75/share (a 44% premium), the same math implies QEP s acreage was trading for $900/acre. 15

16 HOW DID QEP GET THE POSITION? $2.3 BILLION IN DEALS FROM EnerVest $950MM $15k/acre Dec 2013 RK Petroleum $600MM $51k/acre June 2016 JM Cox $720MM $59k/acre July

17 WHAT ARE RECENT COMPS? 17

18 WHAT ARE NEIGHBORS TRADING FOR NOW? CAN THEY OUTBID $8.75 AND BE ACCRETIVE? 18

19 A LARGER VIEW OF THE MIDLAND BASIN 19

20 THE BIGGER QUESTION? WALL STREET IS CLEARLY DIFFERENTIATING $/Acre Based on Enterprise Value Less Production Value and Using Total Permian Acreage Name Enterprise Value (1) ($MM) Production Value (2) ($MM) Implied Acreage Value ($MM) Permian Acreage (1) Market cap as of February 5, 2019 and net debt as of September 30, (2) Production valued at $45,000/daily bbl for oil, $20,000/daily bbl for NGLs and $2.250/daily Mcf for gas. Based on 3Q18 volumes. (3) QEP s enterprise value based on Elliott s unsolicited offer of $8.75 cash per share received January 7, (4) Lilis enterprise value adjusted to account for Q4 financing activity. (5) Abraxas Eagle Ford and Bakken undeveloped acreage assumed to have no value. (6) Companies trading below assumed value of production. Implied $/Acre Centennial $4,137 $2,067 $1,898 83,020 $24,392 Parsley $8,052 $4,045 $3, ,000 $20,032 Callon $2,955 $1,334 $1,503 87,000 $18,631 Jagged Peak $2,719 $1,385 $1,187 79,300 $16,821 QEP Resources (3) $2,547 $1,968 $579 50,700 $11,415 Lilis Energy (4) $395 $184 $234 20,562 $10,628 Halcon $946 $546 $425 56,934 $7,021 Approach $466 $272 $ ,000 $1,294 Abraxas (5)(6) $341 $351 $30 11,000 $0 Rosehill (6) $491 $737 $0 11,563 $0 Laredo (6) $1,820 $2,012 $0 120,465 $0 20

21 A LOOK BACK: WALL STREET SENTIMENT S&P 500 Oil Price Crash S&P E&P Index INTERNAL USE ONLY Copyright 2017, Drillinginfo. All rights reserved. All brand names and trademarks are the properties of their respective companies. 21

22 A LOOK BACK: QEP VS. S&P E&P INDEX S&P 500 Oil Price Crash S&P E&P Index QEP INTERNAL USE ONLY Copyright 2017, Drillinginfo. All rights reserved. All brand names and trademarks are the properties of their respective companies. 22

23 A LOOK BACK: NOT ALL E&P S HAVE BEEN OUT OF FAVOR Diamondback Oil Price Crash S&P 500 S&P E&P Index QEP INTERNAL USE ONLY Copyright 2017, Drillinginfo. All rights reserved. All brand names and trademarks are the properties of their respective companies. 23

24 CONCLUDING THOUGHTS Elliott identified a public company (QEP) with Tier 1 acreage that is severely undervalued INTERNAL USE ONLY Copyright 2017, Drillinginfo. All rights reserved. All brand names and trademarks are the properties of their respective companies. 24

25 CONCLUDING THOUGHTS Elliott identified a public company (QEP) with Tier 1 acreage that is severely under-valued The 44% premium in the Elliott offer took the implied value of QEP s acreage from $900 to $11,415 per acre INTERNAL USE ONLY Copyright 2017, Drillinginfo. All rights reserved. All brand names and trademarks are the properties of their respective companies. 25

26 CONCLUDING THOUGHTS Elliott identified a public company (QEP) with Tier 1 acreage that is severely under-valued The 44% premium in the Elliott offer took the implied value of QEP s acreage from $900 to $11,415 per acre However, public company neighbors are trading from $20,000 to $35,000 per acre INTERNAL USE ONLY Copyright 2017, Drillinginfo. All rights reserved. All brand names and trademarks are the properties of their respective companies. 26

27 CONCLUDING THOUGHTS Elliott identified a public company (QEP) with Tier 1 acreage that is severely under-valued The 44% premium in the Elliott offer took the implied value of QEP s acreage from $900 to $11,415 per acre However, public company neighbors are trading from $20,000 to $35,000 per acre Scenario: A public company neighbor can bid above $8.75 and be accretive relative to past purchases AND current acreage values Diamondback is such a neighbor : What if Diamondback offers $20,000/acre with an all-stock deal This would imply an offer price of $10.60/share This is now a 32% premium to QEP s close as of Feb 12 This is also a 74% premium to QEP before the Elliott offer INTERNAL USE ONLY Copyright 2017, Drillinginfo. All rights reserved. All brand names and trademarks are the properties of their respective companies. 27

28 CONCLUDING THOUGHTS Elliott identified a public company (QEP) with Tier 1 acreage that is severely under-valued The 44% premium in the Elliott offer took the implied value of QEP s acreage from $900 to $11,415 per acre However, public company neighbors are trading from $20,000 to $35,000 per acre Scenario: A public company neighbor can bid above $8.75 and be accretive relative to past purchases AND current acreage values Diamondback is such a neighbor : What if Diamondback offers $20,000/acre with an all-stock deal This would imply an offer price of $10.60/share This is now a 32% premium to QEP s close as of Feb 12 This is also a 74% premium to QEP before the Elliott offer Beyond QEP, we have identified other publicly traded resource companies that are under valued relative to recent M&A transactions and comparable companies INTERNAL USE ONLY Copyright 2017, Drillinginfo. All rights reserved. All brand names and trademarks are the properties of their respective companies. 28

29 CONCLUDING THOUGHTS Elliott identified a public company (QEP) with Tier 1 acreage that is severely under-valued The 44% premium in the Elliott offer took the implied value of QEP s acreage from $900 to $11,415 However, public company neighbors are trading from $20,000 to $35,000 per acre Scenario: A public company neighbor can bid above $8.75 and be accretive relative to past purchases AND current acreage values Diamondback is such a neighbor : What if Diamondback offers $20,000/acre with an all-stock deal This would imply an offer price of $10.60/share This is now a 32% premium to QEP s close as of Feb 12 This is also a 74% premium to QEP before the Elliott offer Beyond QEP, we have identified other publicly traded resource companies that are under valued relative to recent M&A transactions and comparable companies Scale and Size is a differentiating factor as companies move to full development mode INTERNAL USE ONLY Copyright 2017, Drillinginfo. All rights reserved. All brand names and trademarks are the properties of their respective companies. 29

30 CONCLUDING THOUGHTS Elliott identified a public company (QEP) with Tier 1 acreage that is severely under-valued The 44% premium in the Elliott offer took the implied value of QEP s acreage from $900 to $11,415 However, public company neighbors are trading from $20,000 to $35,000 per acre Scenario: A public company neighbor can bid above $8.75 and be accretive relative to past purchases AND current acreage values Diamondback is such a neighbor : What if Diamondback offers $20,000/acre with an all-stock deal This would imply an offer price of $10.60/share This is now a 32% premium to QEP s close as of Feb 12 This is also a 74% premium to QEP before the Elliott offer Beyond QEP, we have identified other publicly traded resource companies that are under valued relative to recent M&A transactions and comparable companies Scale and Size is a differentiating factor as companies move to full development mode The market will adjust as capital favors track record and demonstrable value creation in the field INTERNAL USE ONLY Copyright 2017, Drillinginfo. All rights reserved. All brand names and trademarks are the properties of their respective companies. 30

31 THANK YOU 31