2015 Jefferies Energy Conference Pete Bowden Global Head of Midstream Energy Investment Banking November Jefferies LLC Member SIPC

Transcription

1 2015 Jefferies Energy Conference Pete Bowden Global Head of Midstream Energy Investment Banking November 2015 Jefferies LLC Member SIPC

2 Current Macro Environment 1

3 Production / Consumption (MMBbl/d) Stock Change (MMBbl/d) Commodity Price Environment A Challenging Commodity Price Environment Has Put Significant Pressure on MLP Valuations Commodity Price Performance Since January 2014 $ $ $ $90.00 $80.00 $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $7.50 $6.50 $5.50 $4.50 $3.50 $2.50 $1.50 NYMEX WTI HHUB NG Continued Imbalance of Global Energy Production and Consumption (3) Projections Q Q Q Q Q Q Implied Stock Change Production Consumption Source: Wood Mackenzie. 2

4 Returns Distribution Across Key U.S. Plays Comparison of Selected Plays Core and Tier I Estimated NYMEX 13 Midland Basin 20% 120% 19 Delaware Basin 20% 90% 3 Eagle Ford 30% 60% 6 SCOOP / STACK 30% 55% 8 Powder River Basin 35% 50% 4 Bakken 15% 50% 5 DJ Basin 10% 40% # HZ Targets 4 Marcellus / Utica 20% 30% Core IRR Tier I IRR Source: Wall Street Research, Company filings, investor presentations and Jefferies estimates. 3

5 Drilling Activity Overview 1,931 Rigs at Peak, 771 As of 11/6/15 Commodity Price Impact on Active Rig Count High Current Play Permian Eagle Ford Bakken Marcellus Woodford Miss Lime Haynesville Niobrara Utica Granite Wash Barnett Fayetteville % -58% -65% -68% -46% -36% -83% -46% -57% -52% -79% -77% -56% Total U.S. Rig Count 2,500 2,000 1,500 1, Historical Horizontal vs. Vertical Rigs Horizontal Vertical 1,600 1,400 1,200 1, Historical Rigs Drilling for Oil vs. Gas Oil Gas 1,800 1,600 1,400 1,200 1, Source: Baker Hughes report as of 11/6/

6 Volatility Remains High in the Energy Space The VXXLE has Risen Significantly Compared to the VIX Over the Past Three Years VIX General Market Volatility Index Recent periods of high volatility in the broader market Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 VXXLE Energy Sector Volatility Index Energy markets experiencing sustained volatility Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 5

7 Significant Future Midstream Infrastructure Buildout Projected Midstream Infrastructure Expenditure from Requires Significant Long-Term Capital Midstream Infrastructure Capital Expenditures (1) Total Capital Expenditures Natural Gas Capital Expenditures NGL Capital Expenditures Crude Oil Capital Expenditures $641 billion 1% $313 billion $56 billion 0% 2% 3% $272 billion 0% 0% 6% 1% 12% 13% 5% 13% 4% 17% 35% 22% 26% 3% 9% 7% 48% 22% 43% 22% 2% 4% 14% 18% 21% 25% 0% 2% Southwest Western Canada Central Midwest Northeast Offshore Southeast MLP Equity and Debt Issuance (2) $78.4 $38.2 $ A $47.3 $27.4 $ E Year-to-date, the total amount of equity and debt capital issued by MLP s is down ~40% from 2014 With the significant level of required capital expenditures forecasted on midstream infrastructure, MLPs will experience a material funding shortfall if debt and equity issuances do not recover to previous levels Equity Debt (1) As per the INGAA s report: North American Midstream Infrastructure through 2035: Capitalizing on Our Energy Abundance report. (2) Wall Street Research. 6

8 Midstream M&A Environment 7

9 Historical Midstream M&A Multiple Correlation Compared to Prior Years, M&A Multiples Have Been Lower in 2015 Historical Midstream M&A & Implied AMZ Multiples 18.0x 2014: 17.9x 16.0x 5 Turn Differential 14.0x 2015 YTD: 13.0x 12.0x 10.0x 8.0x 2015 / 2016: Expected M&A Environment 6.0x 4.0x YTD Natural Gas Pipeline Gathering & Processing Implied AMZ DCF Source: Alerian MLP Index, IHS Herold and company filings. Note: Implied AMZ distributed cash flow multiple based on the inverse of the AMZ yield. (1) Represents announced 2018 expected multiple. 8

10 Midstream M&A Environment During Periods of Uncertain Commodity Prices Recent Midstream M&A Activity Curtailed Due to Low Commodity Price Environment Crude Oil Spot Prices Since December 1, 2014 $80.00 Midstream M&A Activity Since December 1, 2014 Excluding Drop-Down Transactions $ Dec '14 - Jan '15 Feb '15 - Mar '15 Apr '15 - May '15 Jun '15 - Jul '15 Aug '15 - Sept '15 Oct '15 - Nov '15 $60.00 $50.00 $40.00 $30.00 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 WTI Spot Price Source: Company filings and Wall Street Research. 9

11 2015 Public Midstream M&A Transactions Significant Transactions Announced in 2015 Notwithstanding Market Volatility Purchase of: Purchase of: Targa Resources Corp. Acquires Targa Resources Partners Announcement: July 13, 2015 Announcement: September 28, 2015 Announcement: November 3, 2015 Unit-for-unit transaction, plus a onetime cash payment to MWE unitholders Total consideration ~$38 Bn, financed with a mix of equity and cash Acquisition of all un-owned units of parent s subsidiary MLP in a unit-forunit transaction Creates the 4th largest MLP based on market capitalization with an investment grade sponsor Creates the world s largest energy infrastructure company by combining two large cap diversified midstream businesses Results in elimination of IDRs, increased coverage and higher dividend growth 10

12 Financing the Acquisition of Private Midstream Companies Acquisition Consideration is Moving Away from 100% Cash to Structured Consideration : Seller Receives All-Cash Consideration 2015: Seller Receives Structured Equity Purchase of: Purchase of: Purchase of: Announcement: November 15, 2012 Announcement: October 28, 2012 Announcement: February 2, 2015 Consideration consisted of $950 MM in cash Consideration consisted of $1.5 Bn in cash, financed 50% through the issuance of $750 MM of Class C Units to Anadarko, WES sponsor Consideration consisted of $240 MM in cash, $180 MM in ENLK common units and $180 MM in a new class or ENLK units 11

13 MLP Equity Market Environment 12

14 Alerian Performance in Perspective Alerian MLP Index is Currently Trading at Levels Not Seen Since the Financial Crises Alerian MLP Index Performance Since % The spread between the yield on U.S. 10-year Treasuries and the Alerian MLP Index is currently at 554 bps, well above its historical average of 326 bps The recent rise in the Alerian s blended yield, weighted by market cap, marks the first time since the global financial crises that the index has traded above 7.0% for a sustained period 14% 12% 10% 8% 7.88% 6% Current Spread: 554 bps 554 Bps 4% Historical Average: 326 bps 2% 2.34% 0% Alerian MLP Index Yield 10-Year Treasury Yield Current Spread Historical Average 13

15 YTD 2015 MLP Unit Price Performance and Yields While all MLP subsectors have suffered in 2015, those with more perceived commodity price exposure have performed the worst Even regulated pipeline and large cap, diversified MLPs have struggled, despite their relative scale and contracted, volume-based revenue streams 2015 YTD Performance by Subsector 20% 10% 0% 8% 2% (10%) (20%) (30%) (40%) (50%) (41%) (35%) (23%) (21%) (19%) (14%) (10%) (31%) (60%) (70%) (80%) (69%) (68%) E&P Coal Gathering & Processing Large Cap Regulated Pipeline Refined Products & Logistics Wholesale Distribution Propane Crude Variable Pay Alerian MLP Index S&P 500 Median Current Yield 17.2% 14.8% 17.1% Yield as of 10/01/2014 Yield as of 10/16/ % 3.9% 6.3% 4.7% 8.4% 8.6% 8.8% 5.5% 4.8% 4.4% 6.2% 8.1% 7.6% 9.9% 9.2% 9.0% 8.7% Regulated Pipeline Crude & Refined Products Logistics Large Cap Gathering & Processing Crude Wholesale Distribution Propane Coal E&P Variable Pay Represents Time Period When Sub-sector Traded at Similar Yield February 2014 March 2013 August 2009 May 2010 May 2010 June 2012 January 2013 November 2008 NA (2) September 2013 Source: Bloomberg, CapIQ. (1) HCLP, the first oilfield services MLP, IPO d in August (2) E&P MLPs traded at yields as high as the mid-20% range in early 2015 but had never reached current levels prior to the beginning of the recent commodity price decline in the Fall of

16 Historical MLP Equity Issuance at an All-Time Low Across the Sector, Downward Pressure on Equity Valuations has Impacted Access to the Public Equity Market MLP Capital Markets Activity ($B) $ is on pace for the lowest total amount of annual MLP public equity issuance since 2011 $42.7 $40.2 $36.0 $34.9 $27.0 $19.9 $18.0 $16.9 $14.7 $15.0 $9.0 $6.8 $10.6 $9.2 $7.7 $3.0 $2.9 $3.9 $4.4 $- $0.6 62% IPOs Follow-on Offerings Private Placements At-The-Market Source: Wall Street Research and Company filings. 15

17 Recent Alternative MLP Equity Financings Given Challenges in the Public Market, MLPs Continue to Seek Alternative Sources of Equity Financing November 4, 2015: RMP priced a private placement of common units with institutional investors, raising ~$175 MM in proceeds to fund partnership growth capital expenditures October 29, 2015: ENLK s General Partner (EnLink Midstream, LLC) announced the purchase of ~$50 MM in common LP units in a private placement (as opposed to a buyback program), the proceeds of which will fund growth capital at ENLK October 26, 2015: KMI priced a public offering of 9.75% Series A Mandatory Convertible Preferred Stock Offering at $49.00 per share, raising ~$1.568 Bn in gross proceeds to reduce indebtedness and for general corporate purposes October 7, 2015: NGLS announced an offering of ~$106 MM of Series A Fixed-to-Floating Rate Cumulative Redeemable Preferred Units to reduce indebtedness and for general partnership purposes September 24, 2015: DM announced that its sponsor has initiated a program to buyback up to $50 MM of DM units over the next twelve months September 18, 2015: AM announced a private placement of ~12.9 MM common units (for gross proceeds of $243 MM) to help fund a drop-down acquisition from Antero Resources August 19, 2015: Southcross Holdings, LP announced a new $175 MM equity commitment from their sponsors, $50 MM of which will be immediately distributed to SXE for organic growth and strategic acquisitions August 12, 2015: ONEOK, Inc. ( OKE ), the general partner of OKS, announced it had agreed to purchase 21.5 MM common LP units of OKS for ~$650 MM in a private placement; proceeds will be used to reduce indebtedness and for general partnership purposes Represents a Transaction Occurring Within 12-Months of IPO 16

18 MLP IPO Pipeline / Backlog Due to the Challenging Equity Market Environment, a Significant Number of MLPs Have Delayed their IPOs Current MLP S-1s Filed Partnership Sector Date of 1 st S-1 Filing Calendar Days On-File Mammoth Energy Partners Frac Sand / Oilfield Services 2/14/ Floating LNG Regasification 2/28/ Offshore Drilling 4/18/ Rail Terminals / Refining Logistics 7/10/ Containerships 8/1/ Frac Sand 8/29/ Hess Midstream Partners Processing / Logistics 9/24/ CEBA Midstream Partners Salt Water Disposal 10/24/ Terryville Mineral & Royalty Upstream Royalty Interests 11/4/ Upstream Royalty Interests 11/13/ Coal Mining 2/6/ Wholesale Gasoline Distribution 4/20/ Wholesale Gasoline Distribution 5/12/ Sempra Partners (1) LNG / Renewable Assets 6/16/ Gathering & Processing 10/22/ (1) On June 16, 2015, Sempra Energy (NYSE: SRE) announced its intention to form an MLP, with the expectation of filing an S-1 in the second half of

19 Performance of Recent MLP IPOs All Recent MLP IPOs with a Non-Traditional Asset Class Have Traded Below Their Offering Price After 30-Days 30 Days Post-IPO Trading Performance 1st Trade Partnership Performane Post-IPO Date 1 Day 7 Day 30 Day Current CNXC 7/1/ % 1.1% (12.3%) (3.9%) GPP 6/26/ % (2.7%) (1.3%) (8.3%) PTXP 6/4/2015 (2.6%) (1.0%) (5.0%) (8.7%) 30% BSM 5/1/2015 (4.0%) (6.5%) (6.7%) (14.6%) EVA 4/29/ % 6.0% (0.3%) (35.8%) CPPL 2/6/ % 24.5% 22.6% (16.6%) 22.6% 15% 0% (0.3%) (1.3%) (5.0%) (6.7%) (12.3%) (15%) IPO Price Trading Days Since IPO 18

20 Opportunities Ahead 1 Opportunity for Private Capital Public Capital is Down ~40% Year-Over-Year INGAA Projects Required Infrastructure Capital of ~$640 Bn Through Structured M&A Transactions Earn Outs / Contingent Payments Deferred Non-Contingent Cash Payment Buyer Equity as Consideration Buyer Note as Consideration 3 Large Private Transaction Financings 19