Oil & Gas Equipment and Services Update

Transcription

1 ($ in Millions) Oil & Gas Equipment and Services Update August 218 Oil & Gas Equipment and Services Update Market Insights Report August 218 Introduction As the price of WTI remains in the $65 - $7 per bbl range, the question has shifted from over-production to production capacity. Some industry experts believe that there is no longer a risk of a flooded market, like in 215, but now the market is at risk of a supply crunch. A shortage in supply translates to a more bullish outlook for prices, ultimately leading to continued growth and profitability for oilfield service companies, especially within U.S. shale plays. In this newsletter we will discuss the key factors that are leading experts to believe worldwide demand may outpace worldwide supply over the next 12 to 18 months. Oil Set for Gains Amid Iran Sanctions, Shrinking Supply Wall Street Journal As Oil Industry Recovers From a Glut, a Supply Crunch Might Be Looming Wall Street Journal The Upside for Oil & Gas The upside argument for oil and gas states that worldwide demand will outpace worldwide supply, leading to higher oil and gas prices. The biggest concern/question is around supply due to infrastructure constraints, and whether the current production levels are sustainable. To maintain current supply, E&P operators must increase capex spending, which has started to rebound since the 216 lows. As E&P operators increase capex spending, the demand for equipment and services provided by OFS companies will increase, continuing the growth seen over the last 12 months. As the runway for OFS Companies becomes more clear, valuations and transaction options should continue to improve creating opportunities to get deals done at good valuations. The Road to $9 Oil Morgan Stanley Oil Costs How Much? How the Oil Rally Took Forecasters by Surprise Wall Street Journal U.S. Domestic E&P Capex Spend and Estimates $2, $15, $1, $5, $ Total Capex Source: Raymond James Projections Energy & Industrial Team Duane Donner ddonner@foundersib.com John Sullivan jsullivan@foundersib.com Evan Klisares eklisares@foundersib.com David Szell dszell@foundersib.com Michael Martin mmartin@foundersib.com Highlights While commodity prices have recovered, companies in the sector remain laser focused on capital discipline and operating within existing cash flow. This strategy has restricted investment in certain longer-term projects, raising questions of where the next barrel will come from and who will provide the capital. Reid Morrison, EU&M Advisory Leader, PwC

2 Thousand Barrels per Day Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q4 216 Q1 217 Q2 217 Q3 217 Q4 217 Q1 218 Q2 218 Q3 218 Q4 218 Q1 219 Q2 219 Change in MMbbl/day MMbl/day ($ in Millions) GDP Growth % Energy Consumption (quadrillion Btu) Oil & Gas Equipment and Services Update August 218 The Drivers 4.% % 2.% % 75.% 4% GDP Growth U.S. GDP growth hit 4.1 percent in the second quarter of 218. This growth leads to a positive outlook for U.S. oil and gas demand China International Demand Rising India China and India are two of the top four consumers of energy in the world. According to the EIA, the demand in both of these countries is expected to increase $2, $15,. 95 $1, -1. $5, $ Inventory Change World Production Projections How Much International Supply is There? Questions have risen around Saudi Arabia's ability to make up for a loss in production from countries like Venezuela and Iran. Total Capex Projections Reaping the Consequences of Low Investments During the energy downturn, E&P operators cut capital expenditures in order to remain afloat - now we are seeing the consequences of those cuts. 1,5 1, U.S. Oil Production (Onshore & Offshore) US Production Levels Sustainable? Over the last 8 to 12 months, the United States has 9,5 become the world s swing producer. In order to 9, maintain this status, it is estimated production needs to remain at record highs, which some industry experts 8,5 question is possible. According to Spears and Associates, 8, rig count alone would have to increase at least 15% each 7,5 year to maintain the current levels of production. Current production levels are supported by the increase in initial production (IP) of individual wells, mainly due to high grading, drilling & completion techniques, and longer laterals. Initial production increased over the past few years but declined in 218, and it is suspected that a decrease in high grading may be the cause of this decline. High grading is when E&P operators select the best wells to tap, which leads to higher production rates compared to average wells. As oil prices have increased, E&P operators are now tapping average wells. These average wells cannot maintain the same production levels as top tier wells, ultimately decreasing overall production. Source: Spears & Associates, EIA, Trading Economics

3 # of PE Deals ($ in Billions) Oil & Gas Equipment and Services Update August 218 Update on U.S. Energy Private Equity Although 218 has been a relatively slow year for Energy Private Equity transactions, the expectation is that this trend will reverse soon to meet the needs of the industry and ultimately the demand of the worldwide oil markets. Why Energy PE is About to Get Hot According to Deloitte, the Energy industry has a capex deficit of $3 trillion through 22. Of that, there is a funding gap of $75 billion to $2 trillion that will need to be met with outside capital, depending on debt repayments and investor payouts. As E&P operators deploy this $3 trillion in capex to explore and develop producing wells, OFS companies that provide equipment and services to each stage of that process will benefit from the expected increase in the spend. This should create runway for OFS companies to continue to grow, and therefore buyer confidence should increase as well. As seen in the chart to the right, during the first half of 218, the number and value of private equity middle market deals was down compared to prior years, but the positive outlook for the oil and gas industry supports the position that this deal flow will increase in the back half of the year U.S. Private Equity Energy Middle Market Deal Flow $6 $5 $4 $3 $2 $1 $ Energy - Deal # Energy - Deal $B *As of 6/3/218 Public Markets are a Leading Indicator of Private Markets Sentiment towards U.S. pureplay OFS companies has continued to increase over the past 12 months. As public markets become more comfortable with the current energy market, expect private equity investors to become more comfortable as well. 55.% 45.% 35.% 25.% 15.% 5.% -5.% Founders' OFS Pureplay Index Big Five S&P 5 Founders OFS Pureplay Index: BAS, CJ, WHD, KEG, TUSK, NCSM, PUMP, WTTR, SOI, SPN; Big Five: BHGE, HAL, NOV, SLB, WFT Source: CapIQ, Deloitte, Pitchbook

4 Oil & Gas Equipment and Services Update August 218 Recent Oilfield Service Transactions Announced Date Transaction Status Target Name Buyer Name Target Business Description 8/6/218 Closed RTS Energy Services LLC Mammoth Energy Services, Inc. (NasdaqGS:TUSK) RTS Energy Services LLC engages in the cementing and acidizing of oil and gas wells in west Texas. 8/1/218 Closed Freestone Midstream Holdings, LLC Apollo Global Management, LLC (NYSE:APO) Freestone Midstream Holdings, LLC operates as a water midstream and management company that acquires, builds, and operates water midstream assets. 7/31/218 Closed Terra Oilfield Solutions, LLC Q Max America Inc. Terra Oilfield Solutions, LLC provides full-service drilling waste management, and solids control land drilling operations. 7/18/218 Announced Natural Gas Solutions Business of Baker Hughes, a GE company First Reserve Corporation Natural Gas Solutions Business of Baker Hughes, a GE company comprises a business unit that manufactures commercial and industrial products for gas meters, chemical injection pumps, pipeline repair products, and electric actuators. 7/16/218 Closed ESP Completion Technologies L.L.C. Forum Energy Technologies, Inc. (NYSE:FET) ESP Completion Technologies L.L.C. designs, manufactures, and installs electric submersible pump systems and applications for the oil and gas industry. 7/16/218 Closed Payzone Directional Services, Inc. Undisclosed Buyer Payzone Directional Services, Inc. provides directional drilling services to the oil and gas industry in the United States. 7/1/218 Closed A.S.A.P. Industries Manufacturing, LLC Boyne Capital Partners, LLC A.S.A.P. Industries Manufacturing, LLC manufactures flow control products used in drilling, completion, and production equipment. 7/2/218 Closed Mustang Energy Services, Inc. Extreme Plastics Plus Mustang Energy Services provides a comprehensive environmental lining solution for the oil & gas industry. 6/21/218 Closed McKenzie Energy Partners, LLC Gravity Oilfield Services Inc. McKenzie Energy Partners, LLC develops and designs a network of produced water gathering pipelines and water disposal wells. 6/21/218 Closed Dynamic Oilfield Services, Inc TWMA Group Ltd. Dynamic Oilfield Services, Inc provides surface equipment rentals, down hole tool rentals, and repair and inspection services to the oil and gas industry. Source: CapIQ 4

5 Oil & Gas Equipment and Services Update August 218 Trading Statistics Ticker Company Name Stock Price % of 52-Week Market Cap Enterprise LTM Enterprise Value LTM EBITDA 8/17/218 High Low Value Revenue LTM Revenue LTM EBITDA (All $ in MM except for Stock Price) Founders OFS Pureplay Index NYSE: BAS Basic Energy Services, Inc. $ % 125% $23 $527 $957 $66.6x 8.x NYSE: CJ C&J Energy Services, Inc. $ % 111% $1,547 $1,437 $2,98 $25.7x 5.7x NYSE: WHD Cactus, Inc. $ % 173% $1,22 $1,372 $454 $165 3.x 8.3x NYSE: KEG Key Energy Services, Inc. $ % 156% $264 $456 $497 $6.9x 75.4x Nasdaq: TUSK Mammoth Energy Services, Inc. $ % 283% $1,455 $1,452 $1,546 $397.9x 3.7x Nasdaq: NCSM NCS Multistage Holdings, Inc. $ % 127% $715 $72 $22 $38 3.3x 19.2x NYSE: PUMP ProPetro Holding Corp. $ % 157% $1,332 $1,41 $1,442 $264 1.x 5.3x NYSE: WTTR Select Energy Services, Inc. $ % 115% $1,32 $1,41 $1,228 $ x 7.6x NYSE: SOI Solaris Oilfield Infrastructure, Inc. $ % 136% $417 $531 $127 $72 4.2x 7.3x NYSE: SPN Superior Energy Services, Inc. $ % 125% $1,375 $2,538 $2,21 $ x 8.6x Min $ % 111% $23 $456 $127 $6.6x 3.7x Median $ % 132% $1,126 $1,391 $1,92 $ x 7.8x Mean $ % 151% $959 $1,185 $1,59 $ x 14.9x Max $ % 283% $1,547 $2,538 $2,98 $ x 75.4x Founders Big Five NYSE: BHGE Baker Hughes, a GE company $ % 127% $13,15 $38,663 $22,127 $2,42 1.7x 16.x NYSE: HAL Halliburton Company $ % 18% $34,993 $43,412 $23,271 $4, x 9.9x NYSE: NOV National Oilwell Varco, Inc. $ % 15% $16,74 $18,386 $7,75 $ x 29.2x NYSE: SLB Schlumberger Limited $ % 17% $86,494 $11,459 $32,215 $6, x 14.7x NYSE: WFT Weatherford International plc $ % 135% $2,612 $1,173 $5,821 -$ x N/A Min $ % 17% $2,612 $1,173 $5,821 -$ x 9.9x Median $ % 127% $16,74 $38,663 $22,127 $2,42 1.9x 15.3x Mean $ % 125% $3,798 $42,419 $18,228 $2, x 17.4x Max $ % 15% $86,494 $11,459 $32,215 $6, x 29.2x Other Publics NYSE: NE Noble Corporation plc $ % 147% $16,74 $18,386 $7,75 $ x 29.2x NYSE: OII Oceaneering International, Inc. $ % 179% $1,34 $5,182 $1,58 $ x 13.1x NYSE: FTI TechnipFMC plc $ % 119% $12,579 $1,892 $13,91 $1,817.8x 6.x Min $ % 119% $1,34 $2,952 $1,58 $175.8x 6.x Median $ % 158% $2,525 $5,182 $1,855 $ x 13.1x Mean $ % 155% $5,482 $6,342 $5,68 $ x 12.x Max $ % 188% $12,579 $1,892 $13,91 $1, x 16.9x Source: CapIQ 5

6 Oil & Gas Equipment and Services Update August 218 Commodity Prices WTI Oil $/bbl $75. $7. $65. $6. $55. $5. $45. $4. Crude Oil - WTI (ICE) Historical Pricing Crude Oil - WTI (ICE) Future Contracts Natural Gas $/MBtu $4.5 $4. $3.5 $3. $2.5 $2. $1.5 Natural Gas - Henry Hub (NYMEX) Historical Pricing Natural Gas - Henry Hub (NYMEX) Future Contracts Source: CapIQ 6

7 (Million Cubic Feet per Day) (Thousands of Barrels per Day) Oil & Gas Equipment and Services Update August 218 Production Data U.S Crude Oil Production 1, 8, 6, 4, 2, Thousands of Barrels per Day (May) Change From Current Prior Month Prior Year Prior Month Prior Year Crude Oil 1,442 1,467 9, % 13.8% U.S Natural Gas Production 1, 97, 94, 91, 88, 85, 82, 79, Million Cubic Feet per Day (May) Change From Current Prior Month Prior Year Prior Month Prior Year Natural Gas 99,69 98,59 89,347.6% 1.9% Source: EIA 7

8 Rig Count Oil & Gas Equipment and Services Update August 218 Total Rig Count by Basin Total U.S Rig Count by Basin Analysis 2, 1,8 1,6 1,4 1,2 1, Cana Woodford Eagle Ford Haynesville Marcellus Permian Williston Other Total U.S Rig Count by Basin Total U.S Rig Count by Basin: YTD Change -8 Cana Woodford Cana Woodford Eagle Ford Eagle Ford - 79 Haynesville - 48 Marcellus Haynesville Marcellus Permian Permian Williston - 56 Other Williston 28 Other Source: Baker Hughes US Rig Count by Basin

9 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 Oil Rigs Gas Rigs Oil Rigs Gas Rigs Oil & Gas Equipment and Services Update August 218 Rig Count (continued) U.S Oil vs. Natural Gas Rig Count 1,8 1,6 1,4 1,2 1, Oil Gas Rig Counts (8/17/218) Change from Current Prior Week Prior Year Prior Week Prior Year Oil % 13.9% Natural Gas % 2.2% Other % 1.% Gulf of Mexico: Oil Rig vs. Natural Gas Rig Gulf of Mexico Oil Rigs Gulf of Mexico Gas Rigs Rig Counts (8/17/218) Change from Current Prior Week Prior Year Prior Week Prior Year Oil % 14.3% Natural Gas % 5.% Source: Baker Hughes US Rig Count by Basin

10 Oil & Gas Equipment and Services Update August 218 About Founders Advisors Founders Advisors (Founders) is a merger, acquisition & strategic advisory firm serving middle-market companies. Founders focus is on energy, industrials, software, internet, digital media and industrial technology companies throughout the United States. Founders skilled professionals, proven expertise and process-based solutions help companies access growth capital, make acquisitions, and/or prepare for and execute liquidity events to achieve specific financial goals. In order to provide securities-related services discussed herein, certain principals of Founders are licensed with M&A Securities Group, Inc. or Founder M&A Advisory, LLC, both members FINRA & SiPC. Founders M&A Advisory is a wholly owned subsidiary of Founders. M&A Securities Group and Founders are not affiliated entities. For more information, visit Contact For more information, visit call us at , or contact the Energy & Industrial team directly by Duane P. Donner II, Managing Director ddonner@foundersib.com Evan H. Klisares, Senior Analyst eklisares@foundersib.com John W. Sullivan, Vice President jsullivan@foundersib.com David Szell, Analyst dszell@foundersib.com Michael Martin, Analyst mmartin@foundersib.com BIRMINGHAM 224 Lakeshore Drive, Suite 425 Birmingham, AL Phone: Fax: DALLAS 565 N. MacArthur Blvd, Suite 1 Irving, TX 7538 Phone: Fax: In order to provide securities-related services discussed herein, certain principals of Founders are licensed with M&A Securities Group, Inc. or Founders M&A Advisory, LLC, both members FINRA & SiPC. M&A Securities Group and Founders are unaffiliated entities. Founders M&A Advisory is a wholly owned subsidiary of Founders. 1