Oilfield Services Newsletter | August 2016 Oil & Gas Team Duane Donner [email protected]Joe Brady [email protected]John Sullivan [email protected]John Ortstadt [email protected]Vaughn McCrary [email protected]Jackson Poe [email protected]Matt Roden [email protected]Recent Market Trends With another recent dive in oil prices to $40 a barrel on August 1, some were once again making a run for cover, but hope is not as fleeting this time around. Oil prices have recovered and the industry is showing more signs of a recovery as many industry leaders have called bottom and noted the worst is in the rear view mirror. David Lesar, CEO of Halliburton noted on their Q2 earnings call, “Despite these continuing headwinds, based on the recent improvements to North American activity, I believe that this second quarter will mark the trough for our earnings…Today our customers are thinking about growing their business again rather than being focused on survival.” With that said, we must hedge our thoughts using a notable quote from former oil executive Bill Dore’ Founder and former CEO of Global Industries Ltd., also Duane Donner’s father-in-law, “There are two types of people when it comes to predicting oil prices, those who don’t know, and those who know they don’t know.” Keeping that in mind, we will share an M&A update and some of the recent projections that Founders and Spears & Associates produced, in this August edition of the Oilfield Services Newsletter. Market Fundamentals Outlook OFS Newsletter | August 2016 Source: Mergers&Acquisitions “Dealmakers predict M&A in the energy industry will accelerate over the next 12 months, according to Mergers and Acquisitions’ Market Pulse, a forward- looking sentiment indicator” - Mergers&Acquisitions Improving Sentiment for Energy M&A The following chart can be viewed as a barometer for the outlook of M&A activity and conditions from the perspective of approximately 250 executives, collectively, from various private equity, investment banking, lending, and other advisory firms. Note that Energy, of all industries polled, has the most favorable 12-month outlook. 52.3 47.3 53.8 67.3 48 76.2 71.4 69.3 74.1 62.1 0 20 40 60 80 100 Energy Technology Healthcare Consumer Goods Manufacturing 3 - Month Forecast 12 - Month Forecast M&A Sentiment by Industry
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With another recent dive in oil prices to $40 a barrel on August 1, some were once againmaking a run for cover, but hope is not as fleeting this time around. Oil prices haverecovered and the industry is showing more signs of a recovery as many industry leadershave called bottom and noted the worst is in the rear view mirror. David Lesar, CEO ofHalliburton noted on their Q2 earnings call, “Despite these continuing headwinds, basedon the recent improvements to North American activity, I believe that this secondquarter will mark the trough for our earnings…Today our customers are thinking aboutgrowing their business again rather than being focused on survival.” With that said, wemust hedge our thoughts using a notable quote from former oil executive Bill Dore’Founder and former CEO of Global Industries Ltd., also Duane Donner’s father-in-law,“There are two types of people when it comes to predicting oil prices, those who don’tknow, and those who know they don’t know.” Keeping that in mind, we will share anM&A update and some of the recent projections that Founders and Spears & Associatesproduced, in this August edition of the Oilfield Services Newsletter.
Market Fundamentals OutlookOFS Newsletter | August 2016
Source: Mergers&Acquisitions
“Dealmakers predict M&A in the energy
industry will accelerate over the next 12
months, according to Mergers and
Acquisitions’ Market Pulse, a forward-looking sentiment
indicator”
- Mergers&Acquisitions
Improving Sentiment for Energy M&A
The following chart can be viewed as a barometer for the outlook of M&A activity andconditions from the perspective of approximately 250 executives, collectively, fromvarious private equity, investment banking, lending, and other advisory firms. Note thatEnergy, of all industries polled, has the most favorable 12-month outlook.
52.347.3
53.8
67.3
48
76.271.4 69.3
74.1
62.1
0
20
40
60
80
100
Energy Technology Healthcare Consumer Goods Manufacturing
3 - Month Forecast 12 - Month Forecast
M&A Sentiment by Industry
Oilfield Services Newsletter | August 2016
Market Fundamentals Outlook
“Dealmakers predict M&A in the energy
industry will accelerate over the
next 12 months, according to Mergers and
Acquisitions’ Market Pulse, a forward-looking sentiment
indicator”
“We have won 8 of the last 8 bids for
projects, raising our prices for each
subsequent project.”- OFS CEO (Former
Founders client)
Recent M&A Trends
With increasing positive sentiment has come a more aggressive posture from buyers inthe energy market. Bloomberg recently reported that more than $100 billion has beenraised targeting the Energy industry. Most of these dollars have been held back as peoplewait for more uncertainty to fade, but now most feel like that has already happened or ishappening. Joe Brady commented on a recent call, “Many quality OFS companies arecontinuing to get pinched from financing they placed during the shale boom. Due to thelongevity of the downturn, there has been a steady erosion of balance sheets. Thesecompanies sought to survive so that they could grow market share, drive revenue, andincrease profitability when the market returns, but they now face financing challenges togrow. With a deficiency of traditional lending options, we are working with a number ofopen mandate, unitranche capital providers looking to back good teams and companiesin the oilfield. These capital providers are willing to underwrite risk in a way that alignsinterest as the recovery manifests. We have seen a shift in their posturing andaggressiveness to focus on putting money to work instead of waiting, as they feel anundercurrent of momentum in the energy markets building over the next 12-18 months”Although chatter is building, Q2 2016 represented the lowest deal count in the Energysector since at least 2010 according to Pitchbook, as shown by the chart below.
Market Fundamentals Outlook
Of course, the recent sentiment change is a function of the outlook on market fundamentals. Notably, supply and demandhave begun to tighten and as many global supply chains near peak output levels, fears that supply could get way ahead ofdemand have diminished. This coupled with a continued resiliency in global markets supporting demand bode well. Spears &Associates evaluated a status quo case in line with the DOE’s 2016 Annual Energy Outlook “Reference Case” in which oilprices trend upwards to $80 a barrel in 2020. Under this scenario, new domestic oil well counts rise to 20k by 2020 based onSpears’ model. While these figures may not be overly exciting, most business owners left standing are optimistic about theirshare of the market increasing in the coming cycle as so many of their competitors have been washed out.
“The Thawing is underway”
- James Row, CEO of The Oil & Gas Asset
Clearinghouse
Energy M&A Stats
Source: Pitchbook
$1
9
$3
8
$3
7
$4
2
$3
7
$3
1
$4
3
$1
11
$5
9
$6
2
$2
3
$7
2
$7
7
$1
5
186204
233 240
218
269
251
257
213201
181
206
150131
0
50
100
150
200
250
300
$0
$20
$40
$60
$80
$100
$120
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2013 2014 2015 2016
Deal Value ($B)
Deal Count
Oilfield Services Newsletter | August 2016
Market Fundamentals Outlook
3
Recent M&A Activity
Conclusion
Improving market fundamentals have given many industry constituents hope that conditions will significantly improve in thenext 12 months, but as we recently wrote about in our last newsletter – projections are quite prone to error. Hopefully theindustry consensus is more right than wrong this time around. If you still remain hopeless, we would like to point you to arecent article by Richard Spears of Spears & Associates that we thoroughly enjoyed – The Boom of 2017.
Source: CapitalIQ
Domestic Oil Production and New Oil Wells
Source: Spears & Associates, EIA
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2012 2013 2014 2015 2016E 2017P 2018P 2019P 2020P
(Wel
l Co
un
t)
(Mil
lio
ns
of B
arr
els
per
Da
y)
Lower - 48 Onshore Alaska Offshore New Domestic Oil Wells
Announced Date
Target Buyers / InvestorsTransaction Value ($M)
7/28/2016 GRS Inc. National Oilwell Varco, Inc. -
7/28/2016 DJ Oilfield Services Co., Ltd. National Oilwell Varco, Inc. -
7/18/2016 Ulterra Drilling Technologies, L.P. American Securities -
6/2/2016 Omron Oilfield & Marine, Inc. Schlumberger Limited -
6/1/2016 Trican Well Service Ltd., Completion Tools BusinessDreco Energy Services ULC; National Oilwell Varco Norway AS; National Oilwell Varco Eurasia, LLC
$40.90
5/19/2016 FMC Technologies, Inc. Technip SA $5,269.02
5/11/2016 FMC Technologies, Inc., North American Wireline Assets Reliance Oilfield Services, LLC -
4/28/2016 Team Oil Tools, Inc., Wholesale Completion Packer Business Forum Energy Technologies, Inc. -
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.