Energy & Industrial Team Duane Donner [email protected]Matt Carrington [email protected]John Sullivan [email protected]Evan Klisares [email protected]David Szell [email protected]Oilfield Service Update OFS Newsletter | May 2018 Highlights “We expect drilling activity in North America land to continue to grow in volume and complexity” Paal Kibsgaard (CEO), Schlumberger “We are currently looking at 35 different acquisitions right now” Arty Straehla (CEO), Mammoth Energy OPEC and Russia Continue to Cut Production Last month, some of the largest crude producers in the world met to discuss the production cuts that were agreed upon in 2017. These producers, of which the largest are Saudi Arabia and Russia, agreed to continue with the cuts through at least the end of 2018. That decision shows the continued willingness to prop up the market until Saudi Arabia goes public with Aramco, which Founders believes should provide at least 12-24 months of stability in the energy markets. Publicly traded OFS companies agree with this outlook, which we will discuss on the proceeding page. OPEC’s Production Cuts will Promote North American OFS M&A Activity Given the high correlation between oil prices and OFS M&A activity, OPEC’s decision to curb production will likely have a positive effect on the U.S. Energy M&A market. Transaction volumes through the first quarter of 2018 were up 22% over Q1 2017 levels, and sentiment surrounding stability in the market remains favorable through the remainder of the year. Strategic buyers have been particularly acquisitive in 2018, as the demand for seasoned hands, talented management, and quality equipment has forced leadership teams to turn to the M&A market. On the proceeding page, we highlight notable quotes from Strategic buyers’ Q1 2018 earnings calls. Source: CapIQ 2018 OFS Transactions, by Buyer Type 26 11 7 Strategic Financial Undisclosed Through May 14, 2018 0 25 50 75 $0 $100 $200 # of Energy M&A Transactions Price of WTI Oil 84% Correlation between the Price of Oil and Energy Transactions # of Energy M&A Transactions by Month WTI Price - Adjusted for Inflation Source: CapIQ; Transactions are all U.S. Energy Equipment and Services deals
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“We are currently looking at 35 different acquisitions right now”
Arty Straehla (CEO), Mammoth Energy
OPEC and Russia Continue to Cut Production
Last month, some of the largest crude producers in the world met to discuss the productioncuts that were agreed upon in 2017. These producers, of which the largest are Saudi Arabiaand Russia, agreed to continue with the cuts through at least the end of 2018. That decisionshows the continued willingness to prop up the market until Saudi Arabia goes public withAramco, which Founders believes should provide at least 12-24 months of stability in theenergy markets. Publicly traded OFS companies agree with this outlook, which we willdiscuss on the proceeding page.
OPEC’s Production Cuts will Promote NorthAmerican OFS M&A Activity
Given the high correlation between oil prices andOFS M&A activity, OPEC’s decision to curbproduction will likely have a positive effect on theU.S. Energy M&A market. Transaction volumesthrough the first quarter of 2018 were up 22%over Q1 2017 levels, and sentiment surroundingstability in the market remains favorable throughthe remainder of the year. Strategic buyers havebeen particularly acquisitive in 2018, as thedemand for seasoned hands, talentedmanagement, and quality equipment has forcedleadership teams to turn to the M&A market. Onthe proceeding page, we highlight notable quotesfrom Strategic buyers’ Q1 2018 earnings calls.
Source: CapIQ
2018 OFS Transactions, by Buyer Type
2611
7
Strategic Financial Undisclosed
Through May 14, 2018
0
25
50
75
$0
$100
$200
# o
f En
ergy
M&
A
Tran
sact
ion
s
Pri
ce o
f W
TI O
il 84% Correlation between the Price of Oil and Energy Transactions
# of Energy M&A Transactions by Month WTI Price - Adjusted for Inflation
Source: CapIQ; Transactions are all U.S. Energy Equipment and Services deals
Oilfield Services Newsletter | May 2018
Outlook
“In the oil market, we see global demand rising at a steady pace, driven by an improved GDP outlook for the UnitedStates and Europe. In Asia alone, strong economic growth is expected to add nearly 1 million barrels per day ofdemand in 2018… OPEC and Russia have committed to production cuts through the end of 2018. We have seen adraw on U.S. crude inventories that have pulled stocks closer to the 5-year average. These factors have resulted in amarket equilibrium, which we expect will keep crude prices relatively range-bound in 2018. This recent pricestability has resulted in a customer spend forecast that shows solid year-over-year growth for our short-cyclebusinesses, particularly in North America, where operators continue to grow rig count and well counts. ” – LorenzoSimonelli (Chairman, President & CEO), Baker Hughes, 4.20.18
Notable Quotes from Public OFS, Q1 2018 Earnings Calls
M&A
“Personnel in this business are tightening very, very quickly. And while we can all spend capital to get equipment,you better be able to efficiently put it in the field. And so that’s why I would say I would be more focused on anacquisition that had highly talented qualified service personnel, more so than the physical equipment that goes withit.” – Cynthia Taylor (CEO & Executive Director), Oil States International, 4.26.18
“We are currently looking at 35 different acquisitions right now… Our story has always been about mergers andacquisitions and being an acquisitive company, and at the same time building organically. So we continue to believethat’s the best way to grow.” – Arty Straehla (CEO & Director), Mammoth Energy Services, 5.3.18
Capex
“As the market grows, North America's role in the global supply equation is changing. This fundamental shift meansthat North America shale oil has moved from swing producer to baseload supplier to meet growing global demand.Nothing is more evident of this change than our customers actively redirecting spending from international non-OPEC opportunities towards North America. This shift in Capex allocation is largely driven by the shorter cyclereturn and lower risk profile North America shale provides.” – Jeffrey Allen Miller (President, CEO & Director)Halliburton, 4.23.18
Overview
Public Oilfield Service Index has outperformed the S&P500 in 2018. This trend confirms the improvingsentiment that investors have towards OFS companies.Instead of repeating history and making largeinvestments in new projects, public OFS companies havebeen disciplined in spending and selecting growthopportunities to pursue, part of the reason sentimenttowards them is improving. The public markets are aleading indicator of the private markets, that isespecially true for OFS markets. Below, we highlightsome of the most recent quotes that will give a tenthousand foot view of how the public players arehandling the rebound in the energy market.
Announced Date Target Name Buyer Name Target Business Description
5/3/2018 Fleaux Services of Louisiana, LLC Galenfeha, Inc. (OTCPK:GLFH)Offers oil and gas production equipment, measurement and instrumentation, and industrial pumps. Established in 2012 and headquartered in Shreveport, Louisiana.
5/1/2018 Elite Production Services, LLC Pro Oil & Gas Services, LLCProvides pressure testing and flowback operations. Formerly known as 2-J Well Service LLC. Headquartered in San Antonio, Texas.
5/1/2018 Whitetail Well Testing LLC Pro Oil & Gas Services, LLCProvides flowback and well testing services. Established in 2009 and headquartered in Elk City, Oklahoma.
4/17/2018 Sun Energy Services, LLC White Deer EnergyProvides completion and general site/pad well services. The company serves natural gas basins. Established in 2008 and headquartered in Zelienople, Pennsylvania.
4/10/2018 Fluid End Sales, Inc.Sixty Six Oilfield Services, Inc. (OTCPK:SSOF)
Manufactures and distributes oilfield equipment. Founded in 1982 and headquartered in Oklahoma City, Oklahoma.
3/6/2018 Energy Services International, L.L.C. Petrolink USA, LLCProvides pre-commission cleaning services to oil and gas, energy, petrochemical, and refinery industries. Headquartered in Seabrook, Texas.
2/28/2018 Falcon Flowback Services, LLCOil States International, Inc. (NYSE:OIS)
Provides flowback services to the oil and gas industry including well testing, drill-out work, plug drill-outs, sand separations, and onsite monitoring. Headquartered in Oklahoma City, Oklahoma.
2/22/2018 Tucker Energy Services Holdings, Inc.STEP Energy Services Ltd. (TSX:STEP)
Provides fracturing and coiled tubing solutions and wireline services. Established in 1939 and headquartered in Houston, Texas.
Provides offshore drilling services. Established in 2014 and headquartered in Houston, Texas.
2/16/2018 Premier Flow Control, LLC Sole Source CapitalProvides oil field services including flowback, well testing, nitrogen, and equipment rental services. Established in 2011 and headquartered in Corsicana, Texas.
Oilfield Services Newsletter | May 2018
Trading Statistics
4Source: CapitalIQ
TickerCompany
NameStock Price 5/14/2018
% of 52-Week
Market Cap
Enterprise Value /
High LowEnterprise
Value2017
Revenue 2017 EBITDA2017
Revenue 2017 EBITDA
Integrated OFS (Big 3)
NYSE: HAL Halliburton Company $52.7 91% 138% $45,796 $54,384 $20,317 $3,504 2.7x 15.5x
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.