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DUG Mid-Continent Conference2014 U.S. A&D Market Update
March 3, 2014Craig Lande
craig.lande@rbccm.com713-585-3335
www.rbcrichardsonbarr.com
1
Notable U.S. E&P Themes
Private Equity, MLPsand Mid / Small Caps are Making the Market
Private Equity continues to shape A&D landscapeMLPs continue to aggressively pursue mature, conventional assets
– Financial Buyers acquired ~80% of Mid-Con assets over LTMMid / Small Caps aggressively pursuing transformative deals due to HY
Capital Markets Wide Open / JVs Flatlined
High yield remains attractive and important source of funds for acquisitionsE&P equity markets very strong; IPO window openJV market muted; appetite only for core and oily opportunities
Valuation Arbitrage: Shift from A&D to IPO
Six IPOs since July 2013: Jones, Athlon, Antero, EP, RSP, Rice ~ 4 companies actively contemplating IPO in next 12-18 months
Commodity Prices Trending Differently
Oil prices steady at ~$95 – $100 / Bbl level for front months– However, backwardation results in below $80 / Bbl five years out
Gas prices have rallied due to cold winter– Back of the curve remains below $4.50 / MMBtu
Buyer price decks now distinctive
Majors and Large Caps:“Shrink to Grow”
Majors and Large Caps sellers of assets to re-position portfolios– Trying to mitigate massive valuation disparity (multi-basin vs focused)– Mid-Con has been primary area for Public selling
Focused on U.S. onshore, particularly Big 3 oil plays
22
Seminal Events And Transactions Of 2013 And 2014
Source: RBC Richardson Barr database. Certain figures above are RBC estimates. Note: Acreage values and implied $/acre metrics calculated after allocating for associated net production.Note: Large caps include: COP, OXY, APC, EOG, APA, MRO, DVN, NBL, ECA; Small caps include: PDC, FANG, FST, CRZO, MPO, BCEI, MHR, SN, SFY, REXX, REN, CRK, CWEI, AREX, JONE;MLPs include: LINN, VNR, EVEP, BBEP, LGCY, QRE, MEMP, PSE, LRE, MCEP; Permian includes: PXD, CXO, LPI, FANG, ATHL, EGN, CWEI, AREX.
FebruaryMulti-Basin $4.9 Billion
MLPJunePostle Field$850 Million
MLP
June Multi-Basin $800 Million
MLP
FebruaryPermian – CBP $2.6 Billion
Private Equity
JulyGOM Shelf $3.8 Billion
Private Equity
JanuaryUtica $924 Million
Private Equity
JanuaryInitial Public Offering$1.1 Billion
IPO
JanuaryInitial Public Offering$166 Million
IPO
OctoberInitial Public Offering $1.6 Billion
IPO
AugustInitial Public Offering$363.2 Million
IPO
NovemberEagle Ford $6.0 Billion
Strategic
DecemberWolfcamp $950 Million
Strategic
SeptemberBakken $1.4 Billion
Strategic
OctoberUinta $652 Million
Strategic
JulyInitial Public Offering$187.5 Million
IPO
OctoberAnadarko Basin $1.0 Billion
Private Equity
FebruaryHugoton$1.4 Billion
Private Equity
Confidential
JanuaryInitial Public Offering$664 Million
IPO
AugustPermian “sizzle”Index +20% during week
Permian
3
$13
$23$27
$14
$3
$43
$32
$33
$28
$5
$56 $55
$60
$42
$7
2010 2011 2012 2013 2014
Tran
sact
ion
Volu
me
($B
)
Resource PlayConventional
$8
$56 $55
$60
$42
3
2013 U.S. A&D Market Was “Quiet”
Source: RBC Richardson Barr internal database. Includes only U.S. onshore transactions of $20+ million since January 1, 2010.
U.S. A&D Asset Supply Impactful Recent Trends
RB
C E
stim
ate
$50 - $60
Negatives
Hot IPO Market resulting in companies with aggregate EV of ~$28.6 B going public rather than transacting in private market
KKR / Samson$7.2 B
Apollo / El Paso$7.2 B
Fewer JV’s, < $3 B in 2013 vs. $10 B avg. in 2010 – 2012, now requires ‘brand’ operator in ‘Big 3’ play
More failed deals – buyers increasingly discerning, focused on ‘core-of-core’ assets
Lack of high profile conventional corporate acquisition in 2013 –Samson ($7.2 B) in 2011 and El Paso ($7.2 B) in 2012
Positives
Majors and Large Caps “shrink to grow”, selling assets to reposition portfolio and mitigate valuation disparity2014 YTD
4
Mid-Continent Asset Supply Increasing
2010 2011 2012 2013 2014 YTD
$2.4
Tran
sact
ion
Volu
me
($B
)
RB
C E
stim
ate
$4 - $6$5.6
Source: RBC Richardson Barr internal database. Includes only U.S. onshore transactions of $20+ million since January 1, 2010.
$8.9
$6.6
$2.4$3.4$4.9
$5.6
Apache / Cordillera$2.8 B
Miss Lime
Miss Lime
Sinopec / CHK JV$1.0 B
5
$60
$70
$80
$90
$100
$110
$120
$130
Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Jan 19
Oil
Pric
e ($
/ B
bl)
Historical WTI Front MonthNYMEX Strip
5
Commodity Price Environment
Source: Bloomberg data as of February 28, 2014.*Illustrative barrel assumes 42% Ethane, 28% Propane, 8% Butane, 9% Iso-Butane, 13% Natural Gasoline.
Volatile Near-Term Gas Driven By Harsh Winter, Conservative Forward Strip
Near-Term Oil In Industry Comfort Zone,Steep Backwardation In 5-Year Strip
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Jan 19
Natu
ral G
as P
rice
($ /
MM
Btu)
Historical HH Front Month
NYMEX Strip
Buyers holding price decks flat after 2 years to stay competitive in
auctions
Buyer Price Deck: $85 – $90 / Bbl
Break-Even: ~$80 / Bbl
Break-Even: ~$4.50 / MMBtu
6
$2.2 $1.8
$0.6 $0.3 $0.4 $0.7 $0.6
$0.7 $2.2
$1.4 $2.5
$4.4
$1.6
$1.0 $0.8
$3.1 $1.5
$0.7
$3.7
$2.9
$4.0
$1.9
$2.5
$4.4
$1.9
$1.0 $1.1
$3.3
$2.2
$0.2
$1.3
$3.7
1Q 14To-Date
4Q 133Q 132Q 131Q 134Q 123Q 122Q 121Q 124Q 113Q 112Q 111Q 11
$ in
Bill
ions
Follow-On Offerings
C-Corp IPOs
$0.9
$4.3 $5.4
$8.6
$6.3 $7.2 $7.1
$5.4
$10.9
$4.6
$1.7
$4.0
$7.1
1Q 14To-Date
4Q 133Q 132Q 131Q 134Q 123Q 122Q 121Q 124Q 113Q 112Q 111Q 11
$ in
Bill
ions
High Yield
E&P Equity Capital Markets Activity Since 2011
E&P Debt Capital Markets Activity Since 2011
Liquid Debt & Equity Capital Environment
Source: Dealogic.
Equity markets currently
wide open but windowcan close quickly
High Yield marketremains strong despite
rise in interest rates
Quarterly Avg.$2.3 B
Quarterly Avg.$6.0 B
7
The IPO Market Has Rewarded Focused Companies
$32,01612.3x$12,633/ Mcfepd$2,536127%NGP
AppalachiaMarcellus
UticaJan-14
38%
13%
86%
66%
42%
2014E Production
Growth(YOY)
$20,001(3)4.9x$82,151/ Boepd$8,664Apollo
Riverstone
Multi-BasinEagle FordWolfcamp
Jan-14
$42,9789.2x$195,013/ Boepd$1,390NGP
PermianWolfcampWolfberry
Jan-14
$18,216/ Mcfepd
$169,738/ Boepd
$77,021/ Boepd
EV / 2014E Production
13.6x
9.2x
6.2x
EV / 2014E EBITDA
Current Valuation
AppalachiaMarcellus
Utica
PermianWolfberryWolfcamp
Mid-ContinentClevelandWoodford
FocusArea(s)
WarburgYorktown
Apollo
Metalmark
Private Equity Sponsor
Oct-13
Aug-13
Jul-13
Offering Date
$31,658
$26,057(2)
$9,132
EV / Net Acre(1)
$28,565Total
$12,466
$1,890
$1,619
EV at IPO($ MM)Company
Source: Company filings, Investor Presentations, RBC Estimates, FactSet as of February 28, 2014 market close.(1) EV / Net Acre calculated by allocating PDP PV-10 for production value; Jones production value assumes $40,000 / Boepd; Rice production value assumes $2,000 / Mcfepd. (2) Pro forma January 24, 2014 announced acquisition. (3) EP Energy $ / Acre calculated only using Eagle Ford and Wolfcamp acreage.
8 Source: RBC Richardson Barr internal database. Note: Includes select U.S. onshore asset transactions of $20+ million since February 28, 2013. Chart does not show $1.9 B of Private Co. acquisitions, $0.4 B of Non-Traditional acquisitions, nor $0.1 B of Major acquisitions. Does not include corporate acquisitions.
U.S. Onshore Demand Over Past 12 Months
Current Themes
Fueled by high yield market Mid / Small Caps
(oil resource plays)
Mature, conventional assets with low declines
MLPs / Trusts(conv. oil / gas)
Demand limited to “core-of-core”
Large Cap(oil resource plays)
‘Brand’ operator in ‘Big 3’ play
International JVs(oil resource plays)
Operationally challenged, need team to come with asset
Internationals
~$75 B and 250+ teams
Private Equity(conv. oil / gas)
International buying has decreased
Private Equity buying has increased
$2.4
$4.9
$14.7
$11.0
$0.8
$1.8
Devon /GeoSouthern
$6.0 B
9
4239
35
17 1711
8 8 7 7 6 5 6 5 4 4 3 3
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Financial Buyers Increasingly Active In E&P Space
$19.1 $4.2
$3.9 $2.5
$2.4 $2.4
$2.4 $2.1 $0.8 $0.7 $0.6 $0.3
$41
1 2 3 4 5 6 7 8 9 10 11 12 13
Private Equity Sponsor Overview – Number of Management Teams
YorktownGoldmanSachs PE
$75+ Billion40+ sponsors
250+ portfolio teams $60 Billion in
Acquisitions since 2010100% of IPO Market
$514 $39
TotalMLP
$1,284$758$1,393$931$1,594$2,946$2,103$10,906 $52$126 $22,646Acquisitions
$ MM(2010-TD)
E&P MLPs Growing Rapidly Via Acquisitions – $41 B In Aggregate EV
Source: RBC Richardson Barr; Factset market data as of February 28, 2014Note: Certain figures above may be estimates
$23 Billion in Acquisitions since 2010
10
Financial Buyers Are Dominating The Mid-Continent
October 2013$1 Billion
$5,500 / AcreMay 2013
$438 Million$7,300 / Mcfepd
February 2014$1.4 Billion
$12,600 / Mcfepd
Conf.
February 2014$680 Million $2,200 / Acre
Various
June 2013$850 Million
$114,865 / Boepd
December 2013$336 Million
$20,600 / Acre
January 2014$268 Million
$7,500 / Mcfepd
FourPoint
December 2012$655 Million $4,100 / Acre
Le Norman
November 2013$343 Million
$7,800 / Mcfepd
June 2012$445 Million
$5,855 / Mcfepd
% Financial Buyers2012: 69%2013: 77%
2014 YTD: 100%
11
“Core of Core” Valuations Are Competitive With Public And IPO Market
Note: RBC estimates. Index metrics as of February 28, 2014. Net acreage value calculated after allocating for associated net production Permian Index includes: PXD, CXO, LPI, AREX, FANG, ATHL; Bakken Index includes: CLR, OAS, KOG, NOG; Eagle Ford Index Includes: ROSE, SN, PVA, CRK; Appalachia Index Includes: AR, GPOR, RICE, REXX, COG, RRC; Mid-Con Index Includes: MPO, SD, JONE
$25,300 / Acre
Bakken Index:$19,400 / Acre
$20,400 / Acre
Mid-Con Index: $6,900 / Acre
$45,500 / Acre $163,000 / Boepd
$39,900 / Acre
$34,500 / Acre
$18,200 / Acre
$46,600 / Acre
Eagle Ford Index: $27,800 / Acre
$54,300 / Acre
$30,100 / Acre
Permian Index: $25,600 / Acre
$22,000 / AcreConf.
$13,700 / AcreConf
$15,000 / Acre
$26,000 / AcreConf
$12,000 / Acre
Appalachia Index:$32,200 / Acre
$17,000 / AcreConf
12
$22
$10 $10$14
$33
$44$49
$28
$5
$56 $55
$60
$42
$7
2010 2011 2012 2013 2014
Tran
sact
ion
Volu
me
($B
)
Non-Core TransactionsCore Resource Transactions
“Core-of-Core” Acreage Represents Less Than 30% of Resource Plays
Note: RBC estimates. Net acreage value calculated after allocating for associated net production Permian Index includes: PXD, CXO, LPI, AREX, FANG, ATHL; Bakken Index includes: CLR, OAS, KOG, NOG; Eagle Ford Index Includes: ROSE, SN, PVA, CRK; Utica Index Includes: AR, GPOR, PDCE, REXX
Core Deals 15 10 11 13 4
2014 YTD
$8
13
RBC’s Expectations For 2014RBC expects a more robust 2014 ($50 - $60 B) following a quiet 2013 ($42 B)
− Increased conventional selling by undercapitalized Publics focused on resource development
Private Equity will continue to be very active in 2014 with $75 B in capital availability
− 250+ upstream management teams with top tier teams receiving increased equity commitments
− Financial buyers (PE & MLP) will continue to be dominate buyers of conventional assets
Capital markets should remain open
− High yield (and equity follow-ons) to remain an important source of funds for acquisitions
− Sponsor-backed, single basin-focused IPOs will continue on the backs of recent success; window can close quickly
Permian, Bakken and Eagle Ford will maintain market share of A&D
Premiums commanded for “core-of-core” positions
− Fringe, non-de-risked assets struggle to trade
Likely uptick in corp M&A as land grab wanes and Mid / Small Caps continue to outspend cash flow
Publics to continue selling out of Mid-Con; Financial Buyers to continue buying up Mid-Con
14
Select Recent RBC Richardson Barr Transactions
RBC Richardson Barr Has Advised On ~$20 Billion during the last 18 months
Selected 2013 RBC Richardson Barr Permian Transactions
December 2013
Confidential
has divested certain oil and gas properties and undeveloped acreage located in the Permian Basin to two
Confidential Buyers
RBC Richardson Barr served as financial advisor to Merit Energy Company, LLC
December 2013
Confidential
has divested certain oil and gas properties and undeveloped acreage located in the Permian Basin to two
Confidential Buyers
RBC Richardson Barr served as financial advisor to Merit Energy Company, LLC
December 2013
$336,000,000
has divested certain oil and gas properties and related assets
located in the Anadarko Basin to
RBC Richardson Barr served as financial advisor to
Primary Natural Resources III, LLC
December 2013
$336,000,000
has divested certain oil and gas properties and related assets
located in the Anadarko Basin to
RBC Richardson Barr served as financial advisor to
Primary Natural Resources III, LLC
December 2013
$652,000,000
has divested certain oil and gas properties and related assets located in the Uinta Basin to
RBC Richardson Barr served as financial advisor to
Axia Energy, LLC
December 2013
$652,000,000
has divested certain oil and gas properties and related assets located in the Uinta Basin to
RBC Richardson Barr served as financial advisor to
Axia Energy, LLC
November 2013
$525,000,000
has divested certain conventional oil and gas properties and related assets in the Permian Basin to
RBC Richardson Barr served as financial advisor to BC Operating, Inc., Crown Oil Partners IV, LP
& Crump Energy Partners, LLC
November 2013
$525,000,000
has divested certain conventional oil and gas properties and related assets in the Permian Basin to
RBC Richardson Barr served as financial advisor to BC Operating, Inc., Crown Oil Partners IV, LP
& Crump Energy Partners, LLC
October 2013
$160,000,000
has divested certain producing gas properties and related assets
in the Black Warrior Basin to a Confidential Buyer
RBC Richardson Barr served as financial advisor to
Energen Corporation
October 2013
$160,000,000
has divested certain producing gas properties and related assets
in the Black Warrior Basin to a Confidential Buyer
RBC Richardson Barr served as financial advisor to
Energen Corporation
June 2013
$650,000,000
has been acquired primarily for its holdings prospective for the Utica
Shale by
RBC Richardson Barr served as financial advisor to Salt Run Capital, Inc., owner of
The Oxford Oil Company, LLC
The Oxford Oil Company, LLC
June 2013
$650,000,000
has been acquired primarily for its holdings prospective for the Utica
Shale by
RBC Richardson Barr served as financial advisor to Salt Run Capital, Inc., owner of
The Oxford Oil Company, LLC
The Oxford Oil Company, LLC
February 2013
$2,600,000,000
RBC Richardson Barr served as financial advisor to
SandRidge Energy, Inc.
has divested its position in the Permian Basin to
February 2013
$2,600,000,000
RBC Richardson Barr served as financial advisor to
SandRidge Energy, Inc.
has divested its position in the Permian Basin to
February 2014
$750,000,000
has divested its offshore Gulf of Mexico and onshore Gulf Coast properties and related assets to
RBC Richardson Barr served as financial advisor to
SandRidge Energy, Inc.
February 2014
$750,000,000
has divested its offshore Gulf of Mexico and onshore Gulf Coast properties and related assets to
RBC Richardson Barr served as financial advisor to
SandRidge Energy, Inc.
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