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TXOGA Ad Valorem Tax
Committee ConferenceM&A Activity in the Energy Industry
February 20, 2020
Energy M&A Market Themes
Public valuations now at near all-time lows
Have generalist investors left Energy “for good”?
Restructuring and bankruptcies on the horizon
Wildcards
Election
ESG
Capital discipline and free cash flow continue as primary focus
A&D market fragmented and running at historic lows
Who are the buyers?
“Lots of” (too much?) G&A in the space
Private equity with numerous “stranded” portfolio companies
Small pockets of investor interest (e.g. minerals and high yield)
Strategics still looking to acquire, but not at “MLP-craze” multiples
Upstream bankruptcy risks impacting valuations and asset marketability
What is the Catalyst?
Upstream
Midstream
1
Stock Price Performance
Energy Index Price Performance Since 2013
Energy Index vs. S&P 500 Since 2013
___________________________Note: Market data as of 2/13/2020. Midstream C-Corps represented by ALTM, AM, ENB, ENLC, ETRN, LNG, KMI, OKE, PAGP, RTLR, TRP, TRGP, and WMB.1. Midstream C-Corps excludes AM for periods prior to Antero’s simplification announcement on 10/9/18.
These graphs speak for themselves
20%
60%
100%
140%
180%
12/31/2013 3/23/2015 6/12/2016 9/2/2017 11/23/2018 2/13/2020
Midstream C-Corps S&P 500 Energy WTI AMZ Henry Hub XOP
20%
60%
100%
140%
180%
12/31/2013 3/23/2015 6/12/2016 9/2/2017 11/23/2018 2/13/2020
S&P Energy 500 S&P 500
(1)
S&P 500
Energy:(37%)
Midstream
C-Corps:(25%)
WTI: (48%)
S&P 500: 83%
XOP: (72%)
AMZ: (57%)
Henry Hub: (58%)
S&P 500
Energy:(37%)
2
Upstream Market Valuation (Then and Now)
14.0x
7.6x
6.6x6.2x
5.5x4.9x 4.8x
4.0x
NA NA
3.9x
4.7x
2.8x
3.5x
5.6x
4.7x
3.0x
4.3x
8.5x
2.8x
0.0x
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
18.0x
Appalachia Permian DJ Basin Bakken Large-Cap
Diversif ied
Majors Eagle Ford US Offshore Minerals SCOOP /
STACK
Median Multiples of Enterprise Value to Forward Year EBITDA
___________________________
Source: Company filings and FactSet as of 2/13/2020.Note: Permian includes: CDEV, CPE, CXO, FANG, LLEX, MTDR, PE, PXD, WPX and XEC. Appalachia includes: AR, CNX, COG, EQT, GPOR, MR, RRC and SWN. Bakken includes: ERF, NOG, OAS and WLL. DJ
Basin includes: BCEI, HPR and XOG. SCOOP / STACK includes: CHAP. Large-Cap Diversified includes: APA, CHK, CLR, COP, DVN, ECA, EOG, HES, MRO, and OXY. Majors include: BP, CVX, FP-FR, RDS and XOM. Eagle Ford includes: LONE, MGY, PVAC, SBOW and SNDE. Minerals includes: BSM, FLMN, KRP, MNRL (MNRL not included in price performance), TPL and VNOM. Offshore includes: KOS, TALO and WTI.
Haynesville includes: CRK and GDP.Note: 2013 values exclude: CDEV, PE, XOG, CHAP, MGY, PVAC, SBOW, SNDE, BSM, VNOM, KRP, MNRL, FLMN, MR.
2013 2020
2013 versus 2020
3
$46
$43
$24
$20
$18 $18
$15
$11$11
$10 $9 $9 $9 $8 $8 $8$7
$5 $5 $5 $5
$51$50
$4 $4$3
$2 $2 $2 $2 $2 $2 $1 $1 $1 $1 $1 $1 $0 $0 $0 $0
$0
$20
$40
$60
EN
B
ET
TR
P
EP
D
KM
I
WM
B
LN
G
MP
LX
OK
E
PA
A
TR
GP
MM
P
PS
XP
WE
S
EQ
M
DC
P
TG
E
SH
LX
ETR
N
EN
BL
EN
LC
HE
SM
NS
GE
L
CE
QP
AM
TC
P
NG
L
NB
LX
HE
P
RT
LR
SM
LP
PB
FX
BP
MP
DK
L
CN
XM
GLP
AL
TM
OM
P
SR
LP
CC
LP
CC
LP
MM
LP
BK
EP
US
DP
GP
P
SN
MP
($ in billions)
Current Midstream Landscape
Enterprise Values and Median Multiples of Midstream Companies
Today’s investors value size in Midstream
$143 $93 $89 $88 $86
Mid-Cap Midstream
Midstream Majors
MLPs to be Rationalized
EV / 2020 EBITDA
11.4 x
9.1 x
7.6 x
___________________________Source: Factset, company fi l ings, and investor presentations. Note: Market data as of 2/13/2020.
4
$0
$90
5%
6%
7%
8%
9%
10%
11%
Feb-16 Oct-16 Jun-17 Feb-18 Oct-18 Jun-19 Feb-20
$ / bblYield
HY Index WTI
170
263
$245
$339
2218
25 27 25
10
31
19
30
20
39
12
$26 $27
$33 $34 $34
$40
$30
$42
$21
$52
$16
$0
$75
$0
$100
$200
$300
$400
$500
2018 2019 Mar Apr May June July Aug Sep Oct Nov Dec Jan Feb
(Monthly - $bn)(Annual - $bn)
___________________________Source: Barclays, S&P LCD, Lipper FMI (All Reporters).
High Yield Index Trading Performance
Non-USD
USD
High Yield – New Issue Volumes
High Yield Market
5.3%
$50.32
Q1
Av erage
$22bn
Q2
Av erage
$31bn
Q3
Av erage
$28bn
Q4
Av erage
$31bn
High Yield market for Energy names is one encouraging area
5
Upstream M&A Activity
Removing the Oxy / APC deal from 2019 shows how slow the Upstream M&A market has
been
___________________________Source: IHS Herold as of 2/13/20. Includes transactions >$50mm. Dates based on announcement. Excludes transactions that failed to close.1. Includes corporate and asset transactions, excludes Shell / BG and OXY / APC transactions.
$5$2 $0 $0
$5$3
$17$13
$5$3 $2 $0
$5$7
$10$12
$10
$4 $3
$10
$3
$13 $14
$0$3 $4 $3
$9
$8 $12$15
$10
$22
$11 $18
$3
$1 $5 $8
$6
$6
$12
$13$11
$10
$8$6
$10
$5
$20
$6
$2
$5
$6
$1
$14
$10$13
$16 $16
$25
$28
$31
$3
$6$8
$10
$6
$12
$19
$23 $23
$20
$12
$9
$20
$8
$32
$21
$2
$7
$11
$5
29
37 37 37
40
4947
43
1110
30 30
25 25
35
49
35
30
33
25
35
24
28
25
10
1719
9
$0
$15
$30
$45
$60
$75
Q12013
Q22013
Q32013
Q42013
Q12014
Q22014
Q32014
Q42014
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Q42016
Q12017
Q22017
Q32017
Q42017
Q12018
Q22018
Q32018
Q42018
Q12019
Q22019
Q32019
Q42019
$bn
Corporate Asset Deals
U.S. Upstream M&A Volumes by Quarter(1)
Av g. $14.5
6
Buyer Performance Versus XOP
Date Buyer Seller 1 Day 30 Day Current (1)
12/16/19 9% 15% 22%
8/26/19 17% 3% (3%)
6/10/19 9% 36% 59%
4/12/19 (5%) (6%) 28%
8/14/18 (12%) 1% 10%
3/28/18 (9%) 1% (5%)
10/14/19 (11%) (9%) 10%
4/24/19 (0%) (24%) 9%
11/19/18 (6%) (30%) (9%)
7/15/19 (16%) (25%) (26%)
11/1/18 (12%) (38%) (21%)
10/30/18 (12%) (29%) (42%)
10/28/18 (24%) (49%) (30%)
Market Reaction to Recently Announced Upstream M&A
___________________________Source: Company filings, FactSet as of 2/13/20.1. Current price performance reflects announcement to 2/13/20. Price performance is relative to the S&P Oil & Gas Exploration & Production Index (NYSE: XOP). CVX current reflect performance through 5/9/19 when CVX declined to increase offer.
Recent Upstream M&A Performance
Ne
utr
al
Ne
ga
tive
Po
siti
ve
7
How Many Upstream Companies Do We Need?
129
91 90
62
25 2212 9
0
50
100
150
Permian Midcontinent Rockies Gulf Coast Ark-La-Tex Appalachia CommittedCapital (No
Asset)
Gulf of Mexico
# of Companies
Private Upstream Companies by Region as of 2020
___________________________
Source: Bloomberg and Enverus as of 2/13/2020.
Note: Only includes public companies with market capitalization greater than $10 million.
210 206 195
161 170183 174
128 124
$572 $603 $603
$398
$594 $587
$443$392
$343
$0
$300
$600
$900
$1,200
0
75
150
225
300
2012 2013 2014 2015 2016 2017 2018 2019 2020
Market Cap ($bn)# of Companies
Public Upstream Companies Over Time
Total: 440
8
1 2 34
56
79 9 9
11 1112
1314
18
23 2324
31
41
4850
46
46
52
58
67
74
6968
61
50
39
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
(20)
(15)
(10)
(5)
0
5
10
15
MLP / GP IPOs and Eliminations by Year
MLPs are “going away”?
ETP
EOT
GTM
OKSKMPEEPTPPKPP
XTXI
PAGP
IPOs Public Midstream MLPs / GPs
MLP IPO
GP IPO
Elimination
Pending Elimination
BPL
VLP
SFLVLP GEL EPD
PAA
SFL
TCLP
MMP
NS
PVR
PPX
SXL
MW E
APL NRGY
MMLP
HEP
GTM
EOT
CPNO DPM
GLP
KPP
TLP
W PZ
HLND
EPE
NRGP
ETE
PPX
EROC
AHGP
BGH
HPGP
MGG
PVG
NSH KGS
CQP
SEP
DEP
EPB
W MZ
TPP
HLND
HPGP
MGG
TRGP
EPE
NRGP
BGH
W MZ
ACMP
NKA
PNG
DKL
EQM
MPLX
SMLP
W GP
NGL
GSJK
PVG
DEP
KMI
OIL
NRGM
CNNX
ENBL
PBFX
SHLX
USDP
KMP
EPB
PVR
PSXP
SRLP
VLP
USAC
PAGP
NRGY
NRGM
CPNO
PNG
TEP
ARCX
FISH
MEP
QEPM
W PT
W NRL
CQH
DM
RMP
JPEP
VTTI
GPP
APL
ATLS
MW E
EROC
RGP
CMLP
ACMP
NKA
OILT
QEPM
CPPL
PTXP
NBLX
NGLS
RRMS APLP
BW P
TEP
NSH
AHGP
BPMP
HESM
OMP
AMGP
OKS
SXL
ARCX
AZUR
MEP
W NRL
W PT
JPEP
VTTI
CPPL
PTXP
RMP
EEP
SEP
W PZ
CQH
ETP
VLP
W ES
NGLS
TLP
DM
AM
ENLK
HCLP
W ES
EQGP
RTLR
AM
ENLK
VLP
W ES
TLP
DM
AMID
ANDX
BPL
SXE
KPP TPP EEP KMP OKS
GTM
EOT
ETP
XTEX EXLP
SGLP
TLLP
RRMS
SXE
VLP
STGT
EQGP
TEGP
BW P
RGP
AMAMID
AHD
SEMG
BPL
MLPs Remaining at <$5bn EV: 18 MLPs
9
Midstream M&A Activity
Sponsors and Utilities are driving the Midstream M&A market
___________________________Sources: Company filings, press releases and Wall Street equity research.
Total Midstream Third-Party Acquisitions & Dropdowns
$18 $16 $15 $12 $10 $7 $7
$4 $8 $10
$3$16 $20
$24
$7$9
$10
$7
$3 $2
$12$3
$4
$6
$29
$33
$37
$26$29
$29
$48
$0$0
$10
$20
$30
$40
$50
$60
2013 2014 2015 2016 2017 2018 2019 2020 YTD
($bn)
Strategic Midstream Third Party Asset Transactions
Sponsor Backed Third Party Asset Transactions
Drop Down Transactions
Strategic Power & Utilities Third Party Transactions
10
Restructuring / Bankruptcy Landscape
8
1915
5
2
12
6
10
36
21
0
10
20
30
40
Recently Filed Stressed Credits(Yields of 10-20%)
Distressed Credits(Yields > 20%)
# Companies
Upstream Midstream Oilfield Services
Current Distressed CreditsUpcoming High Yield Upstream Maturities and
Trading Levels
(1)
(2)
___________________________
Source: Bloomberg as of 2/13/2020
1. 2019 represents E&P Issuances
2. Weighted Average Yield calculated on benchmark securities of maturing names
$1$2
$5$2
$6
$5
$2
$1
$6
$0
$6
$12
7%
39%
29%
33%
0%
10%
20%
30%
40%
50%
$0
$2
$4
$6
$8
$10
$12
$14
2019 2020 2021 2022
Below 90 90-95 Above 95 Weighted Average Yield
Vol ($bn)
11
Energy M&A and IPO Market Over Time
0.0x
5.0x
10.0x
15.0x
20.0x
25.0x
30.0x
1997 2000 2003 2006 2008 2011 2014 2016 2019
EV / EBITDA Multiple
M&A IPO
Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 20192020
YTD
Energy % of
S&P:6.3% 5.6% 6.6% 6.3% 6.0% 6.0% 7.2% 9.3% 9.8% 12.9% 13.3% 11.5% 12.0% 12.3% 11.0% 10.3% 8.4% 6.5% 7.6% 6.1% 5.3% 4.4% 3.5%
___________________________
Source: Company fi l ings, HIS, Wall Street research, FactSet as of 2/13/2020.
Enterprise Value and EBITDA Multiples
12
So What is the Catalyst for M&A?
Potential drivers of activity in 2020
1.
3. 4.
2.
Valuation
Restructuring Investor
Receptivity
Synergies
1.
2.
3.
4.
Expectations lowered
Scale matters
Will be no other choice for
some
Response muted so far
13
~$17.2 billion transaction value
June 2017
has been acquired by
Premier Energy Sector Experience
Americas Energy(1): 2009 – 2019
$6.4 billion transaction value
June 2017
has been acquired by
$45 billion transaction value
April 2017
has merged with
~$10 billion transaction value
Nov ember 2017
has merged with
~$36 billion transaction value
October 2018
has acquired
~$60 billion transaction value
October 2018
has acquired the remaining public stake of
~$2.52 billion transaction value
Nov ember 2018
has contributed its midstream assets at
Alpine High to
~$10.8 billion transaction value
September / October 2018
has sold its Onshore U.S. oil and gas assets to
and
~$14 billion transaction value
July 2019
has combined its two MLPs:
September 2018
has acquired midstreamassets from
~$2.6 billion transaction value
Pending
~$2.5 billion transaction value
has agreed to acquire
Barclays is an Energy M&A Powerhouse
has acquired a gathering sy stem and gathering pipeline
f rom
&
~$2.3 billion transaction value
December 2019
___________________________Source: Dealogic as of December 31, 2019.1. Energy includes E&P, Oilfield Services, Majors, R&M and Midstream transactions.
($ in billions) % Share
1 Barclays $835 32%
2 Citi 719 28%
3 Goldman Sachs 630 24%
4 J.P. Morgan 481 19%
5 Jefferies LLC 459 18%
6 Evercore Inc 383 15%
7 BofA Securities 361 14%
8 Morgan Stanley 343 13%
9 Credit Suisse 306 12%
10 RBC Capital Markets 272 10%
14
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