dug mid-continent conference · dug mid-continent conference 2014 u.s. a&d market update march...

DUG Mid-Continent Conference2014 U.S. A&D Market Update

March 3, 2014Craig Lande

[email protected]

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


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


Axia Energy, LLC

December 2013

$652,000,000

has divested certain oil and gas properties and related assets located in the Uinta Basin 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


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


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


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



February 2013

$2,600,000,000


SandRidge Energy, Inc.

has divested its position in the Permian Basin to

February 2013

$2,600,000,000



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



February 2014

$750,000,000

has divested its offshore Gulf of Mexico and onshore Gulf Coast properties and related assets to



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