energy m&a market consolidation waves
TRANSCRIPT
HISTORY – 1980 TO DATE
1
Energy M&A Market Consolidation Waves
! There have been three distinct waves of consolidation among upstream companies over the last three decades
" Big oil – mid 1980’s
" Big oil – late 1990’s
" Super Independent – 2000’s
! These waves have tended to correlate with periods of low relative prices, for several primary reasons:
" Consolidation occurs in an effort to lower costs by capturing synergies and taking advantage of economies of scale
" Opportunities emerge for larger players or those with stronger balance sheets to consolidate smaller, more levered players
" Both parties to a merger can rationalize the trade based on good relative value despite reduced absolute value
! Does this portend another merger wave given today’s low prices?
$160
$140
$120
$100
$80
$60
$40
$20
$0
Iranian Revolution shah deposed
Saudis abandon “swing producer”
role; oil prices collapse
Iraq invades Kuwait
Prices rise sharply on OPEC cutbacks, increased demand
Prices fall sharply on 9/11 attacks,
economy weakness
Prices spike on Iraq war, rapid demand increases, constrained OPEC capacity,
low inventories, etc.
Fear of global economic meltdown
Back from the abyss
Fiscal Cliff fallout concerns
OPEC agrees to quota increase Gulf War ends
1973 Arab Oil Embargo
OPEC agrees to quotas
Syrian civil war escalates
1971 1975 1980 1985 1990 1995 2000 2005 2010 2014
ISIS on the rise
Russia challenges Ukraine
Iran-Iraq War begins;
oil prices peak
Source: EIA.
The Oil Price Supercycle WORLD EVENTS AND OIL PRICES – NOMINAL PRICING (1971 – 2014)
2
Saudis abandon “swing producer”
role again
THE ACQUISITIONS OF COMPANIES THAT HAVE CREATED BIG OIL M&A Consolidation Waves
Source: Thomas A. Petrie’s Following Oil.
3
THE ACQUISITIONS OF COMPANIES THAT HAVE CREATED BIG OIL M&A Consolidation Waves
Source: Thomas A. Petrie’s Following Oil and EIA.
4
Big Oil mid-80’s merger wave
Big Oil late-90’s merger wave
BIG OIL – MID 80’s MERGER WAVE M&A Consolidation Waves
Source: EIA.
5
Occidental / Cities Service
Phillips / General American
Standard Oil (CA) / Gulf Oil
Royal Dutch / Shell Oil
Mobil / Superior Oil
Texaco / Getty Oil
BP / Standard Oil (Ohio)
U.S. Steel / Marathon
DuPont / Conoco
Crud
e O
il ($
/ B
bl)
BIG OIL – LATE 90’s MERGER WAVE M&A Consolidation Waves
6
ARCO / Union Texas
Total / PetroFina
BP / ARCO
Total / Elf Aquitaine
Exxon / Mobil
Source: EIA.
BP / Amoco
Crud
e O
il ($
/ B
bl)
SUPER INDEPENDENT MERGER WAVE – FIRST HALF OF 2000s M&A Consolidation Waves
7
Anadarko / Union Pacific
Conoco / Burlington
Pioneer / Evergreen
Anadarko / Kerr-McGee / Western Gas
Alberta / Pan Canadian (Encana)
Source: EIA.
Devon / Ocean
Crud
e O
il ($
/ B
bl)
Natura G
as ($ / MM
Btu)
Devon / Mitchell Williams / Barrett
NOTABLE M&A ACTIVITY SINCE 2008 M&A Consolidation Waves
8
Suncor / Petro-Canada
Exxon / XTO
BHP Billiton/ PetroHawk
Freeport / Plains
Source: EIA.
Crud
e O
il ($
/ B
bl)
Natura G
as ($ / MM
Btu)
Whiting / Kodiak
Contango / Crimson
9
Large Cap Companies (Greater than $15 Billion) (1) ($ in millions, except per unit data)
The Next Wave of M&A A RELATIVE VALUE PROPOSITION
(1) Market data and estimates based on Wall Street consensus per FactSet as of January 23, 2015.
10
The Next Wave of M&A A DARWINIAN UNIVERSE?
Source: Market data and estimates based on Wall Street consensus per FactSet as of January 23, 2015.
Small Caps ($500 MM -
$2 Bn)
Micro Caps (<$500 MM)
Mid Caps ($2 Bn - $15
Bn)
Large Caps (> $15 Bn)
Majors
CONCLUSIONS
11
A Brief History of Oil and Gas M&A
! Historically, waves of upstream company consolidation have correlated with periods of low relative prices
! Each environment is unique, but the similarities between today and prior periods are too significant to overlook
! The relative value trade that drove some recent mergers (witness Whiting / Kodiak) is even more relevant in this environment
! Investors’ flight to quality and liquidity creates an environment of predator and prey
! Circumstances that could potentially impede such an M&A wave:
" Continued volatility
" Rapid price recovery