Financing and Investment: Value Propositions and Refinancing in the Industrial Minerals Space
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Transcript of Financing and Investment: Value Propositions and Refinancing in the Industrial Minerals Space
Financing and Investment: Value Proposi7ons and Refinancing
Industrial Minerals Events 3rd Frac Sand Conference Minneapolis, USA
Joel Schneyer – Managing Director [email protected]
303.619.4211 September 1, 2015
Secular Demand Drivers for Proppants
Proppant demand is expected to increase over the next decade because:
§ Operators are using longer laterals § Overall increase in frac sizes per stage § Increased number of frac stages per well § More sand per stage (overpacking), and § Closer well spacing
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Source: C.L. Dake, Univ of Missouri School of Mines & Metallurgy Bul. Tech. Ser., Vol. 6, No. 1 August 1921
Sand Supply -‐ St Peter the Patron Saint of Frac Sand
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Proppant Mine Mapping State Q2 ‘15 Mine Count
Market Share %
WI 54 32%
TX 38 23%
MO 16 10%
IL 11 7%
OK 9 5%
MN 8 5%
Rest 31 19%
Sand Supply -‐ Origin Loca_ons
Note -‐ AcGve proppant mines are defined as sand mine locaGons reported to MSHA with acGve operaGng hours. If not hours are reported for the quarter, than the mine is deemed as not acGve for the Gme period.
Sand Supply -‐ Origin Detail
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109 118
122 125 132
150 154 155
149
167
0
20
40
60
80
100
120
140
160
180
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
Coun
t of M
ines with
Ac7ve Ope
ra7n
g Ho
urs
Ac7ve Proppant Mines
§ Of the 85 million tons of sand available, about 66% of the produc_on capacity is held by the top 10 sand suppliers
§ Unimin, holding the largest market share of capacity represents 12.6% of the total market, while US Silica has recently surpassed Santrol (FMSA) to represent 11% of the total market
Sand Supplier Market Share (% Capacity)
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Source – NavPort PresentaGon (April 2015), Canadian Frac Sand LogisGcs & Market Forecast Summit in Calgary
Demand -‐ Historical Proppant Consump_on by Basin (Billions of lbs.)
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Returns for U.S. Shale Projects
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Source: EnerCom AnalyGcs (August 6, 2015) Shale ProducGon Growth Rates StarGng to Wane
§ Proppant demand is projected to drop by 30.5 billion pounds from 2014 to 2015
§ Demand forecast is predic_ng a 28% decline from 2014 to 2015, with the Eagle Ford and Bakken being most affected, Marcellus and Permian least affected
Demand – Forecast by Basin
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Source – NavPort PresentaGon (April 2015), Canadian Frac Sand LogisGcs & Market Forecast Summit in Calgary
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Sand Supply – Demand Cartoon
85.0 21.3 63.8 42.5 0
Millions of Tons (167 Mines with 85 million tons capacity)
Cash Cost $
/t (FOB Mine)
$45
$30
$15
D1 55 million tons actual 2014
D2 40 million tons forecast 2015
Note: This is not real data
25% 50% 75% 100%
Royalty SG & A Process Mine
Source – Headwaters Industry Research
American Silica test work
§ Revenue per ton for resin coated (Fairmont Santrol) peaked in Q3 2014 § Revenue per ton for natural sand peaked in Q4 2014 § Revenue does not equal profitability
Sand Supplier -‐ Revenue
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$57.85 $48.54
$73.16
$97.78 $103.35 $98.75 $97.34
$105.84 $94.10 $94.34
$0
$20
$40
$60
$80
$100
$120
$140
$160
2015Q2 2015Q1 2014Q4 2014Q3 2014Q2 2014Q1 2013Q4 2013Q3 2013Q2 2013Q1
Revenue / Ton of Sand Sold
Hi-‐Crush Emerge US Silica Fairmount Santrol WTI
Sand Supplier – EBITDA Margins
Source – Headwaters Industry Research
American Silica test work
§ Spot sand is currently selling for +/-‐ $35 per ton FOB Wisconsin § Sand prices down from $50 to $60 per ton less than a year ago § Ave EBITDA/ton of proppant sold in Q2 2015 is $15 per ton, down from a high
of $35 per ton in Q3 2014
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$14.73 $24.83
$31.34 $34.97 $30.14 $27.11 $26.22 $28.91 $23.34
$25.94
$57.85 $48.54
$73.16
$97.78 $103.35 $98.75 $97.34 $105.84
$94.10 $94.34
$0
$20
$40
$60
$80
$100
$120
2015Q2 2015Q1 2014Q4 2014Q3 2014Q2 2014Q1 2013Q4 2013Q3 2013Q2 2013Q1
Adjusted EBITDA / Ton of Sand Sold
Hi-‐Crush Emerge US Silica Fairmount Santrol Average WTI
Q2 2014 = $30 EBITDA/t
Q2 2015 = $15 EBITDA/t
Sand Producer
Frac Sand Delivered Cost to Well Site
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Source: modified from Raymond James, Global Research Report, August 2014
Oilfield Trading Metrics -‐ Median TEV / EBITDA Mul_ples
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Sector Focus TEV /LTM EBITDA
E&P Companies 3.5x -‐ 6.2x
Large Cap Integrated Field Services 6.8x
Small / Mid Cap Integrated Field Services 5.3x
Contract Drillers 5.0x
Oilfield Equipment Manufacturers 6.9x
Sand & Proppant Producers 7.2x
Basin TEV /LTM EBITDA Daily BOE Produc7on
Bakken 3.5x $37,836
Eagle Ford 3.9x $32,589
Marcellus 6.2x $42,158
Niobrara 4.7x $32,148
Permian 5.2x $38,841
U_ca 5.7x $45,165
Notes – valuaGon date August 20, 2015 Source -‐ TEV / EBITDA from Cap IQ
Shale Plays -‐ Median TEV / EBITDA Mul_ples
3.5x
4.7x
6.2x 5.7x
5.2x
3.9x
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Notes – valuaGon date August 20, 2015 Source -‐ TEV / EBITDA from Cap IQ
Sand Supplier -‐ Trading Mul_ples
Source – Headwaters Industry Research
American Silica test work
§ Shows average decline from 23.5x “peak” in 2Q 2014 to 6.2x in 2Q 2015 (August 15)
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6.2
8.1
9.1
13.1
23.5
18.5
14.1
0
5
10
15
20
25
30
35
2015Q2 2015Q1 2014Q4 2014Q3 2014Q2 2014Q1 2013Q4
TEV / LTM (Adjusted) EBITDA
Hi-‐Crush Emerge US Silica Fairmount Santrol Average
Notes – Q results posted within 45 days from Q end; valuaGon dates Q1 May 15th , Q2 Aug 15th , Q3 Nov 15th , Q4 Apr 15th
American Silica test work
Valua_on Overview – Total Enterprise Value (TEV) / EBITDA
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Source – GF Data provides data on private equity-‐sponsored M&A transacGons with enterprise values of $10 to 250 million
§ The so-‐called “size premium” the reward given to larger businesses over comparable smaller ones remains high
2003 1HTEV -‐10 2011 2012 2013 2014 2015 Total N-‐
10-‐25 5.6 5.3 5.8 6 5.4 5.9 5.6 87525-‐50 6.2 6.4 6.2 6.9 6.7 7.4 6.3 65050-‐100 6.7 7.5 6.8 6.8 8.6 7.5 7.0 463100-‐250 7.2 7.7 7.4 7.5 7.8 8.6 7.5 202
Total 6.1 6.4 6.3 6.5 6.8 6.8 6.3
N = 1273 211 245 153 205 103 2190Please note that N for 2003-‐10 encompasses seven years of activity.
American Silica test work
Valua_on Overview – Average Mul_ples and Deal Volume
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Source – GF Data provides data on private equity-‐sponsored M&A transacGons with enterprise values of $10 to 250 million
Note: 2015 1H deal volume is annualized.
§ Purchased by PE Harvest Partners June 2007; Sold to PE Harbinger Capital Partners Oct 2007; Sold to PE Golden Gate Capital Nov 2008; IPO in 2012; Golden Gate sold out its posi_on in 2013
§ Was formed by PE Insight Equity in 2012, IPO with LP structure in 2013. S_ll controlled by Insight Equity
§ Was formed by PE Avista Capital Partners in 2010, IPO with LP structure in 2012. S_ll controlled by Avista Capital Partners
§ 51% purchased by PE American Securi_es in Aug 2010. IPO in Oct 2014.
§ July 2014 PE KKR leads $680 million recapitaliza_on
§ Porqolio company of PE Clearlake Capital. Filed Nov 2014 for IPO with LP structure
§ Was porqolio company of PE Denham Capital Management. 2014 sold to U.S. Silica Holdings, Inc. for $98 million. Adjusted LTM EBITDA of $11.1 million represents purchase price of 7.6x EBITDA
§ Recap by PE Energy Capital Partners July 2012
§ Owned by PE Wexford Capital and porqolio partner Gulfport Energy. Filed IPO for energy services rollup Mammoth Energy Partners LP Oct 2014
Notable Private Equity Ac_vity In the Frac Sand Space Since 2010
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Source – Private Equity Analyst as cited in Probitas Partners -‐ Private Equity Forecast & Desk Book for 2015
American Silica test work
Commitments to U.S. Private Equity Partnerships by Sector
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Major Dynamics
Supply -‐ Demand
Mul_ples
Investors
Outlook
§ Saudis move to protect market share in November 2014. More recently, with sorness of Chinese growth and the overhang of Iranian oil flooding market, oil prices have moved to the low $40’s barrel
§ Current oversupply of sand with 167 opera_ng sand mines, NavPort is predic_ng a 27% decline in proppant consump_on from 55 m-‐tons (2014 actual) to 40 m-‐tons (2015 forecast)
§ With drop in oil prices margins and mul_ples have dropped for sand suppliers from $35 Adj EBITDA / ton sold midyear 2014 (23.5x TEV / Adj EBITDA) to current levels of $15 Adj EBITDA / ton sold (6.2x TEV / Adj EBITDA)
§ Private Equity have been major sponsors and investors to the oil services sector and have lots of dry powder
§ With the decline and poten_al lower-‐for-‐longer environment, expect increased M&A ac_vity, with a focus on ver_cal integra_on and capturing opera_onal efficiencies. U.S. Shale is here to stay
Financing – Final Thoughts
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Headwaters MB is an independent, middle-‐market investment banking firm providing strategic merger and acquisi_ons, corporate finance services and merchant banking through proprietary sources of capital. Named Investment Bank of the Year by the M&A Advisor in 2014, Headwaters is headquartered in Denver, Colorado, with 6 regional offices across the United States and partnerships with 18 firms covering 30 countries.
Leading Full Service Middle Market Investment Bank
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