IPO and Public Company Readiness:Oil and Gas Industry Focus

February 14, 2018

Agenda

I. IPO Activity in Oil and Gas Industry

II. The Decision to Go Public or Not

III. What to Expect in the IPO Process

IV. Hot Button SEC Issues

V. Things You Wish You Had Known Years Ago

VI. Predictions for 2018

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• A tale of four sectors

• 2012-2014: MLPs

• 2015-2016: E&Ps

• 2017: Services then E&P

• 2018: Services and E&P

• Recent activity influenced by need for capital and volatility in equity markets and commodity prices

IPO Activity in the Oil and Gas Industry

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Energy Market Overview in 2017 – 2018YTD

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Market conditions in late 2016 ignited Energy issuance in early 2017

— Commodity price improv ement, sector deregulation post-election and OPEC production cuts driv e a surge in equity v olumes

Volatility in Energy tape suppresses v olumes

Ongoing f ocus on weekly build in crude oil storage (DOE data)

Inv estors increasingly cautious and selectiv e in deal participation

Despite some commodity price improv ement, v olatility muzzles v olumes in Q3

Generalist inv estors ref use to engage in new issues until the sector f inds its f ooting

Recov ery in commodity prices encourages issuers to test the market

Elev ated discounts required to incent participation, howev er bid appears to hav e returned to the sector

1 2 3 4

Jan – Feb ‘17 March – June ‘17 July – Oct ‘17 Nov ’17 – Feb ‘18 2017

SPX 5.5% 2.6% 6.3% 1.6% 18.9%

DJIA 4.6% 3.3% 9.5% 3.2% 24.7%

XLE (7.2)% (7.1)% 4.6% (2.9)% (4.3)%

OSX (7.6)% (23.0)% 1.2% 1.0% (18.8)%

($ Millions)

OFS Issuance

E&P Issuance

WTI

$85 July - Oct '17

$636

$551

$2,051

Nov '17 - Feb '18

$3,415

$1,364

$2,028

Jan - Feb '17

$5,773

$3,745

$1,111

March - June '17

$2,301

$3,111$3,111

1,191

60%

70%

80%

90%

100%

110%

120%

130%

Inde

xed

Pric

e

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Issuance Themes and Outlook

E&P Midstream / MLP OFS Expect much less follow-on issuance relative to past

years as leverage has come down and companies are seeking to operate within cash flow and return capital to shareholders

An active M&A market could bolster issuance as equity investors have been willing to support attractive catalysts, although scrutiny around use of proceeds (including acquisitions) is increasing

Significant E&PIPO backlog remains intact as that market has been closed since January 2017; predominantly gas weighted

Timing remains a question even as many issuers have largely cleared the SEC; highly dependent on commodity backdrop and investor sentiment, which has been less constructive for gas names

Anticipate ~$5.5 bn - $6 bn of midstream equity needs in 2018 (~$1.7 bn raised to date), not including third party M&A financing or monetizations

Relative to ~$12 bil lion in midstream issuance in 2017, 2018 estimate seems manageable from a supply / demand perspective, even as fund flows remain challenged

Shift towards a more “self funding” model that is less dependent on capital markets expected to continue to weigh on volume relative to years past

Alternative financing sources including private / structured equity and sponsors taking back equity will l ikely continue to augment volumes and improve execution relative to public common only

Fairly l imited near term IPO backlog

OFS has represented 45% of all energy issuance in 2018 YTD vs. 15% in 2017 and 12% in 2016; while very active to date, issuance expected to be contingent on market conditions

The OFS equity market has raised ~$1.6 bn year to date, with a significant amount remaining in the backlog for both IPO and follow-on issuance

14 OFS IPOs have priced since Q4 2016, many of which have the potential to do follow-onsafter their lock-up releases, particularly given the large sponsor ownership in the these names

There are currently a number of companies in the OFS IPO backlog, with many more continuing to monitor market conditions

After being heavily E&P-weighted in 2015/2016, energy issuance shifted back toward midstream in 2017 and midstream / OFS in early 2018

Issuance Outlook

2016 Issuance (mm) 2017 Issuance (mm) 2018 Issuance (mm) YTD

IPO Follow-on Convertible Total % of Total IPO Follow-on Convertible Total % of Total IPO Follow-on Convertible Total % of Total

Coal - - - - - $398.3 $422.8 - $821.1 3.2% - - - - -

E&P $1,175.3 $31,150.6 $2,355.0 $34,680.9 70.3% $474.0 $6,303.6 - $6,777.6 26.3% - $55.2 - $55.2 1.5%

Midstream C-Corp - $715.9 - $715.9 1.5% - $3,581.8 - $3,581.8 13.9% - $1,190.8 - $1,190.8 32.4%

MLP $323.4 $6,574.8 - $6,898.2 14.0% $2,363.2 $5,859.3 - $8,222.6 31.9% - $680.0 - $680.0 18.5%

Mining - $334.5 $65.0 $399.5 0.8% $570.4 $1,059.7 - $1,630.1 6.3% - - - - -

Oil Service $264.3 $3,288.8 $2,337.5 $5,890.6 11.9% $1,518.6 $1,757.7 $625.0 $3,901.3 15.1% $1,367.3 $279.6 - $1,646.9 44.9%

R&M - $277.5 - $277.5 0.6% - - - - - - - - - -

Royalty Trust - - - - - - - - - - - - - - -

Shipping - $476.9 - $476.9 1.0% - $541.0 $280.0 $821.0 3.2% - $97.5 - $97.5 2.7%

Total $1,763.0 $42,819.0 $4,757.5 $49,339.5 100.0% $5,324.5 $19,526.0 $905.0 $25,755.5 100.0% $1,367.3 $2,303.1 - $3,670.4 100.0%

Historical Issuance By Subsector

___________________________Source: Bloomberg, FactSet, and corporate filings as of 2/8/2018.Note: Includes all SEC registered offerings.

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Pricing Deal Value Price vs. File / Offer /Date Issuer ($mm) Range Offer Current Industry

02/08/18 Quintana Energy Services Inc $93 Below (25.9%) (10.0%) Natural Resources

02/08/18 Cardlytics Inc 70 In Range (7.1%) 2.8% Technology

02/07/18 Cactus Inc 437 In Range 8.6% 7.4% Natural Resources

02/07/18 Victory Capital Holdings Inc 152 Below (27.8%) (4.7%) Financials

02/07/18 Huami Corp 110 In Range 0.0% 3.5% Technology

02/07/18 Evolus Inc 60 In Range (7.7%) (2.8%) Healthcare

02/01/18 Corporacion America Airports 486 Below (19.1%) (5.9%) Industrial

02/01/18 FTS International Inc 404 In Range 9.1% (3.9%) Natural Resources

01/31/18 Hudson Ltd 749 In Range (5.0%) (14.3%) Consumer & Retail

01/31/18 Sol-Gel Technologies Ltd 86 In Range 0.0% (11.7%) Healthcare

01/25/18 PlayAGS Inc 164 In Range (5.9%) 23.3% Real Estate

01/25/18 ARMO BioSciences Inc 147 Above 13.3% 125.3% Healthcare

01/25/18 Solid Biosciences Inc 144 In Range (5.9%) 60.4% Healthcare

01/25/18 resTORbio Inc 98 In Range 0.0% 13.3% Healthcare

01/24/18 PagSeguro Digital Ltd 2,606 Above 13.2% 30.2% Technology

01/24/18 Gates Industrial Corp plc 841 In Range (2.6%) (5.6%) Industrial

01/24/18 Menlo Therapeutics Inc 137 Above 13.3% 109.7% Healthcare

01/18/18 ADT Inc 1,470 Below (22.2%) (9.7%) Business Svc.

01/18/18 Nine Energy Service Inc 185 In Range 7.0% 1.1% Natural Resources

01/11/18 Liberty Oilfield Services Inc 249 Above 13.3% 10.7% Natural Resources

Average (20): $434 (2.6%) 16.0%

18.1%

27.1%

6.3% 8.7%13.8%

25.9%

12.1%16.5%

2Q 16 3Q 16 4Q 16 1Q 17 2Q 17 3Q 17 4Q 17 1Q 18

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37

20

43

20

2Q-16 3Q-16 4Q-16 1Q-17 2Q-17 3Q-17 4Q-17 1Q-18

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39.1% 26.3% 29.7% 25.0% 23.3% 25.0%

39.1% 47.4%

54.1% 65.0% 51.2% 55.0%

21.7% 26.3% 16.2% 10.0% 25.6% 20.0%

4Q 2016 1Q 2017 2Q 2017 3Q 2017 4Q 2017 1Q 2018

20 Most Recent IPO Pricings

Strong 2018 IPO Market

IPO Issuance, Pricing and Alpha Generation

2018YTD has seen a 100% increase in IPO Issuance and a 179% increase in IPO Volume Relative to 2017 Year over Year

____________________Sources: Dealogic and Factset as of February 9, 2018. Includes SEC registered IPOs with a base deal value greater than or equal to $50mm. Excludes MLPs, SPACs, REITs, BDCs, and YieldCos.

IPO

Offe

r / 1

Wee

k

Above In Range Below

Volume ($bn):

Qua

rter

ly IP

O Is

suan

cePr

icing

s: L

ast 6

Qua

rter

s

$4.7 $7.3$5.9 $9.1 $9.4 $3.9 $10.9 $8.7

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• The equity markets had improved considerably to start the year in 2018 with investors showing a corresponding willingness to put money back to work in energy

o Crude had reached ~$66 and the S&P 500, XOP, OSX and AMZ indices stood at (+5.6% / (0.7%) / +3.8% / +5.2%) at the end of January

• As a result, the Liberty and FTSI IPOs were very well received – both offerings were upsized with Liberty pricing $1 above the initial range and FTSI at the high end of the initial range with a number of long-only investors participating, indicating that investors’ sentiment to energy has improved materially vs. 2017. Other initial public offerings for Nine Energy, Quintana, and Cactus have also successfully priced, despite recent market volatility

• Unfortunately, the week of Feb 5th brought an abrupt end to what had been two straight years of low volatility, strengthening fundamentals, and one of the longestuninterrupted moves in the S&P 500 to all-time highs (+58% over 24 months with no major drawdown). Monday, Feb 5th was the single worst day in the US market since August 2011

o Last week’s sell-off was largely driven by expectations for higher interest rates, which gave way to heavy selling pressure from “systemic investors”. These investors, who take large positions based on volatility targeting, underwent a $100Bn+ re-positioning event when interest rates, the VIX and other technical measures started to blow out...thus compounding the sell-off in the markets

• Importantly however, fundamentals in energy are still relatively unchanged and we expect the following themes to continue once broader market volatility abates:

o The steep decline in stock prices last year has led to an increasing amount of skepticism towards newly public companies – it’s a “micro focus”, not a “macro focus” on whether or not to invest in IPOs

o IPO investors demonstrating a preference for companies that are successfully executing business plans in such a way that produces superior cash margins and shareholder returns, today

– The high level of NAM completions activity and shortage of available equipment potentially makes hydraulic fracturing companies attractive (Liberty, FTSI)

– In addition, technologically differentiated OFS product companies (typically low capex), such as Cactus, appealed to IPO investors

o Track record is important – investors are cautious to take risk on companies which are not performing well today or whose assets are still under construction (or “on the come”)

– More than likely valuations in these situations are focused on replacement value rather than cash flow multiples

o Public E&P investors are focused on positive cash returns rather than growth (and are skeptical of assets outside of select core basins) – which has cooled receptivity to new E&P companies (especially gas companies) which are typically in high-growth, investment phase

2018 IPO Outlook2018 Oil & Gas IPO Outlook.pptx\12 FEB 2018\6:18 PM\2

2018 Energy Capital Markets UpdateContextualizing our Outlook

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Current Themes in the MLP Market

The midstream and MLP market is in a period of significant change

The Alerian Index at 268 is down ~50% since it peaked in September 2014 at 540

Public equity raises had averaged ~$23 billion per year from 2011 – 2014, but fell ~70% in 2017

The most recent data point that demonstrates the softness in the MLP market was the IPO of BP’s MLP, which priced below the range and subsequently traded down. This contrasts with Shell’s MLP IPO on October 29, 2014, which priced at a record yield of 2.8% above the range and subsequently traded up over 40%

The current MLP “playbook” includes:

Strengthening the balance sheet ~4.0x (~4.5x max)

Increasing distribution coverage 1.3+x

Attempting to finance equity component of growth capital with retained earnings (e.g. EPD)

Evaluating IDRs

Evaluating MLP vs. C-Corp

Many MLP sponsors are currently evaluating their commitment to the MLP market as well as their IDR structure

Buy-ins of MLPs: VTTI, OKS, MEP, Kinder MLPs

IDR buy-ins / modifications: NS, HEP, ANDX, ARLP, WPZ, NEP, PAA, SEP, MPLX

Distribution Policy: EPD, GEL, BWP

____________________Source: Market data as of February 9, 2018.

BPMP SHLXIPO Date 10/26/2017 10/29/2014Pricing Range $19.00 - $21.00 $19.00 - $21.00Yield Range 5.0% - 5.5% 3.1% - 3.4%Pricing vs. Midpoint of Range (10.0%) 15.0%MQD Yield 5.8% 2.8%1-Day Performance (4.2%) 46.5%

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E&P

OFS

Source: FactSet asof 2/1/18

9.0x

8.5x

8.0x

7.5x

7.0x

6.5x

6.0x

5.5x

5.0x

4.5x

4.0xFeb-17 Mar-17 Apr-17 May-17

Jun-17 Jul-17

Large Cap

Aug-17 Sep-17

Mid Cap

Oct-17

Small Cap

Nov-17 Dec-17 Jan-18

14.5x

12.5x

10.5x

8.5x

6.5x

4.5x

2.5xFeb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18

Diversified OFS Capital Equipment Land Contract Drillers

Onshore C&P Services Proppant Providers Offshore ContractDrillers

EV to 2018E EBITDA Multiples

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• Immediate cash to grow business or strengthen balance sheet

• Future access to cash to grow business

• Liquidity

• Equity currency for M&A

• Attract / Retain talent

• Wider Investor Base

• Prestige / Public Relations

Benefits of Being Public

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• Time and expense of IPO and being public

• Loss of control by current stockholders

• Liability

• Ongoing legal compliance obligations

• Effect on management decisions

Costs of Being Public

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You’re big enough

Benefits to public scrutiny outweigh benefits of private

status3

There’s enough business model

progress

2

Outcome interval is small

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You Know its Time to Go Public When…

Right team in place

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• Process Overview

• Pre-filing period

• Waiting period

• Post-effective period

• Current SEC Climate

• Hot button SEC issues to anticipate

• IPO Guidebook available on Gibson Dunn website

Overview of the IPO Process

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• Financial Statements for Issuer and Targets

• Proper Tax Structuring from Beginning

• Running Your Business While Executing on the IPO

• Post-IPO Public Company Obligations Start at Pricing

Four Things You Wish You Had Known

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• Volatile commodity environment

• Supply/demand uncertainty• Public investors hunt for stability

• Quality, stable and predictable cash flows sell best

• Makes consolidation more likely

• Makes private capital transactions more likely for those who cannot fit public stability demands

• Tighter (and perhaps fewer) IPO windows

• But streamlined SEC process to hit windows for well prepared issuers

Market Thoughts for 2018

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Assessing IPO Windows

Window 1: Mid Jan – Mid February

Little or no credit for following year projections in valuation

Tight window to execute prior to financial staleness in mid Feb

Could have competing supply if issuers only waiting for calendar to turn (to avoid year-end IPO)

Window 2: March – June

Longer window to execute Full visibility for investors into latest full

year financial performance

Some potential valuation credit for following year’s projections

No notable slow-down periods

Window 3: July - September

Greater credit for following year’s projections

Must navigate summer holiday / slow-down periods

Could have competing supply post Labor Day as market opens back up

Window 4: October – Mid December

Full credit for following year’s projections Can get busy ahead of November financial

staleness

Must navigate holiday periods Year-end investor psychology typically

results in greater price sensitivity

Timing considerations will vary at different points throughout the yearJanuary ‘18

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Market Holiday

FOMC Meeting Federal Holiday

Financial Staleness

Market Slowdown

Midterm Elections

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Tax Thoughts for 2018

21%

100% 35% Rate 21% Rate ExpensingGathering System (7Y MACRS) $0.28 $0.17 $0.21

Unregulated Pipeline (15Y MACRS) $0.20 $0.12 $0.21

PV10 of Depreciation Deductions

2017 2018-2025 2026 and beyondCorporations & Shareholders (combined) $50.47 $39.80 $39.80MLP Unitholders $43.40 Effectively $33.40 $43.40Delta $7.07 $6.40 ($3.60)

Tax on $100 of Earnings

• Regulated businesses excluded

• Phases out in 20% increments annually beginning 2023 until it is zero in 2027

Corporate tax rate

Bonus Depreciation

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Tax Thoughts for 2018 (cont’d)

Corporation MLPUp-C

ShareholdersShareholders

Unitholders

Partners

$21.00

$18.80

Effectively $33.40

$21.00

$18.80

$33.40 to $40.80**

Sponsor

$21.00

* Assumes corporation pays dividends or there is high trading activity, causing shareholders to recognize capital gains.

$39.80* $39.80* $33.40-$40.80 $33.40 $39.80*??

** Depends on application of 20% trade or business deduction, which can be limited by amount of W-2 wages paid or amount of capital invested in business.

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• More SPAC Impact on O&G Companies Considering an IPO

• What are SPACs?

• Current SPAC activity

• SPAC acquisition as alternative to IPO

More SPAC Activity in 2018

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• More Support from SEC

• Direct Listings

• Greater scrutiny for corporate shell merger IPOs

SEC Thoughts for 2018

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Resources

James ChenowethPartner

TaxTel: +1 346.718.6718jchenoweth@gibsondunn.com

Brian LanePartner

Securities RegulationTel: +1 202.887.3646blane@gibsondunn.com

Gerry SpedalePartner

Capital Markets/M&ATel: +1 346.718.6888gspedale@gibsondunn.com

Hillary HolmesPartner

Capital Markets/Corporate CounselingTel: +1 346.718.6602hholmes@gibsondunn.com

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Our Offices

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