Oilfield Service Updatefoundersib.com/wp-content/uploads/2018/05/Energy-Market... · 2019-10-29 ·...
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Energy & Industrial Team Duane Donner [email protected] Matt Carrington [email protected] John Sullivan [email protected] Evan Klisares [email protected] David Szell [email protected] Oilfield Service Update OFS Newsletter | May 2018 Highlights “We expect drilling activity in North America land to continue to grow in volume and complexity” Paal Kibsgaard (CEO), Schlumberger “We are currently looking at 35 different acquisitions right now” Arty Straehla (CEO), Mammoth Energy OPEC and Russia Continue to Cut Production Last month, some of the largest crude producers in the world met to discuss the production cuts that were agreed upon in 2017. These producers, of which the largest are Saudi Arabia and Russia, agreed to continue with the cuts through at least the end of 2018. That decision shows the continued willingness to prop up the market until Saudi Arabia goes public with Aramco, which Founders believes should provide at least 12-24 months of stability in the energy markets. Publicly traded OFS companies agree with this outlook, which we will discuss on the proceeding page. OPEC’s Production Cuts will Promote North American OFS M&A Activity Given the high correlation between oil prices and OFS M&A activity, OPEC’s decision to curb production will likely have a positive effect on the U.S. Energy M&A market. Transaction volumes through the first quarter of 2018 were up 22% over Q1 2017 levels, and sentiment surrounding stability in the market remains favorable through the remainder of the year. Strategic buyers have been particularly acquisitive in 2018, as the demand for seasoned hands, talented management, and quality equipment has forced leadership teams to turn to the M&A market. On the proceeding page, we highlight notable quotes from Strategic buyers’ Q1 2018 earnings calls. Source: CapIQ 2018 OFS Transactions, by Buyer Type 26 11 7 Strategic Financial Undisclosed Through May 14, 2018 0 25 50 75 $0 $100 $200 # of Energy M&A Transactions Price of WTI Oil 84% Correlation between the Price of Oil and Energy Transactions # of Energy M&A Transactions by Month WTI Price - Adjusted for Inflation Source: CapIQ; Transactions are all U.S. Energy Equipment and Services deals
Transcript of Oilfield Service Updatefoundersib.com/wp-content/uploads/2018/05/Energy-Market... · 2019-10-29 ·...
Oilfield Services Newsletter | May 2018
Energy & Industrial Team
Duane [email protected]
Matt [email protected]
John [email protected]
Evan [email protected]
David [email protected]
Oilfield Service Update
OFS Newsletter | May 2018
Highlights
“We expect drilling activity in
North America land to continue to grow in
volume and complexity”
Paal Kibsgaard (CEO), Schlumberger
“We are currently looking at 35 different acquisitions right now”
Arty Straehla (CEO), Mammoth Energy
OPEC and Russia Continue to Cut Production
Last month, some of the largest crude producers in the world met to discuss the productioncuts that were agreed upon in 2017. These producers, of which the largest are Saudi Arabiaand Russia, agreed to continue with the cuts through at least the end of 2018. That decisionshows the continued willingness to prop up the market until Saudi Arabia goes public withAramco, which Founders believes should provide at least 12-24 months of stability in theenergy markets. Publicly traded OFS companies agree with this outlook, which we willdiscuss on the proceeding page.
OPEC’s Production Cuts will Promote NorthAmerican OFS M&A Activity
Given the high correlation between oil prices andOFS M&A activity, OPEC’s decision to curbproduction will likely have a positive effect on theU.S. Energy M&A market. Transaction volumesthrough the first quarter of 2018 were up 22%over Q1 2017 levels, and sentiment surroundingstability in the market remains favorable throughthe remainder of the year. Strategic buyers havebeen particularly acquisitive in 2018, as thedemand for seasoned hands, talentedmanagement, and quality equipment has forcedleadership teams to turn to the M&A market. Onthe proceeding page, we highlight notable quotesfrom Strategic buyers’ Q1 2018 earnings calls.
Source: CapIQ
2018 OFS Transactions, by Buyer Type
2611
7
Strategic Financial Undisclosed
Through May 14, 2018
0
25
50
75
$0
$100
$200
# o
f En
ergy
M&
A
Tran
sact
ion
s
Pri
ce o
f W
TI O
il 84% Correlation between the Price of Oil and Energy Transactions
# of Energy M&A Transactions by Month WTI Price - Adjusted for Inflation
Source: CapIQ; Transactions are all U.S. Energy Equipment and Services deals
Oilfield Services Newsletter | May 2018
Outlook
“In the oil market, we see global demand rising at a steady pace, driven by an improved GDP outlook for the UnitedStates and Europe. In Asia alone, strong economic growth is expected to add nearly 1 million barrels per day ofdemand in 2018… OPEC and Russia have committed to production cuts through the end of 2018. We have seen adraw on U.S. crude inventories that have pulled stocks closer to the 5-year average. These factors have resulted in amarket equilibrium, which we expect will keep crude prices relatively range-bound in 2018. This recent pricestability has resulted in a customer spend forecast that shows solid year-over-year growth for our short-cyclebusinesses, particularly in North America, where operators continue to grow rig count and well counts. ” – LorenzoSimonelli (Chairman, President & CEO), Baker Hughes, 4.20.18
Notable Quotes from Public OFS, Q1 2018 Earnings Calls
M&A
“Personnel in this business are tightening very, very quickly. And while we can all spend capital to get equipment,you better be able to efficiently put it in the field. And so that’s why I would say I would be more focused on anacquisition that had highly talented qualified service personnel, more so than the physical equipment that goes withit.” – Cynthia Taylor (CEO & Executive Director), Oil States International, 4.26.18
“We are currently looking at 35 different acquisitions right now… Our story has always been about mergers andacquisitions and being an acquisitive company, and at the same time building organically. So we continue to believethat’s the best way to grow.” – Arty Straehla (CEO & Director), Mammoth Energy Services, 5.3.18
Capex
“As the market grows, North America's role in the global supply equation is changing. This fundamental shift meansthat North America shale oil has moved from swing producer to baseload supplier to meet growing global demand.Nothing is more evident of this change than our customers actively redirecting spending from international non-OPEC opportunities towards North America. This shift in Capex allocation is largely driven by the shorter cyclereturn and lower risk profile North America shale provides.” – Jeffrey Allen Miller (President, CEO & Director)Halliburton, 4.23.18
Overview
Public Oilfield Service Index has outperformed the S&P500 in 2018. This trend confirms the improvingsentiment that investors have towards OFS companies.Instead of repeating history and making largeinvestments in new projects, public OFS companies havebeen disciplined in spending and selecting growthopportunities to pursue, part of the reason sentimenttowards them is improving. The public markets are aleading indicator of the private markets, that isespecially true for OFS markets. Below, we highlightsome of the most recent quotes that will give a tenthousand foot view of how the public players arehandling the rebound in the energy market.
2018 OFS Index Performance vs. S&P 500
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
Jan-18 Feb-18 Mar-18 Apr-18 May-18
S&P 500 (^SPX) - Index Value
iShares U.S. Oil Equipment & Services ETF (ARCA:IEZ) - Share Pricing
2
Oilfield Services Newsletter | May 2018
Recent Oilfield Service Transactions
3Source: CapitalIQ
Announced Date Target Name Buyer Name Target Business Description
5/3/2018 Fleaux Services of Louisiana, LLC Galenfeha, Inc. (OTCPK:GLFH)Offers oil and gas production equipment, measurement and instrumentation, and industrial pumps. Established in 2012 and headquartered in Shreveport, Louisiana.
5/1/2018 Elite Production Services, LLC Pro Oil & Gas Services, LLCProvides pressure testing and flowback operations. Formerly known as 2-J Well Service LLC. Headquartered in San Antonio, Texas.
5/1/2018 Whitetail Well Testing LLC Pro Oil & Gas Services, LLCProvides flowback and well testing services. Established in 2009 and headquartered in Elk City, Oklahoma.
4/17/2018 Sun Energy Services, LLC White Deer EnergyProvides completion and general site/pad well services. The company serves natural gas basins. Established in 2008 and headquartered in Zelienople, Pennsylvania.
4/10/2018 Fluid End Sales, Inc.Sixty Six Oilfield Services, Inc. (OTCPK:SSOF)
Manufactures and distributes oilfield equipment. Founded in 1982 and headquartered in Oklahoma City, Oklahoma.
3/6/2018 Energy Services International, L.L.C. Petrolink USA, LLCProvides pre-commission cleaning services to oil and gas, energy, petrochemical, and refinery industries. Headquartered in Seabrook, Texas.
2/28/2018 Falcon Flowback Services, LLCOil States International, Inc. (NYSE:OIS)
Provides flowback services to the oil and gas industry including well testing, drill-out work, plug drill-outs, sand separations, and onsite monitoring. Headquartered in Oklahoma City, Oklahoma.
2/22/2018 Tucker Energy Services Holdings, Inc.STEP Energy Services Ltd. (TSX:STEP)
Provides fracturing and coiled tubing solutions and wireline services. Established in 1939 and headquartered in Houston, Texas.
2/21/2018 Paragon Offshore Ltd.Borr Drilling Limited (OB:BDRILL)
Provides offshore drilling services. Established in 2014 and headquartered in Houston, Texas.
2/16/2018 Premier Flow Control, LLC Sole Source CapitalProvides oil field services including flowback, well testing, nitrogen, and equipment rental services. Established in 2011 and headquartered in Corsicana, Texas.
Oilfield Services Newsletter | May 2018
Trading Statistics
4Source: CapitalIQ
TickerCompany
NameStock Price 5/14/2018
% of 52-Week
Market Cap
Enterprise Value /
High LowEnterprise
Value2017
Revenue 2017 EBITDA2017
Revenue 2017 EBITDA
Integrated OFS (Big 3)
NYSE: HAL Halliburton Company $52.7 91% 138% $45,796 $54,384 $20,317 $3,504 2.7x 15.5x
NYSE: SLB Schlumberger Limited $71.8 89% 118% $98,455 $112,804 $30,370 $6,808 3.7x 16.6x
NYSE: WFT Weatherford International $3.4 63% 166% $3,289 $10,666 $5,723 $537 1.9x 19.9x
Min $3.4 63% 118% $3,289 $10,666 $5,723 $537 1.9x 15.5x
Median $52.7 89% 138% $45,796 $54,384 $20,317 $3,504 2.7x 16.6x
Mean $42.6 81% 141% $49,180 $59,285 $18,803 $3,616 2.8x 17.3x
Max $71.8 91% 166% $98,455 $112,804 $30,370 $6,808 3.7x 19.9x
Offshore/Subsea Equipment & Service Providers
NYSE: DO Diamond Offshore Drilling $19.2 94% 190% $2,634 $4,177 $1,473 $570 2.8x 7.3x
NYSE: DRQ Dril-Quip, Inc. $44.9 79% 125% $1,720 $1,225 $447 $55 2.7x 22.2x
NYSE: ESV Ensco plc $6.6 82% 160% $2,863 $6,984 $1,844 $553 3.8x 12.6x
NYSE: NE Noble Corporation plc $5.4 93% 173% $1,283 $5,334 $1,195 $496 4.5x 10.8x
NYSE: OII Oceaneering International $23.3 84% 136% $2,311 $2,714 $1,874 $225 1.4x 12.1x
NYSE: RDC Rowan Companies plc $16.1 93% 179% $2,019 $3,315 $1,255 $493 2.6x 6.7x
NYSE: RIG Transocean Ltd. $13.4 99% 186% $6,012 $13,048 $2,930 $1,226 4.5x 10.6x
Min $5.4 79% 125% $1,283 $1,225 $447 $55 1.4x 6.7x
Median $16.1 93% 173% $2,311 $4,177 $1,473 $496 2.8x 10.8x
Mean $18.4 89% 164% $2,692 $5,257 $1,574 $517 3.2x 11.8x
Max $44.9 99% 190% $6,012 $13,048 $2,930 $1,226 4.5x 22.2x
Onshore Equipment & Service Providers
NYSE: BAS Basic Energy Services $14.6 49% 114% $394 $688 $867 $63 0.8x 10.8x
TSX: ESI Ensign Energy Services $6.2 79% 111% $958 $1,685 $982 $201 1.7x 8.4x
NASDAQ: TUSK Mammoth Energy Services $34.0 95% 313% $1,506 $1,542 $668 $119 2.3x 12.9x
NYSE: NOV National Oilwell Varco $41.1 99% 137% $15,529 $17,075 $7,280 $592 2.3x 28.9x
NYSE: PUMP ProPetro Holding Corp. $19.5 85% 180% $1,599 $1,670 $982 $150 1.7x 11.1x
NYSE: SPN Superior Energy Services $11.3 92% 147% $1,732 $2,923 $1,898 $173 1.5x 16.9x
NYSE: FTI TechnipFMC plc $31.7 91% 129% $14,789 $12,408 $15,196 $1,865 0.8x 6.7x
Min $6.2 49% 111% $394 $688 $668 $63 0.8x 6.7x
Median $19.5 91% 137% $1,599 $1,685 $982 $173 1.7x 11.1x
Mean $22.6 84% 162% $5,215 $5,427 $3,982 $452 1.6x 13.7x
Max $41.1 99% 313% $15,529 $17,075 $15,196 $1,865 2.3x 28.9x
Oilfield Services Newsletter | May 2018
Earnings Release Calendar
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July
Date Company Name Vertical
7/20/2018 Oceaneering International, Inc. Equipment & Technology
7/20/2018 Halliburton Company Integrated Equipment & Service Providers
7/24/2018 Weatherford International plc Service Providers
7/25/2018 Superior Energy Services, Inc. Land Drillers
7/25/2018 RPC, Inc. Service Providers
7/26/2018 Basic Energy Services, Inc. Equipment & Technology
7/26/2018 Calfrac Well Services Ltd. Equipment & Technology
7/26/2018 Oil States International, Inc. Equipment & Technology
7/26/2018 Helmerich & Payne, Inc. Land Drillers
7/27/2018 Dril-Quip, Inc. Land Drillers
7/27/2018 Frank's International N.V. Offshore Drillers
7/27/2018 Ensco plc Service Providers
7/27/2018 National Oilwell Varco, Inc. Service Providers
7/30/2018 Transocean Ltd. Offshore Drillers
7/31/2018 Forum Energy Technologies, Inc. Land Drillers
7/31/2018 Pioneer Energy Services Corp. Offshore Drillers
August
Date Company Name Vertical
8/1/2018 Noble Corporation plc Equipment & Technology
8/2/2018 Rowan Companies plc Equipment & Technology
8/2/2018 Diamond Offshore Drilling, Inc. Integrated Equipment & Service Providers
8/2/2018 Nabors Industries Ltd. Offshore Drillers
8/2/2018 TechnipFMC plc Service Providers
8/8/2018 TETRA Technologies, Inc. Offshore Drillers
8/10/2018 Trican Well Service Ltd. Service Providers
TBD
Date Company Name Vertical
TBD Patterson-UTI Energy, Inc. Service Providers
Source: CapitalIQ
Oilfield Services Newsletter | May 2018
Commodity Prices
➢ WTI Oil $/bbl
➢ Natural Gas $/MBtu
6
$40.00
$45.00
$50.00
$55.00
$60.00
$65.00
$70.00
$75.00
Crude Oil - WTI (ICE) Historical Pricing Crude Oil - WTI (ICE) Future Contracts
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
Natural Gas - Henry Hub (NYMEX) Historical Pricing Natural Gas - Henry Hub (NYMEX) Future Contracts
Source: CapitalIQ
Oilfield Services Newsletter | May 2018
Production Data
➢ U.S Crude Oil Production
➢ U.S Natural Gas Production
Million Cubic Feet per Day (Feb) Change From
Current Prior Month Prior Year Prior Month Prior Year
Natural Gas 97,195 95,431 89,419 1.8% 8.7%
Thousands of Barrels per Day (Feb) Change From
Current Prior Month Prior Year Prior Month Prior Year
Crude Oil 10,264 10,004 9,058 2.6% 13.3%
7
0
2,000
4,000
6,000
8,000
10,000
(Th
ou
san
ds
of
Bar
rels
per
Day
)
82,000
84,000
86,000
88,000
90,000
92,000
94,000
96,000
98,000
Mill
ion
Cu
bic
Fee
t p
er D
ay
Source: EIA
Oilfield Services Newsletter | May 2018
Total Rig Count by Basin
➢ Total U.S Rig Count by Basin Analysis
Total U.S Rig Count by BasinTotal U.S Rig Count by Basin:
YTD Change
8
0
500
1000
1500
2000
2500
Cana Woodford Eagle Ford Haynesville Marcellus Permian Williston Other
-3
8
9
7
63
11
26
-10 0 10 20 30 40 50 60 70
Cana Woodford
Eagle Ford
Haynesville
Marcellus
Permian
Williston
Other
Cana Woodford - 70
Eagle Ford - 78
Haynesville - 54
Marcellus - 55
Permian - 463
Williston - 57
Other - 268
Source: Baker Hughes US Rig Count by Basin – 5.11.18
Oilfield Services Newsletter | May 2018
Rig Counts (continued)
➢ U.S Oil vs. Natural Gas Rig Count
➢ Gulf of Mexico: Oil Rig vs. Natural Gas Rig
Rig Counts (May) Change from
Current Prior Month Prior Year Prior Month Prior Year
Oil 844 834 712 1.2% 18.5%
Natural Gas 199 196 172 1.5% 15.7%
Other 2 2 1 0.0% 100.0%
Rig Counts (May) Change from
Current Prior Month Prior Year Prior Month Prior Year
Oil 19 18 17 5.6% 11.8%
Natural Gas 1 1 3 0.0% -66.7%
9
0
50
100
150
200
250
300
350
400
450
0
200
400
600
800
1000
1200
1400
1600
1800
Gas
Rig
s
Oil
Rig
s
Oil Gas
0
5
10
15
20
25
30
35
40
45
50
Gulf of Mexico Gas Rigs Gulf of Mexico Oil Rigs
Source: Baker Hughes
Oilfield Services Newsletter | May 2018
Contact
For more information, visit www.foundersib.com, call us at 205.949.2043, or contact the Energy & Industrial team directly by
email:
About Founders Advisors
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Founders Advisors (Founders) is a merger, acquisition & strategic advisory firm serving middle-market companies. Founders’
focus is on energy, industrials, software, internet, digital media and industrial technology companies throughout the United
States. Founders’ skilled professionals, proven expertise and process-based solutions help companies access growth capital,
make acquisitions, and/or prepare for and execute liquidity events to achieve specific financial goals. In order to provide
securities-related services discussed herein, certain principals of Founders are licensed with M&A Securities Group, Inc. or
Founder M&A Advisory, LLC, both members FINRA & SiPC. Founders M&A Advisory is a wholly owned subsidiary of Founders.
M&A Securities Group and Founders are not affiliated entities. For more information, visit www.foundersib.com.
Duane P. Donner II, Managing Director [email protected]
John W. Sullivan, Vice [email protected]
David Szell, [email protected]
Matt Carrington, [email protected]
Evan H. Klisares, Senior [email protected]
In order to provide securities-related services discussed herein, certain principals of Founders are licensed with M&A Securities Group, Inc. or Founders M&A Advisory, LLC, both members FINRA & SiPC. M&A Securities Group and Founders are unaffiliated entities. Founders M&A Advisory is a wholly owned subsidiary of Founders.
BIRMINGHAM2204 Lakeshore Drive, Suite 425
Birmingham, AL 35209-8855Phone: 205.949.2043
Fax: 205.871.0010
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Irving, TX 75038Phone: 214.295.1055
Fax: 214.295.1047
