ENERGY INDUSTRY MONTHLY - D.A. Davidson Companies · 2014. 11. 6. · D.A. Davidson’s Energy Investment Banking Group has completed over 30 transactions in the oilfield services,

E N E R G Y I N V E S T M E N T B A N K I N G

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ENERGY INDUSTRY MONTHLY │November 2014

SUMMARY

M&A Environment. With the price of oil in the headlines (again) and the correction in share prices of E&P and OFS companies, we are experiencing anxiety in the sector-focused M&A market as investors look for guidance on the expected performance of acquisition targets under various commodities pricing scenarios. With consensus in the market forming at projected oil prices in the $70-75/bbl in 2015 and the anticipated decline on overall E&P CapEx in North America in the 7-10% range, buyers, both private equity and strategic are shifting their focus away from “me-too” commoditized services companies to businesses with unique advantages in technology or scale. Outside of the sector-specific drivers, the M&A environment is still very strong, driven by a continued low interest rate environment and capital liquidity reserves.

Capital Markets Activity. Despite volatility in the capital markets, issuing activity remains strong. Within the energy industry, there were 13 IPOs and follow-on offerings in October, driven by the midstream and downstream sectors. The two largest transactions were both MLPs: Shell Midstream Partners LP priced a $1.1 billion IPO and Tesoro Logistics LP priced a $1.3 billion follow-on.

Public Markets Performance. Davidson’s OFS and REN indices were down 12% and 3%, respectively, in October. The top performers in the OFS index were Gulf Island Fabrication (+23%) and Helix Energy Solutions (+21%), while in the REN index, the top performing stock was Solar Power (+59%). The strongest performing sectors over the last 12-month period were Solar – NAM (+133%), Bioproducts (+58%) and Other Renewables (+21%) which includes fuel cell and geothermal companies.

Industry Conferences and Exhibitions.

ACG Louisiana: Taste of New Orleans. On October 29th, at The Roosevelt Hotel in New Orleans, Miro Lazarov, Managing Director of D.A. Davidson’s Energy Investment Banking Group, participated on the panel “Private Equity in the Energy Industry.” Mr. Lazarov highlighted the drivers and trends of the M&A market, particularly in the Louisiana Energy industry, where year-to-date M&A activity is up nearly 10%.

Solar Power International. In Las Vegas, on October 23rd, we attended Solar Power International for the seventh year. The exhibitors represented a wide range of sectors, from photovoltaic technologies to developers and installers; however, the sector that garnered the most attention was batteries and energy storage.

SEG International Exposition. The 84th SEG International Exposition brought together more than 350 leading companies and institutions involved in the global oil and gas geophysical and seismic industry. SEG exhibitors expressed continued demand for geophysical and seismic products and services, despite year-to-date sector share performance declining over 55%.

CONTACTS

Miro Lazarov, CFA Managing Director

714.327.8852 [email protected]

Monte Giese

Managing Director 406.268.3029

[email protected]

Rory McKinney Managing Director

310.500.3865 [email protected]

ABOUT DAVIDSON

D.A. Davidson’s Investment Banking Group provides full-service underwriting and advisory services for mid-size and growing companies, including public offerings, mergers and acquisitions and private placements. D.A. Davidson’s Energy Investment Banking Group has completed over 30 transactions in the oilfield services, energy services and equipment, and power generation industries since 2004, with total deal value exceeding $2.7 billion. D.A. Davidson & Co. is part of D.A. Davidson Companies, a national financial services holding company with over $44 billion in client assets under management and distribution.

CONTENTS

M&A Activity

Public Markets

Industry News

Industry Stats

2 │ November 2014 D.A. Davidson & Co. │ www.davidsoncompanies.com/ecm


MERGERS & ACQUISITIONS MARKET

M&A Dashboard D.A. Davidson’s analysis on the current M&A market based on key economic and industry metrics Recent M&A Transactions Noteworthy mergers and acquisitions in the energy and power industry

KEY RATES PUBLIC MARKET PERFORMANCE

Index as of 10/31/14 last month last year Index 1-month 12-month 2013

10-yr T-Note 2.34% 2.53% 2.51% S&P 500 2% 15% 30%

Investment Grade Spread 143 bps 136 bps 176 bps Davidson OFS* (12%) (21%) 28%

Davidson REN** (3%) 20% 103%

ECONOMIC PUBLIC MARKET VALUATIONS Index Latest growth % as of Price-to-Earnings (P/E) as of 10/31/14 last month last year

GDP – Real $16.2 trillion 0.88% 09/30/14 Davidson OFS 17.4x 19.6x 22.0x

Inflation (CPI) 1.66% 09/30/14 Davidson REN 17.3x 18.4x 18.8x

Confidence (CCI) 94.48 6.10% 10/31/14

TEV / EBITDA as of 10/31/14 last month last year

COMMODITIES Davidson OFS 7.1x 7.8x 9.4x

Index as of 10/31/14 last month last year Davidson REN 10.2x 10.1x 10.4x

Crude Oil (WTI) 80.54 91.42 96.38

Crude Oil (Brent) 85.86 94.67 108.84 TEV / Revenue as of 10/31/14 last month last year

Natural Gas (Henry Hub) 3.96 4.12 3.66 Davidson OFS 1.3x 1.5x 1.6x

Electricity ($/MWh) 37.69 42.13 35.94 Davidson REN 1.2x 1.3x 1.4x

D.A. Davidson’s M&A Outlook: STRONG

Date Target Business Description Acquirer Value ($mm)

- Proserv Group Inc. A production technology and services company providing drilling and production technology products Riverstone Holdings LLC -

- TGC Industries Inc. Provides geophysical and seismic services to the oil and gas industry in the United States Dawson Geophysical Company -

- DisplaySearch and Solarbuzz LLC Market intelligence, analysis, and consulting services to the solar industry IHS Inc. -

- Nuevo Midstream, LLC Midstream energy company operating in the Delaware basin Western Gas Partners LP $1,500

- Cleco Corporation Public utility holding company operating primarily in Louisiana Macquarie Infrastructure $4,704

- Entrada Midstream, Inc. Provider of natural gas gathering, processing, treating, and transportation services Tesoro Logistics LP $2,500

10/17/14 Gulfstream Services, Inc. Provider of pressure control equipment to the oil and gas industry The Jordan Company -

10/15/14 Sun Tubular Services LLC Provider of heat-treated oilfield tubular work strings in the Permian Basin IronGate Energy Services -

10/02/14 Accelerated Companies LLC Manufacturer of artificial lift solutions for the oil and gas industry Dover Corporation $430

10/01/14 Houston Offshore Engineering Engineering services company to support offshore oil and gas developments WS Atkins plc $73

*OFS: Oilfield Services & Equipment **REN: Renewable Energy and Cleantech Source: Capital IQ, D.A. Davidson estimates



PUBLIC MARKETS

Key Trading Statistics Sector Valuations: TEV / LTM EBITDA Davidson Oilfield Services & Equipment Davidson Renewable Energy & CleanTech

Sector Stock Price % Chg P / E (as of) TEV / LTM EBITDA (as of) TEV / LTM Revenue (as of) 1-month 12-month 10/31/14 last month last year 10/31/14 last month last year 10/31/14 last month last year

Davidson OFS*

Compression (5%) 6% 34.6x 37.2x 50.3x 11.2x 12.2x 9.1x 4.7x 5.0x 3.3x Drillers – Land (21%) (4%) 21.5x 26.5x 21.7x 4.4x 5.7x 5.1x 1.4x 1.8x 1.7x Drillers – Offshore (10%) (40%) 8.0x 8.6x 10.6x 6.2x 6.5x 8.5x 2.8x 2.9x 3.9x Engineering & Construction (13%) (14%) 16.2x 17.5x 19.2x 7.8x 9.0x 9.1x 0.5x 0.5x 0.6x Equipment (4%) (0%) 18.6x 20.1x 22.3x 9.8x 10.6x 11.4x 1.3x 1.5x 1.8x Geophysical / Seismic (17%) (42%) 22.1x 16.1x 21.5x 4.2x 5.7x 5.3x 0.9x 1.2x 1.6x Industrial & Fabrication (4%) (18%) 25.5x 25.7x 41.7x 9.3x 9.7x 11.6x 0.6x 0.7x 1.1x Large Cap OFS (14%) 0% 17.9x 19.9x 24.3x 8.4x 10.1x 8.9x 1.5x 1.8x 1.6x Mid Cap OFS (22%) (31%) 17.4x 22.4x 20.3x 6.6x 7.9x 7.5x 1.1x 1.4x 1.3x Offshore Services (20%) (34%) 15.4x 14.9x 26.0x 8.3x 8.1x 12.7x 2.1x 2.0x 2.9x Transportation Services 1% (22%) 12.8x 13.6x 27.2x 7.0x 7.5x 10.8x 2.2x 2.2x 3.0x

Davidson REN**

Batteries – Energy Storage 9% 25% 19.7x 29.3x 20.1x 18.8x 17.1x 11.2x 0.6x 0.6x 0.9x Bioproducts (1%) 58% 10.3x 11.8x 30.8x 4.7x 5.2x 8.1x 1.5x 0.9x 1.0x Capital Equipment (13%) 5% NM NM NM NM NM NM 1.8x 2.6x 1.0x Electric Vehicles 3% 1% NM NM NM NM NM NM 2.5x 2.4x 2.9x Engineering & Construction 0% 11% 16.7x 16.7x 14.1x 6.9x 6.8x 6.5x 0.7x 0.8x 0.7x Other Renewable 2% 21% 26.0x 25.1x NM 11.3x 11.1x 14.7x 4.3x 4.0x 2.4x Power Supplies (3%) 11% 18.0x 18.4x 18.7x 11.3x 11.6x 10.9x 1.0x 1.0x 1.2x Smart Grid – Energy Efficiency (7%) (26%) NM NM NM 18.1x 15.8x 19.6x 0.9x 1.0x 1.2x Solar – Asia (13%) (40%) 12.3x 13.9x NM 9.0x 9.3x NM 1.2x 1.3x 1.4x Solar – NAM (4%) 133% 16.7x 18.8x 10.5x 10.5x 11.4x 13.8x 1.3x 1.5x 1.6x

*OFS: Oilfield Services & Equipment **REN: Renewable Energy and Cleantech Source: Capital IQ, D.A. Davidson estimates

4.2x

4.4x

6.2x

6.6x

7.0x

7.8x

8.3x

8.4x

9.3x

9.8x

11.2x

Geophysical / Seismic

Drillers - Land

Drillers - Offshore

Mid Cap OFS

Transportation Services

Engineering & Construction

Offshore Services

Large Cap OFS

Industrial & Fabrication

Equipment

Compression

NM

NM

4.7x

6.9x

9.0x

10.5x

11.3x

11.3x

18.1x

18.8x

Capital Equipment

Electric Vehicles

Bioproducts

Engineering & Construction

Solar - Asia

Solar - NAM

Power Supplies

Other Renewable

Smart Grid - Energy Efficiency

Batteries - Energy Storage



NATURAL GAS PRODUCTION

INDUSTRY ACTIVITY

Crude Oil Prices Volatility Extends. Continued fears of slowing global demand, particularly in Europe and China, is putting increased pressure on crude oil prices. On November 3rd, WTI crude oil prices dipped below $80/bbl for the first time since June 2012, representing a 1-month decline of 11%. Furthermore, as has been widely reported, Saudi Arabia has rejected the call by fellow OPEC members to reduce production and is focusing on maintaining its market share in a down market.

U.S. Rig Count. The Baker Hughes U.S. rig count decreased by 2 rigs this month to 1,929. The U.S. land rig count increased to 1,876, the highest level since August 2012, while the offshore rig count decreased to 53. Year-to-date, land rig count has increased 11% while offshore rig count has declined from 61 to 53, or 13%. By rig trajectory, directional remained flat at 211 rigs, or 11% of the total rig count, 1,353 (70%) were horizontal and 365 (20%) were vertical.

Preliminary Earnings Commentary. Despite share prices of the Big Four (Baker Hughes, Halliburton, Schlumberger and Weatherford) declining 11% since September 30th, executives are optimistic that this is driven by a short-term slump in oil prices. On Halliburton’s earnings call, Dave Lesar, CEO said, “Despite what people are thinking, demand is creeping up, albeit at a lower rate than it has been." Lesar attributed the downward pressure on prices to a current oversupply and expects this to correct itself in 2015.

Source: EIA

COMMODITY PRICES CRUDE OIL PRODUCTION

NATURAL GAS INVENTORIES

0

2

4

6

8

10

12

14

16

18

0

20

40

60

80

100

120

140

160

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Natural G

as ($Mbtu)

Cru

de O

il ($

bbl)

Crude Oil - WTI ($bbl)

Natural Gas - HH ($Mbtu)

3.5

4.5

5.5

6.5

7.5

8.5

9.5

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Cru

de P

rodu

ctio

n (M

M b

arre

ls/d

ay) 2014 2013 2012 2011

1500

1750

2000

2250

2500


Mon

thly

Nat

ural

Gas

Pro

duct

ion

(Bcf

) 2014 2013 2012 2011

0

500

1000

1500

2000

2500

3000

3500

4000

4500


Nat

ural

Gas

Inve

ntor

y (B

cf)

2014 2013 2012 2011



INDUSTRY ACTIVITY (cont’d)

Rig Counts

U.S RIG COUNT (OIL VS. GAS) U.S. RIG COUNT (LAND VS. OFFSHORE)

U.S RIG COUNT (BY TRAJECTORY) NORTH AMERICA VS. INTERNATIONAL

Source: Baker Hughes’ Rig Count

U.S RIG COUNT (BY REGION)

0

100

200

300

400

500

600

No.

Rig

s

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

30%

Mon

thly

Cha

nge

(%)

0

20

40

60

80

100

120

0

500

1000

1500

2000

2500

2005 2007 2009 2011 2013

Offshore (N

o. Rigs)

Land

(No.

Rig

s)

Land Offshore

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

No.

Rig

s

Oil Gas

0

200

400

600

800

1,000

1,200

1,400

1,600

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

No.

Rig

s

Horizontal Vertical Directional

0

500

1000

1500

2000

2500

3000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

No.

Rig

s

North America International



ABOUT US

Select Transactions

Industry Professionals

Miroslav S. Lazarov Managing Director Investment Banking Head of Energy Group

Direct: +1 (714) 327-8852 Mobile: +1 (714) 883-0196 [email protected]

Monte W. Giese Managing Director Investment Banking Co-Head of Investment Banking


Rory A. McKinney Managing Director Investment Banking Co-Head of Investment Banking




ABOUT US (cont’d)

Research Coverage List

Research Professionals

ENERGY INFRASTRUCTURE SERVICES

Chart Industries Inc.* GTLS Mistras Group, Inc.* MG

Exterran Holdings, Inc.* EXH Newpark Resources Inc.* NR

Furmanite Corporation* FRM Team, Inc.* TISI

Matrix Service Company* MTRX TETRA Technologies, Inc.* TTI

John Rogers, CFA Managing Director Head of Institutional Equity Research Engineering & Construction

Tristan Richardson Research Analyst Energy Infrastructure Services

*D.A. Davidson & Co. makes a market in this security.

ENGINEERING & CONSTRUCTION

AECOM Technology Corporation* ACM Layne Christensen Co.* LAYN

Aegion Corporation* AEGN MasTec Inc.* MTZ

Babcock & Wilcox Company (The)* BWC McDermott International, Inc.* MDR

Chicago Bridge & Iron* CBI MYR Group, Inc.* MYRG

Comfort Systems USA Inc.* FIX Orion Marine Group, Inc.* ORN

Dycom Industries Inc.* DY Primoris Services Corporation* PRIM

EMCOR Group, Inc.* EME Quanta Services Inc.* PWR

Fluor Corporation* FLR Stantec Inc.* STN

Foster Wheeler AG* FWLT Sterling Construction Co. Inc.* STRL

Granite Construction, Inc.* GVA Tetra Tech Inc.* TTEK

Great Lakes Dredge & Dock Corp.* GLDD Tutor Perini Corp.* TPC

Jacobs Engineering Group* JEC URS Corporation* URS

KBR, Inc.* KBR Willbros Group, Inc.* WG

ADVANCED MATERIALS

CARBO Ceramics Inc.* CRR

Documents

ENERGY INDUSTRY MONTHLY - D.A. Davidson Companies · 2014. 11. 6. · D.A. Davidson’s Energy Investment Banking Group has completed over 30 transactions in the oilfield services,