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Junior Oil and Gas CFO ForumMarch 12, 2014
www.pwc.com/ca/energy
Welcome
Reynold TetzlaffNational Energy LeaderPwC
www.pwc.com/ca/energy
PwC
Agenda
3:30pm – 3:40pm Registration
3:40pm – 3:50pm WelcomeReynold Tetzlaff, PwC
3:50pm – 4:15pm Capitalizing on foreign investment opportunitiesHabib Yunus, W Energy Advisory
4:15pm – 4:25pm Beyond our bordersDavid Whiteley, PwC
4:25pm – 4:45pm CFO roundtable discussion and Q&A
4:45pm – 4:50pm Wrap upReynold Tetzlaff, PwC
4:50pm Networking and drinks
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PwC
Welcome
Objectives• Provide a forum for oil and gas CFOs to come together and engage with one
another on industry issues• Provide an opportunity for networking with other CFOs in the industryAsk• Be engaged
- Ideas to drive the agenda- Discussion to drive debate
• Provide feedback on what’s working • Invite othersPwC’s role• Facilitate sessions• Prioritize the issues/topics from CFOs and organize presenters• Contribute industry knowledge and best practice
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PwC
Voting instructions
• Wireless voting technology• Easy, simple to use• Press the number that corresponds to the answer you want to select• Count by pressing 7
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PwC
Test question
Have you ever been to Asia?
1. Yes – China only2. Yes – Korea only3. Yes – Japan only4. Yes – 2 of the above5. Yes – all 3 countries6. No
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Capitalizing on foreign investment opportunitiesHabib YunusW Energy Advisory
www.pwc.com/ca/energy
CalgaryMarch 12, 2014
W Energy Advisoryw-advisory.com
Office +1 (713) 518-1126
Fax +1 (281) 617-5819
PwC Junior Oil & Gas Forum
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What We Do
Buyside Advisory– Find investments that fit your strategy
Deal Execution– Provide an execution team; “boots on the ground”
Project / Operations Management– Oversight to integrate and monitor investment
W Advisory: focused on helping Japanese companies in energy investment
Service Lines
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• We bring: Professional experience– Communication among disciplines– Bridge finance, legal, technical– Objective guidance
We do. We don’t just advise
• We understand: Execution is a marathon– Set milestones– Maintain pace– Focus on the finish line
• We want: Success after closing– Devil is in the details– We want your investment to be a success– Making the best deal for your strategy
Focused on Execution: “the art of getting things done”
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Past JV Deals
Focused on entering plays with large partners
>Billion dollars – Substantial deals that may not have included production
Large companies – Partnered with Devon, Encana, EOG,etc.
Poorly structured – Most have booked impairment (Mitsui, Mitsubishi, Itochu, Marubeni, Sumitomo, Osaka Gas, etc.)
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Future Deals
Today’s Asian buyers look different
Smaller Deals – Subpar results on large JV’s have buyers being cautious
Structured Deals – Look for deals modeled after Grafton/Bellatrix and KKR/Exco
Different Buyers – Utilities, gas companies, PE funds and smaller trading houses
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Question 1
Would you prefer an equity partner or asset partner?
1. Equity2. Asset3. Mix
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Deal Drivers
Return and exit are not key drivers
Macro – Country assists private enterprises
Low Cost of Capital – Lower return expectation
Minimize Downside – Homeruns not rewarded
Long-term, strategic relationship – Play well with others
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What they are looking for
The long road to first base
• “We want to build long term relationships with our partners”
• “We want to enjoy the good times and the bad times together”
• “We are like private equity—without the exit”
• “We want a partner with whom we can build synergies”
• “We are not venture capital”
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What foreign investors would like to see
1. Low debt2. Consistent growth3. Positive P&L (less focus on cash flow)4. Flexibility in structure5. Commitment from management to stay 6. Patience to educate—they don’t live and breath
oil & gas7. Engagement—ask questions and listen well8. Willingness to develop a relationship before the
deal9. Synergies10. vs US deals—understand what makes you
uniquely Canadian
Fina
ncia
lP
erso
nal
Inta
ngib
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Question 2
Do you do a 5 year plan?
1. Yes2. No3. Maybe
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Question 3
How often do you update the 5 year plan?
1. Every 2 years2. Once a year3. When trying to raise money
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Key “Do not’s”
1. Don’t tell them their process if flawed
2. Avoid boasting
3. Don’t try to “educate” them on how to do business
4. Don’t pitch the exit—focus on entry and growth
5. Don’t do conference calls if you can meet in person
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Understand your counterpart
http://news.cnet.com/Keiretsu-dynasties-give-way-to-global-changes/2009-1041_3-5471874.html
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Deal Motivation is different
Personal interests are least important
Country
Industry
Conglomerate
Company
Division
Unit
Group
Self
Priority
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Know your counterpart #1
The desk by the window is punishment…
• People don’t lose jobs
• They lose face
• Success is not rewarded
• Failure is punished with isolation
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Question 4
Have you ever heard the term “karoshi”?
1. Yes2. No3. Maybe
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Know your counterpart #2
They live hard lives
60 minute commute16 hour days
60 m3 / 600 sq ft apartment
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How the deal gets done
Not economics
1. What can I get internal approval for?
2. How do I avoid impairment?
3. How do I avoid losing money?
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Question 5
What is the average years of experience of your management team?
1. 6-152. 15-203. 21-304. 30+
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Intangibles—Seniority and respectWith whom do I develop the relationship?
Manager (Age 40)
Sr. Manager (Age 45)
General Manager (Age 50)
Executive Officer (Age 55)
Sr. Executive Officer (Age 60)
CEO (Age 60)
Managers (Age 28-35)
VP Operations (Age 45)
VP Engineering (Age 45)
VP BD (Age 45)
CFO (Age 45)
CEO (Age 45)
Canadian Junior E&P (15 ppl) Japanese Trading Co (5,000 ppl)
If age = seniority…who is my counterpart?
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Preferred Structure
Asset level investment
• Prefer asset level investment (vs equity/debt)
• Like to co-invest with partners
• Equity is not impossible—but they want to know management will stay
Action ItemsDelink debt from assets Dedicate resources to assetsReinforce management commitment
Remain open to multiple partners
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The Advantages
Good long term partner
• Long-term, patient money
• Do not micromanage
• Will not force an exit
• Will put the investment before their own interests
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The Disadvantages
How patient are you
• Decision-making process is s•l•o•w
• Reluctant to sign any documents
• May be language issues
• Want to see everything before making a decision
• Adds a layer of reporting
Appendix
32
The Team
• Founder of W Energy Advisory• 15+ years experience in finance and investment
structuring• Led $602MM JV with Encana coalbed methane
asset in Alberta, Canada• Managed acquisition of GE Money (Lake) for JPY
570 billion• Former employers: Deloitte, Shinsei Bank, Toyota
Tsusho
Role North America leader—E&P, oil field service
Skillset • Business development• Investment structuring, valuation• Negotiation• Tax
Languages English, Japanese
Habib Yunus, CPA, President and Managing DirectorEmail [email protected]
Mobile phone +1 713-815-8144
Office phone +1 713-518-1126
• 15+ years in E&P operation (commercial & legal)• Previously with Mitsubishi Exploration (MCX),
country manager of Gabon, West Africa for 2006-2013, responsible for offshore Nguma permit exploration as an operator, and several non-operating assets in the country.
• Formerly with Japan Oil Development Co (JODCO), part of project management team for Zakum & Umm-Shaif fields, offshore Abu Dhabi.
Role Africa leader
Skillset • Business development• Contract & tender management• Logistics• Government relations
Languages Japanese, English
Yo Shimizu, Managing DirectorEmail [email protected]
Mobile phone +1 281-797-4178
Office phone +1 713-234-5079
Beyond our borders
David WhiteleyPartnerPwC
www.pwc.com/ca/energy
PwC
International operational expectations vs. Canadian operations
• How the PSA and JOA/Accounting Procedures are created/structured
• How companies interact with non operator- Administrative load – e.g. expectation Canada vs reality- Prepare your people for differences to standard CAPL/PASC
• Address reporting and consolidation at the parent level- Not just about preparing Canadian statements at the Canadian level but also
preparing at the parent level (different GAAP, policies, do not know Canadian practices)
• Adapt reporting to the schedule of the local company, audit deadlines are different (eg. Japan has March year end; China – Jan.1!)
• Different reporting standards – Canada might be using IFRS and other countries might be using local GAAP
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PwC
Information request and needs
• What they may have experienced in Canada vs. what the Japanese will expect here – they require a lot of information
• From due diligence process expect a LOT of questions Do not take things for granted eg. GST, JIBLINK etc.
• Give them structure – Ops and Finance Meetings on project status◦ OR prepare to be “peppered” with questions and requests
› (eg. JV with multiple Asian partners)
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PwC
Kaizen
Kaizen – Japanese for “improvement,” refers to philosophy or practices that focus upon “continuous improvement” of processes in manufacturing, engineering and business management. When used in the business sense and applied to the workplace, kaizen refers to activities that continually improve all functions, and involves all employees from the CEO to the assembly line workers.
January 201336
PwC
International top 10+ list
1. Commitment from Management to stay
- Add to progress the project . . . .quickly (e.g. project clause)
2. Impairments are BIG DEALS
- Administrative approvals but Utility companies/Partners cannot pass along
3. Questions are not meant to be challenges to “Operator” Knowledge
- Want to understand and improve . . .always
4. Loyal and trustworthy
- Honour contract terms, work through issues, demanding but fair
January 201337
PwC
Developing business relationships with asianinvestors
• Decisions are made at the head office; never press them to make a decision
• Focus your attention on top person in delegation eg. Follow the lines of Authority from Top first
• The more senior the person, the less likely they are to speak englishwell
• Take a genuine interest in their culture
• Introduce them to people who can help them outside of your business
• It will take more time than usual
January 201338
PwC
How has the market changed for Juniors
1. Capital is at a premium so JVs with foreign NOC or Companies is becoming more prevalent
- First wave is here . . .Second wave coming ($Billion market caps)
2. Juniors have to be more attentive in attracting capital and getting ahead of the “curve” i.e. Extend BD beyond usual contacts and Canadian borders
3. These foreign companies think vertically . . .Upstream > Midstream>>Downstream + Service Companies
January 201339
Roundtable
www.pwc.com/ca/energy
PwC
Question # 6
Can you clearly articulate your competitive advantage?
1. Yes2. No3. Maybe
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Question # 7
Are equity holders and management aligned re JV?
1. Yes2. Haven’t considered it yet3. Maybe4. No
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PwC
Question # 8
How much time would you dedicate (from start to finish) to complete a joint venture?
1. 1-2 months2. 3-5 months3. 6-8 months4. 9-12 months
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PwC
Question # 9
Are you willing to dedicate 1-2 staff to manage a JV?
1. Absoluteley2. Depends who is paying3. No
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PwC
Question # 10
What topic would you like to discuss at the next session?
1. Future of gas2. Scientific research and development grants in the junior sector3. Capital markets4. Reservoir engineers and the process5. Other – please write the topic down on the feedback form
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Wrap-up
Reynold TetzlaffNational Energy LeaderPwC
www.pwc.com/ca/energy
Thank you
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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