Embed Size (px)
Citation preview
Anti-Trust Compliance
Everyone will remain muted
Please do not place the call on hold to avoid music disrupting the call
PESA will share a post-event summary
During Q&A: Send questions via chat
PESA – Market Outlook with PPHB
1
PPHB – Firm Profile
2
Joe HoepflPartner
John SchisslerManaging Director
MERGERS & ACQUISITIONS
INSTITUTIONAL PRIVATE EQUITY
DEBT ADVISORY
LIABILITY MANAGEMENT & RESTRUCTURING
VALUATIONS
FAIRNESS OPINIONS
PPHB is an independent investment banking firm focused on the energy service and equipment sector, providing a comprehensive suite of services including:
Allen BrooksManaging Director
Navigating the Energy Storm
Petroleum Equipment & Services AssociationJune 18, 2020
Allen BrooksManaging Director
Joe HoepflPartner
John SchisslerManaging Director
3
Current Oil Price Decline Pattern Following Earlier Downturns
4
Is this a new cycle or just an extension of the one starting in 2014?
This Rig Downturn Rivals 1984 But 2014 Was Worst
5
Every rig downturn seems to have its own shape and pace
History Says Booms Force Industry Restructuring
6
Drilling Technology Impacted Rigs, But They Still Follow Oil Price
7
We Are In Another Period Of Boom-Bust
8
Every period of oil price stability has been associated with a powerful regulator in one form or another
What Drove Oil Prices Also Drove Industry Change
9
Oil prices and their trajectory shape view of future activity and opportunities
Shale Revolution Has Changed Global Oil Market
10
From Import-dependent To Oil Exporter, U.S. Role In The Global Oil Market Has Changed
Shale Output Supplied World Three Of Last Eight Years, Altering U.S. Need For Middle East Oil
High Oil Prices, New Capital Fueled OFS Growth
11
New financing vehicles, private equity, cheap capital and optimism drove equipment additions and company formations
Key Part Of Restructuring Will Be M&A
12
M&A Driven By Shifting Opportunities, Business Strategy Changes and Margin Improvement Goals
Selected Energy M&A Deals
Will We Repeat The Past? – Why And Why Not
13
10 Years To Recapture Lost Consumption Won’t Happen This Time
Extraordinarily High Oil Prices Have Unintended Consequences and Need Time For Adjustments
The Industry Restructuring Is Underway
14
Too Much Debt And Not Enough Cash Flow Is A Recipe For Financial Restructurings – Bankruptcy Process Offers Borrowers Opportunity To Restructure Balance Sheets
Fallout From Covid-19 And Oil War Will Dampen Oil Use
15
Altered lifestyles, work protocols, GDP growth and push for clean energy will retard oil consumption growth compared to earlier forecasts
Challenges To Navigating The Oil Market Recovery
16
Issues To Consider
• Demand• Pace of Covid-19 recovery• Global recession/depression• Permanent life/work changes• Green energy revolution
• Supply• Shale economics• E&P restructuring• OFS capacity• ESG pressures
• Geopolitics• Nov. 3 election• November OPEC meeting
Aegis view as of June 5, 2020
Critical issues maybe priced into the current global oil market
Potential Potholes for Service Companies
17
Cash is King Watch for “One Hit Wonders”
Borrowing Bases Squeezed
Borrowing Base
Debt Paydown
OFS Spend
Top Customers Debt Hedging
Client A $ $ $ $ $ 25%
Client B $ 65%
Client C $ $ 80%
Client D $ $ $ 70%
Client E $ 75%
Longer runway needed
Service providers must hibernate through periods
of inactivity
Strength of customer portfolio paramount to survival
Re-determinations are reducing access to credit
Ways to Achieve Positive Cash Flow
18
Stretch Payables…
Liquidity Process Improvement
Balance of Expenses &
OpportunitiesRetain Key Employees
Expense Considerations
Maintain Service
Capabilities
Labor
Vendor
Accelerate Receivables…
…and Dispose of Underutilized Assets
Headcount
Auto allowances
401K match / bonuses
Renegotiate pricing
Consolidate vendors
Software implementation
Paper flow automation
Labor dependence reduction
19
M&A Environment
Current Focus of OFS Industry
Companies are focused internally…
Liquidity
M&A Challenges
Cost Reduction Survival
…and lack strategic options
Non-Cash Consideration
Distressed Valuations
Cashless merger combinations are a primary focus
Deal Challenges Heightened
20
Companies seeking strategic alternatives face unique challenges
Social issues of management teams
Stakeholder Financial
Equity owners must agree…
…As do the lenders
Valuation in a state of extreme uncertainty
Lenders not willing to increase exposure…
…Necessitating new capital
Deals Will Get Done in Lower / Middle Market OFS
21
Surviving companies will be better positioned to operate in an environment characterized by…
Smaller market size Increased efficiency
Enhanced margins that enable capital reinvestment
…and investors / lenders with long-term conviction
