IPAA Private Capital Conference · IPAA Private Capital Conference A&D Market Update January 24,...

IPAA Private Capital

Conference

A&D Market Update

January 24, 2019

Craig Lande

[email protected]

713-585-3335

www.rbcrichardsonbarr.com

mailto:[email protected]

http://www.rbcrichardsonbarr.com/

RBC Capital Markets Richardson Barr1

Delaware

Advisor to 3ROC

April 2018

Confidential

10

Mineral and Royalty

Bakken

Midland Basin

Appalachia Basin

Eagle Ford

19

11

16

17

14

18

27

20 22

Recent Select RBC-Advised U.S. Transactions

Eagle Ford

Advisor to GulfTex

February 2018

Confidential

E VNER EST

6

Delaware

Advisor to Shell

April 2018

$200,000,000

9

Midland

Advisor to SM

May 2018

Confidential

11

Midstream

Advisor to MS

May 2018

$1,750,000,000

12

$900,000,000

Advisor to NGL

July 2018

Midstream

15

Appalachia

Advisor to EQT

July 2018

$575,000,000

16

Bakken

Advisor to W Energy

October 2018

$305,000,000

18

Minerals &

Royalties

Advisor to Continental

October 2018

$600,000,000

19

Delaware

Advisor to FME

October 2018

Confidential

21

Advisor to Devon

Pending

Central Basin

Platform

Confidential

Confidential

28

Midstream

Advisor to Andeavor

January 2018

Confidential

Midland

Advisor to ExL / EQ

October 2018

$312,500,000

20

Midstream

24

Advisor to Southcross

November 2018

Confidential

Midland

Advisor to ROXO

October 2018

Confidential

22

Confidential

Central Basin Platform

26 28

Midstream

15 243 12

Minerals &

Royalties

Advisor to Haymaker

July 2018

$404,000,000

14

Advisor to Beacon

February 2018

Delaware

Confidential

Confidential

5

Confidential

Advisor to Tapstone

April 2018

SCOOP / STACK

8

$120,000,000

Advisor to Linn

April 2018

Central Basin

Platform

7

Advisor to Concho

November 2018

Midland

Confidential

Confidential

23

Advisor to Dale

January 2019

Confidential

27

Minerals &

Royalties

Delaware Basin

5

7

SCOOP / STACK

8

2

DJ Basin

1

18

9

23

Advisor to ExL

January 2018

Delaware

Confidential

Confidential

2

DJ Basin

Advisor to Carrizo

January 2018

Confidential

1

Minerals &

Royalties

Advisor to Royal

February 2018

$123,000,000

4

Confidential

ConfidentialAdvisor to

Greystone/AmeriCo

December 2018

Central Basin

Platform

Confidential

26

Advisor to Incline

July 2018

DJ Basin

Confidential

Confidential

13

Bakken

Advisor to Oasis

July 2018

$283,000,000

Confidential

17

13

6

10 21

4

25

Confidential

Advisor to Williams

December 2018

Midstream

25

3


$56 $56$60

$43

$62

$23

$58

$47$44

2010 2011 2012 2013 2014 2015 2016 2017 2018

Annual A&D Asset Supply

Annual U.S. E&P Onshore Transaction History ($B) (1)

Source: RBC Richardson Barr internal database, public filings, company press releases.

(1) Includes onshore U.S. asset transactions greater than $20 million.

2010 - 2017

Average: ~$50 B

$10.8 B


Monthly A&D Asset Supply

$ in Billions


(1) Includes onshore U.S. asset transactions greater than $20 million. Excludes BP / BHP Transaction

$2 $2 $2

$3 $3

$5 $5

$6 $6

$11

$5

$9

$13

$4

$3 $3 $3

$4

$4 $5

$1

$2 $2

$3

$1

$3

$1

$2

$5

$3

$4 $3

$2

$3

$1

$0 $0

$2

$4

$6

$8

$10

$12

$14

Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19

Active

DownFlat

Dead


$28$24

$36

$18

$32

$11

$20$24

$30

$28$31

$24

$26

$29

$12

$38$24

$14

$56 $56$60

$43

$62

$23

$58

$47$44

2010 2011 2012 2013 2014 2015 2016 2017 2018

Public Other

Who Is Selling?

Annual U.S. E&P Onshore Transaction History ($B) (1)


(1) Includes onshore U.S. asset transactions greater than $20 million.

%

Public 50% 43% 60% 41% 53% 46% 34% 50% 67%


$47

$64 $78

$86

$104

$68

$84

$100 $94

$109 $118

$52

$37

$59

$93

($38)

($56)($70)

($76)

($109)

($67)

($87)

($113)

($133) ($128)

($156)

($97)

($61)

($82) ($86)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Operating Cash Flow Capex

Why Are Publics Selling?

Source: FactSet market data.

Financial

Crisis

Commodity Price

Decline

FCF

Focus

($ in billions, unless otherwise specified)

+ + + + + +- - - - - - - - -

Free Cash Flow /+ -

~ $200 Billion of

outspend


Equity Markets Shut As Investors Demand ExecutionEquity Offerings by Quarter Since 2016 ($B)

$10.0

$7.0

$8.6

$5.4

$3.0

$0.2 $0.1 $1.0 $0.1 $1.0 $0.8 $0.2

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2016 2017 2018

Source: RBC Richardson Barr database and public filings.

Publics Aggressively Buying

Publics Focused on Execution


2010 2011 2012 2013 2014 2015 2016 2017 2018

M&A Picked Up Dramatically In 2018

Source: RBC Richardson Barr database, public filings

(1) Select onshore corporate M&A transactions greater than $1.0 billion

Deal

Count 1 2 2 1 3 1 1 2 6

$33.7

$11.4

$4.4$3.9

$16.1

$4.9

$19.6$19.8

$3.9


Public E&P Universe – January 2017

Source: Factset

<$3 Billion$3B - $10B>$10 Billion

15

3626

Public Market Value

$562 Billion


Public E&P Universe – Today

Now

60

<$3 Billion$3B - $10B>$10 Billion

Jan 2017

15

Jan 2017

36

Jan 2017

26

Now

12

Now

11

Public Market Value

$562 Billion

Jan 2017

Public Market Value

$434 Billion

Now

Source: Factset


$16.1

$3.9 $4.4

$11.4

$33.7

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

2014 2015 2016 2017 2018

Deal A

mo

un

t ($

B)

M&A Has Been An Important Driver For Asset Supply…


(1) Select corporate M&A transactions greater than $1.0 billion.

Deal

Count3 1 1 2 6

North Louisiana

(Grenadier)

Q1 2015

Rockies

(White Rock)

$108 MM

Q2 2015

Multi-Basin

(Cobra)

$152 MM

Q2 2015

Conventional

Multi-Basin

(Foundation)

$185 MM

Q3 2015

DJ Basin

(SRC Energy)

$608 MM

Q2 2016

Eagle Ford

(Verdun)

$68 MM

Q3 2016

Appalachia

(HG Energy)

$1.13 B

Q2 2017

Halff East

Midland Basin

Q4 2018

Appalachia

(Diversified)

$575 MM

Q2 2018

Big Chief

Delaware Basin

Did not sell

Multi-Basin

(BSM)

$340 MM

Q4 2017

Portfolio Management After M&A has Led to Significant Divestitures in Recent Years ($ in Billions)


SAN JUAN~567,000 net acres

~102 Mboe/d

San Juan County, NM

ARKOMA~440,000 net acres

~204 MMcfe/d

Pittsburg County, OK

BAKKEN~80,000 net acres

21 Mboe/d

McKenzie County, ND

ARKOMA~125,000 net acres

~84 MMcfe/d

Hughes County, OK

UINTA~220,000 net acres

~19 Mboe/d

Duchesne County, UT

EAGLE FORD~42,000 net acres

~50 Mboe/d

Karnes County, TX

Source: RBC internal database, public filings, and company presentations

WAMSUTTER~500,000 Net Acres

38 Mboe/d

Sweetwater County, WY

Non-Core

Non-Core Non-Core

M&A

M&A

M&A

Potential??

Potential??

Potential??

Potential??

M&A

CBP~82,000 net acres

~7 Mboe/d

Andrews County, TX

…And Should Continue To Provide Lots Of Opportunities

M&A


$7.0

$5.6

$5.0

$4.8

$4.5

$3.9

$4.0

$2.5$2.4

$2.0$1.6

$1.5 $1.5$1.4 $0.9 $0.7 $0.7 $0.6 $0.6 $0.6 $0.6 $0.5

$41.9

$94.5

Private Equity Has An Abundance Of Dry Powder…

BlackstoneSHERID NNN

OTHER TOTAL

~$95 Billion of dry powder available

to Private Equity for acquisitions

Source: Richardson Barr Internal Database


24%

41% 41% 40%

48%

66%

2013 2014 2015 2016 2017 2018

…And Has Become The Dominant Buyer In Today’s Market

% Private Equity Buyers By Year

Source: RBC Richardson Barr internal database and public filings. Includes onshore U.S. asset transactions > $20 MM. Includes acquisitions made by S.P.A.C.s.

(1) Excludes BP / BHP deal.

(1)


PE Asset Demand since 2016 ($B)

Where And What Has Private Equity Been Buying?

% of Total 23% 17% 12% 9% 8% 7% 7% 6%

Gas $12 $11

$9

$6 $5 $5 $5 $4

Oil$4

Conventional Eagle Ford Appalachia SCOOP/STACK Bakken Delaware Midland Haynesville

53%

24%

23%Oil Resource Play

Gas Resource Play

Conventional

Source: RBC Richardson Barr internal database.

S.P.A.C.s

~$4 S.P.A.C.s

~$3 S.P.A.C.s

~$2

S.P.A.C.s

~$2


Private Equity Buying Behind Publics – Conundrum or

Opportunity?

Big Land Positions: 10k – 100k+ Net AcresP

No Clock Ticking: Generally all HBPP

Serendipity: Generally all depths / all rights so multiple zones to

exploit now or down the roadP

Cost savings: Reduce big company LOE and G&A from day oneP

Efficiencies: Low-hanging fruit, e.g. better “plumbing”P

Unloved: Neglected and undercapitalized assetsP

Cash Flow: Most likely spitting out free cash flow from day oneP

Valuation: PDP to PDP+

- Lock in hedges on PSA

- Get upside for free

P

Pros


Private Equity Buying Behind Publics – Conundrum or

Opportunity?

EXIT??

Cons


0%

10%

20%

30%

40%

50%

60%

70%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Private Equity – We’ve Seen This Movie Before!

% Of Value Allocated To PDP (1)

Inventory Buying PDP / Cash FlowPDP / Cash Flow

(1) Select deals from RBC Richardson Barr internal transaction database.

3 to 5+ year hold

1 to 2 year hold

3 to 5+ year hold?


Then – Portfolio Co. Org Chart (Lease and Flip)

CEO

CFO Sr. BD

Jr. BD

Jr. BD

Land

Land

Land

Land

Land

Land

Land

Land


Now – Portfolio Co. Org Chart (Hold, Develop and Exploit)

CEO

CFO BD / LandCOO

Accounting VP, Operations

Jr. Drilling Engineer

Sr. Drilling Engineer

Marketing

Completions Engineer

Reservoir Engineer

Facilities / Midstream

Geo. Tech

Geologist


Disclaimer (USA)

This presentation was prepared exclusively for the benefit of and internal use by the recipient for the purpose of considering the transaction or transactions contemplated herein.

This presentation is confidential and proprietary to RBC Capital Markets, LLC (“RBCCM”) and may not be disclosed, reproduced, distributed or used for any other purpose by the recipient without RBCCM’s express written consent; provided, however, that by acceptance of these materials, and notwithstanding any other express or implied agreement, arrangement, or understanding to the contrary, RBCCM, its affiliates and the recipient agree that the recipient (and its employees, representatives, and other agents) may disclose to any and all persons, without limitation of any kind from the commencement of discussions, the tax treatment, structure or strategy of the transaction and any fact that may be relevant to understanding such treatment, structure or strategy, and all materials of any kind (including opinions or other tax analyses) that are provided to the recipient relating to such tax treatment, structure, or strategy.

The information and any analyses contained in this presentation are taken from, or based upon, information obtained from the recipient or from publicly available sources, the completeness and accuracy of which has not been independently verified, and cannot be assured by RBCCM. The information and any analyses in these materials reflect prevailing conditions and RBCCM’s views as of this date, all of which are subject to change.

To the extent projections and financial analyses are set forth herein, they may be based on estimated financial performance prepared by or in consultation with the recipient and are intended only to suggest reasonable ranges of results. The printed presentation is incomplete without reference to the oral presentation or other written materials that supplement it.

References herein to “LIBOR”, “LIBO Rate”, “L” or other LIBOR abbreviations means the London interbank offered rate as administered by ICE Benchmark Administration (or any other person that takes over the administration of such rate).

Employees of RBCCM are prohibited from directly or indirectly, explicitly or implicitly: (a) promising any company favorable research coverage, a particular research rating or recommendation, as an inducement for the receipt of business or compensation; or (b) threatening to retaliate with adverse coverage or comments if such business or compensation is not awarded. All recommendations, ratings, price targets and opinions regarding a company are determined independently by RBCCM’s Research Department.

RBCCM and its affiliates do not provide tax advice and nothing contained herein should be construed as tax advice. Accordingly, you should seek advice based upon your particular circumstances from an independent tax advisor.

In the event that RBCCM is engaging in any discussion of activities that may be subject to the provisions of Section 15B of the Securities Exchange Act of 1934 or of any rules or regulations adopted thereunder by the Securities and Exchange Commission or the Municipal Securities Rulemaking Board (together, the “Municipal Regulations”), RBCCM hereby provides notice to you that it is providing the information contained in this document for discussion purposes only in anticipation of serving as Underwriter to you and/or any of your affiliates in which RBCCM would be acting solely as a principal in a commercial, arm’s length transaction and not as a municipal advisor, financial advisor or fiduciary to you and/or any of your affiliates or any other person or entity. The information provided herein or in connection herewith is not intended to be and should not be construed as “advice” within the meaning of the Municipal Regulations.

RBC Capital Markets is the global brand name for the capital markets businesses of Royal Bank of Canada and its affiliates, including RBC Capital Markets, LLC (member FINRA, NYSE and SIPC), RBC Dominion Securities Inc. (member IIROC and CIPF) and RBC Europe Limited (authorised in the United Kingdom by the Prudential Regulation Authority ("PRA") and regulated by the Financial Conduct Authority (“FCA”) and the PRA). This material is not for distribution to anyone without the express written permission of RBC Capital Markets. ® Registered trademark of Royal Bank of Canada. Used under license.

© Copyright 2019. All rights reserved.

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IPAA Private Capital Conference · IPAA Private Capital Conference A&D Market Update January 24,...

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