Financing Oil Field Services in Current Low Priced Commodity - PowerPoint PPT Presentation

Financing Oil Field Services in Current Low Priced Commodity Environment Denver Dealmakers Expo April 7, 2015 Chris Rockers- Managing Director 100 Jackson Street, Suite 101 • Denver, CO 80206 303.242.5755 1521 Washington Avenue • New Orleans, LA 70130 303.242.5756 www.alpinacapital.com

Marketplace Observations General Market Observations: • Capital is NOT easy or readily available for OFS in the current environment • The further away from “the drill bit” the easier financing becomes • Most capital providers are “waiting for market to stabilize” • Everyone is looking for a “bargain basement deal” • It will take a special management team or opportunity to get to a financing close in the next 3-6 months • First step for all OFS businesses to finance businesses in current environment is internal cost-cutting, workforce reductions, and business line rationalization Most oil field services businesses now are forced to get “creative” with financing options 2

Oil Field Service Categories Oil Field Service Business Categories: Publicly traded multi-national OFS businesses - examples include: • HAL, SLB, CAM, WFT Publicly traded North American OFS businesses- examples include: • KEG, BAS, CJES, SPN Privately owned North American OFS businesses PE backed - examples include: • Beckman Production Services (SCF backed) • O-Tex Pumping (White Deer backed) • Liberty Oil Field Services (Riverstone backed) Privately owned North American OFS businesses individual backed – examples include: • Dupre Energy Services (multi-basin) • Basin Holdings (multi-basin) • Numerous single basin single service line businesses 3

Oil Field Service Capital Availability Publicly traded OFS businesses • Traditional capital sources open but expensive • Example: C&J Energy Service debt financing of Nabors unit acquisition • Bigger OFS businesses using their liquidity (billions in cash on balance sheets) to grab market share and push smaller players out of markets/business • Generally, the bigger players are pricing services below cost and/or providing service “packages” at low rates Privately owned OFS businesses • Private companies backed by “traditional” energy service private equity firms generally entered current downturn “adequately” levered (1-2x TTM EBITDA) • Commercial lenders appetite for new OFS private equity backed credit facilities is zero Privately owned businesses in particular are forced to get “creative” with financing options 4

Key Elements to Capital Availability Several Key Elements MUST be present for successful financing today • Solid/proactive management team • The team does not need MBAs but they need to have experienced a downturn (2008/2009) and understand operations and financials • Conversations with potential capital partners need to start BEFORE it is too late • Service line focus at a minimum needs to be “Differentiated” (see examples below) Less Highly Differentiated/ Differentiated / Specialized/ Mildly Highly Limited Competitive Competitive Competition • • Pad Construction Fluids • Tool Fishing • Pipelining Management Services • Roustabout • Workover Rigs • Wireline • • Simple Equipment Drilling Rigs • Pressure Rental • Trucking Services Pumping/Fracking 5

Non-Traditional Capital Sources Non-traditional options today: Distressed energy funds : • Carlyle Group, Blackstone, KKR, Apollo, and others have raised billion $ funds to invest in distressed energy asset • Generally the focus is more on mineral/E&P/producing assets but for a big enough OFS opportunity they will take a look • Expensive and expensive Individual investors/family offices: • Flexible with investment structures (debt, preferred stock, equity, combo) • Often open to both minority or majority investments • Best partners in this group generally have experience investing in energy and will not be alarmed by a down cycle • Usually regionally focused and invest in smaller increments 6

Non-Traditional Capital Sources Non-traditional options today (continued): Vertical Integration/Vendor Financing • More available when services were in tight supply • In current environment many of the vendors/integrators are feeling as much pain as OFS businesses • Key will be how many other OFS businesses are active in basin • Examples – RockPile or Oasis Business Development Companies (BDCs) : • Primarily debt focused • Sometimes bring consulting/strategic help to portfolio companies • Appraisals for equipment used as collateral for debt will be low Mezzanine Funds: • Usually they are not a good match for OFS businesses due to cyclical nature of business but taking on this financing at the bottom of cycle is much less risky • Expensive and could end up being a loan-to-own scenario 7

Case Study – Capital Structure Relief Rental Business/Solids Control Case Study Summary: Key for financing : Strong and proactive management team • 2014 EBITDA was in $10-12 million range • Forecast 2015 for $4-5 million in EBITDA • $10 million of asset backed debt with multiple commercial banks • Majority of $10 million with large middle market bank with lots of OFS credit exposure today. Capital Structure Goal : Management team would like to pay-down credit facility, potentially acquire some distressed OFS businesses in other basins, and buyout existing minority shareholders- estimated capital need $10 to $20 million. • Traditional private equity has looked at company in the past but management team/operating owners are not comfortable with traditional PE model. • The management team is in early stages of acquisition discussions but waiting for sellers pricing expectations to reach current market pricing. • Alpina is advising to pursue a combo of debt and equity investment with a couple family offices. The key is to get investment discussions far enough down the road that the investors are ready to go when acquisition targets hit distress. 8

Case Study – Growth Equity Investment Startup OFS Services Business Summary: Key for financing : Strong and experienced management team • 3 person management team deep customer relationships, Halliburton and PE backed OFS operations experience, that was targeting a market/basin which was lacking an “independent” service option for customers. • The management team was committed to investing their own money along with new partner and had a clear understanding of standard equity investment structures. Capital Structure Goal : Management team needed a $15 to $20 million capital commitment to purchase startup equipment, yard location and fund first 12 months of operations costs until BE. • Traditional private equity did not fit investment because there was no existing cash flow or bank leverage opportunity. • Family offices focused on slowing the initial purchase of equipment (1 versus 3 spreads to start) and “proving out” the market. • The management team ultimately secured financing from a growth investment fund focused solely on funding start up energy services businesses. The transaction closed in February 2015. 9