pesa – market outlook with pphb › wp-content › uploads › 2020 › 06 › pesa...jun 18, 2020...
TRANSCRIPT
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PESA – Market Outlook with PPHB
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PPHB – Firm Profile
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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
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Navigating the Energy Storm
Petroleum Equipment & Services AssociationJune 18, 2020
Allen BrooksManaging Director
Joe HoepflPartner
John SchisslerManaging Director
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Current Oil Price Decline Pattern Following Earlier Downturns
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Is this a new cycle or just an extension of the one starting in 2014?
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This Rig Downturn Rivals 1984 But 2014 Was Worst
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Every rig downturn seems to have its own shape and pace
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History Says Booms Force Industry Restructuring
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Drilling Technology Impacted Rigs, But They Still Follow Oil Price
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We Are In Another Period Of Boom-Bust
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Every period of oil price stability has been associated with a powerful regulator in one form or another
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What Drove Oil Prices Also Drove Industry Change
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Oil prices and their trajectory shape view of future activity and opportunities
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Shale Revolution Has Changed Global Oil Market
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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
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High Oil Prices, New Capital Fueled OFS Growth
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New financing vehicles, private equity, cheap capital and optimism drove equipment additions and company formations
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Key Part Of Restructuring Will Be M&A
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M&A Driven By Shifting Opportunities, Business Strategy Changes and Margin Improvement Goals
Selected Energy M&A Deals
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Will We Repeat The Past? – Why And Why Not
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10 Years To Recapture Lost Consumption Won’t Happen This Time
Extraordinarily High Oil Prices Have Unintended Consequences and Need Time For Adjustments
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The Industry Restructuring Is Underway
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Too Much Debt And Not Enough Cash Flow Is A Recipe For Financial Restructurings – Bankruptcy Process Offers Borrowers Opportunity To Restructure Balance Sheets
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Fallout From Covid-19 And Oil War Will Dampen Oil Use
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Altered lifestyles, work protocols, GDP growth and push for clean energy will retard oil consumption growth compared to earlier forecasts
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Challenges To Navigating The Oil Market Recovery
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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
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Potential Potholes for Service Companies
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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
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Ways to Achieve Positive Cash Flow
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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
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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
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Deal Challenges Heightened
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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
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Deals Will Get Done in Lower / Middle Market OFS
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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