Financing Oil Field Services in Current Low Priced Commodity Environment

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Patrick Hubbard
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1 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 Washington Avenue New Orleans, LA

Managing Director 100 Jackson Street, Suite 101 Denver, CO 80206 303.

2 General Market Observations: Marketplace 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

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

3 Oil Field Service Business Categories: Publicly traded multi-national OFS businesses- examples include: HAL, SLB, CAM, WFT Oil Field Service Categories 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

include: Beckman Production Services (SCF backed) O-Tex Pumping (White Deer backed) Liberty Oil Field Services (Riverstone backed) Privately owned North

4 Publicly traded OFS businesses Oil Field Service Capital Availability 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

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

5 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 Differentiated / Highly Competitive Pad Construction Pipelining Roustabout Simple Equipment Rental Differentiated/ Mildly Competitive Fluids Management Workover Rigs Drilling Rigs Trucking Services Highly Specialized/ Limited Competition Tool Fishing Services Wireline Pressure Pumping/Fracking 5

at a minimum needs to be Differentiated (see examples below) Less Differentiated / Highly Competitive Pad Construction Pipelining Roustabout Simple Equipment Rental Differentiated/

6 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

expensive Individual investors/family offices: Flexible with investment structures (debt, preferred stock, equity, combo) Often open to both minority or majority

7 Non-traditional options today (continued): Non-Traditional Capital Sources 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

(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

8 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 shareholdersestimated 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

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 shareholdersestimated

9 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

The management team was committed to investing their own money along with new partner and had a clear understanding of standard equity investment structures.

IPAA Private Capital Conference Houston, Texas January 29, 2015

IPAA Private Capital Conference Houston, Texas January 29, 2015 These presentation materials do not constitute an offer or invitation by or on behalf of Energy & Infrastructure Capital, LLC or any of its