where to from here? - sequeira partners...4 90.0 93.0 96.0 99.0 102.0 105.0 global demand global...

WHERE TO FROM HERE?

Julie AfanasiffMark McRae

THE GLOBAL BACKDROP

3

GROWING ANNUAL GLOBAL DEMAND

The Global Backdrop

Source: EIA

Annual Global Demand Growth from 2013 – 2020E

Mill

ion

s B

arre

ls /

Day

90.0

92.5

95.0

97.5

100.0

102.5

105.0

2013 2014 2015 2016 2017 2018 2019 2020E

4

90.0

93.0

96.0

99.0

102.0

105.0

Global Demand Global Production

GLOBAL DEMAND AND SUPPLY

The Global Backdrop

Source: EIA

Expecting a Balanced Market for Most of 2020

Mill

ion

s B

arre

ls /

Day

5

INCREMENTAL CRUDE PRODUCTION VERSUS Q1 2016

The Global Backdrop

Source: EIA

Incremental Crude Production for the United States, OPEC, Iran and Venezuela, and Canada

Mill

ion

s B

arre

ls /

Day

(3.5)

(2.5)

(1.5)

(0.5)

0.5

1.5

2.5

3.5

4.5

5.5

6.5

7.5

United States Canada Iran & Venezuela

OPEC excl. Iran & Venezuela Growth in Global Production

6

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

The Global Backdrop

Source: EIA

Markets Balanced Throughout 2020, but With Limited Spare Capacity…

OPEC SPARE CAPACITY

Mill

ion

s B

arre

ls /

Day

Average Spare Capacity from 2008 to 2020

7

$-

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

WTI ($USD) WCS ($USD)

CRUDE PRICING

The Global Backdrop

Source: S&P, Analyst Reports

Historical Crude Pricing

$ p

er

Bar

rel

$58.90Consensus 2020 Forecast

$38.00Consensus 2020 Forecast

8

$-

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

$-

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

WTI ($USD) WCS ($USD) WTI-WCS Differential ($USD)

CRUDE PRICING

The Global Backdrop


Historical WTI-WCS Differential

$ p

er

Bar

rel

$ p

er B

arrel W

TI-WC

S Diffe

ren

tial

9

$(1.00)

$(0.50)

$-

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00AECO ($CAD/mcf) Henry Hub ($CAD/mcf)

NATURAL GAS PRICING

The Global Backdrop

Historical Natural Gas Pricing

Consensus 2020 Forecast$1.90

$ p

er

mcf


Consensus 2020 Forecast$3.35

LESS WELLS, GIVE ‘EM HELL (INTENSITY)

11

Less Wells, Give ‘Em Hell (Intensity)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2014 2015 2016 2017 2018 2019 2020F

Wells Drilled – U.S.

We

lls D

rille

d

WELLS DRILLED

Source: Spears & Associates

12

DRILLING FOOTAGE


Average Footage per Well – U.S.

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Horizontal Directional

Ave

rage

Fo

ota

ge D

rille

d


13

15

20

25

30

35

40

45

50


Average Number of Stages per Well – U.S.

Ave

rage

Nu

mb

er

of

Stag

es

Source: Enverus

STAGES PER WELL

14

60

70

80

90

100

110

120

130

140

150

160


Average Proppant Placed per Stage – U.S.

Ave

rage

Pro

pp

ant

pe

r St

age

(to

nn

es)

PROPPANT USED PER STAGE

Source: Enverus

15

400

500

600

700

800

900

1,000

1,100

1,200

1,300

1,400


Average Fluid Pumped per Stage – U.S.

Ave

rage

Flu

id P

um

pe

d p

er

Stag

e (

m3)

FLUID USED PER STAGE

Source: Enverus

16


Wells Drilled – Canada

-

2,000

4,000

6,000

8,000

10,000

12,000

2014 2015 2016 2017 2018 2019 2020F*

We

lls D

rille

d

Source: PSAC*Based on commodity price and industry forecasts, Sequeira has estimated 5,000 wells drilled in 2020

WELLS DRILLED

17


Average Footage per Well – Canada

Ave

rage

Fo

ota

ge D

rille

d

-

2,000

4,000

6,000

8,000

10,000

12,000

Horizontal Directional

DRILLING FOOTAGE


18

15

20

25

30

35

40


Average Number of Stages per Well – Canada

Ave

rage

Nu

mb

er

of

Stag

es

Source: geoSCOUT

STAGES PER WELL

19

0

10

20

30

40

50

60

70

80

90

100


Average Proppant Placed per Stage – Canada

Ave

rage

Pro

pp

ant

pe

r St

age

(to

nn

es)

PROPPANT USED PER STAGE

Source: geoSCOUT

20

0

100

200

300

400

500

600


Average Fluid Pumped per Stage – Canada

Ave

rage

Flu

id P

um

pe

d p

er

Stag

e (

m3)

FLUID USED PER STAGE

Source: geoSCOUT

ALL DRESSED UP AND NO PLACE TO GO – CANADIAN TAKEAWAY CAPACITY

22

CANADIAN TAKEAWAY CAPACITY – PIPELINES AND REFINERIES

All Dressed Up And No Place to Go

Source: CAPP, Scotiabank GBM

Base Case

Mill

ion

s o

f B

arre

ls /

Day

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Local Refineries Existing Pipeline Capacity Enbridge Optimizations Bakken ExpansionLine 3 Southern Lights Reversal Western Canadian Supply

23

CRUDE BY RAIL


Source: NEB

An Imperfect Solution

Tho

usa

nd

s o

f B

arre

ls /

Day

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

Actual CBR Loadings Pre-2018 Peak CBR Exports

Crude shipped by rail nets an average of

$10/bbl less than crude shipped by pipeline

Curtailments

24

ADDITIONAL CAPACITY HIGHLY UNCERTAIN


Source: Scotiabank GBM, Company Reports

Planned Pipeline Projects

Pipeline Expected ISD Capacity (thousand b/d) Status

Enbridge Line 3 Replacement

November 2020 +370

CDICTrans Mountain Expansion

July 2023 +590

TransCanada Keystone XL

July 2021 +830

New Pipeline Capacity 1,790

EnbridgeBakken Expansion Idle

Nov-19/Jan-21 +100

EnbridgeMainline/Express Optimizations

Dec-19 to Jul-22 +285

EnbridgeSouthern Lights Reversal

July 2023 +150

Enbridge Upgrades/Optimizations 535

25

CANADIAN TAKEAWAY CAPACITY – PIPELINES AND REFINERIES


Source: CAPP, Scotiabank GBM

New Pipeline Outlook

Mill

ion

s o

f B

arre

ls /

Day

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Local Refineries Existing Pipeline Capacity Enbridge Optimizations Bakken Expansion Line 3Southern Lights Reversal Trans Mountain Exp Keystone XL Western Canadian Supply

26

CANADIAN TAKEAWAY CAPACITY – NATURAL GAS


Source: Government of Alberta

Natural Gas Demand in Alberta

Bcf

pe

r d

ay

0

2

4

6

8

10

12

14

16

Residential Commercial Industrial - oil sands

Industrial - petrochemical Other industrial Electricity generation

Transportation Reprocessing plant shrinkage Removals

27



Source: Government of Alberta, Scotiabank GBM

Planned Natural Gas Export Capacity Expansion

mm

cfp

er

day

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Existing Proceeding Proposed Surplus Gas

28



Source: NEB

Bottlenecks Hindering System Deliverability

0

2

4

6

8

10 East Gate

0

2

4

6

8

10

12Upstream of James River

0

1

2

3

4West Gate

0

1

2

3

4

5

6 North and EastThroughput Capacity

Bottleneck

Bottleneck Bottleneck

Bcf

pe

r d

ayB

cfp

er

day

Bcf

pe

r d

ayB

cfp

er

day

TRANSACTIONS - PAST, PRESENT, AND FUTURE

30

WHO ARE THE BUYERS

Transactions in Today’s Environment

Source: S&P Capital IQ, Company Releases

Buyer Location Buyer Type

68%

11%

65%

21%

4%

5%

Financial Backed Strategic Strategic Buyer Financial BuyerWestern Canada USA Eastern Canada International

31

2018 PREDICTION ONE


Trend One: Bifurcation Between U.S. & Canadian Oilfield Activity

Rationale:

• WCS and WTI Price Differentials

• Regulatory Environment

• Takeaway Capacity Constraints

32

Conclusion:

2018 PREDICTION ONE


Trend One: Bifurcation Between U.S. & Canadian Oilfield Activity

U.S. M&A activity expected to outpace Canadian activity over the next 12 months

33

2018 PREDICTION ONE


Source: Analyst Reports

Canadian Activity

U.S. Activity

Transactions Pubco Multiples

11%

14% 6.7x

7.5x27%

Conclusion: U.S. market momentum has stalled as a result of global economic concerns and investors demanding E&P’s live within free cash flow

22%

34

2018 PREDICTION ONE – WILL IT CONTINUE?


• We anticipate that U.S. M&A activity will continue to outpace Canadian activity

• However, we expect the gap to narrow

2019 Outlook

35

2018 PREDICTION TWO


Trend Two: Consolidation in Oil Sands Mining

Rationale:

• Increasing Production• Limited New Entrants• Focus on Cost Containment• Growing Strength of First Nations

36

Conclusion:

2018 PREDICTION TWO


Trend Two: Consolidation in Oil Sands Mining

We expected to see major consolidation in the Oil Sands sector as barriers to entry rose and cost competition increased

37

2018 PREDICTION TWO


Consolidation continues for producers…

Acquires Canadian Oil Sands Assets of

…But limited activity for services companies (yet)

38

2018 PREDICTION TWO – WILL IT CONTINUE?


• Conditions remain ideal for oil sands mining services consolidation

• Potential for First Nations as a consolidator in the space?

2019 Outlook

Acquired

Acquired a 40% interest in the

Wabamun to Ft. McMurray

Transmission Line

39

2018 PREDICTION THREE


Trend Three: Increasing Completions Activity

Rationale

• Completions Intensity Rising

• Increasing Capital Spending

• DUCs Rising

40

Conclusion:



Trend Three: Increasing Completions Activity

We expected to see oilfield services M&A weighted towards completion related activity

41



October 2018

Acquired

December 2018

Acquired Acquired

April 2019December 2018

Merged with Acquired

July 2019

42

2018 PREDICTION THREE – WILL IT CONTINUE?


• We expect completions M&A to remain an area of focus as completions activity continues to intensify

2019 Outlook

43

2018 PREDICTION FOUR


Trend Four: Companies Focusing on Core Operations

Rationale:

• Focus on Right Sizing Balance Sheets

• Commodity Price Volatility

• Negative Market Perception for Energy

44

Conclusion:



Trend Four: Companies Focusing on Core Operations

We expected to see companies continue to carve-out non-core divisions

45



Announced the Sale of its Pressure Pumping

Business to

November 2018

Announced the Pending Sale of its Drillpipe and Fishing Businesses to

May 2019

Announced the Sale of Production Testing and

Wireline Assets to

April 2019

Announced the Sale of its Snubbing Assets to

April 2019

46

2018 PREDICTION FOUR – WILL IT CONTINUE?


• We expect companies to continue to seek opportunities to unlock value from non-core assets/operations

2019 Outlook

47

EMERGING TREND


Emerging Trend: Technology/Data

Rationale:

• Need for productivity gains / efficiencies

• Limited margins from traditional activities

• Highly competitive markets

48

Conclusion:

EMERGING TREND


Emerging Trend: Technology/Data

We expect M&A activity to continue be weighted to technology/data focused acquisitions, with these companies earning the highest multiples

49

EMERGING TREND: TECHNOLOGY/DATA


October 2019

Acquired a Minority Interest in

July 2019

Acquired the Software and Automation

business of

Acquired

August 2019October 2018 andSeptember 2019

Received Two Rounds of Investment From

Acquired

August 2019

50

2020 PREDICTION


2020 Prediction: Pubco Consolidation

51

2020 PREDICTION: PUBCO CONSOLIDATION


2014 Market Cap

2014 Market Cap

vs. Book Value

4 4

2

3

2 2

0

1

2

0 0 0 0

Drilling & Equipment Production &Completion

Oilfield & FacilityConstruction

Pressure Pumping Transportation &Logistics

Environmental &Geophysical

Camps & Catering

> 100M < 100M12

4

5

2

3

2 2

1 1 1

0 0 0 0





Camps & Catering

Market Cap > BV

Market Cap < BV

11

52

2020 PREDICTION: PUBCO CONSOLIDATION


Current Market Cap

CurrentMarket Cap vs.

Book Value

6

3

4

2 2

3

2

6

4

2

1 1 1 1





Camps & Catering

> 100M < 100M

1

2

4

0

1

2

0

5

2

3

2 2

3





Camps & Catering

Market Cap > BV

Market Cap < BV

11

53

Concluding Thoughts

More and more the world needs Canadian oil

While well count will remain challenged, intensity creates opportunity

Light at the end of the very long tunnel

Strength in valuations will come from technological differentiation

In a stagnant environment, consolidation must be embraced or will be forced

54

WESTERN CANADA’S PROFESSIONAL CORPORATE FINANCE ADVISORS

www.sequeirapartners.com

VancouverEdmontonCalgary

where to from here? - sequeira partners...4 90.0 93.0 96.0 99.0 102.0 105.0 global demand global...

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