COVID-19 and OPEC Price Wars
Transcript of COVID-19 and OPEC Price Wars
COVID-19 and OPEC Price War–Implications for
Oil and Gas Markets, Prices and Companies
Jim Rebello
Managing Director, Head of Energy M&A Advisory
Jed DiPaolo
Senior Energy Advisor
Martin Rubio
Managing Director, Energy M&A Advisory
April 23, 2020
11:00 am EST
2
Introductions
Oil is a Geopolitically Driven Commodity
Capital Markets
Agenda
Conclusion and Recommendations
Q&A
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Introductions
Jed DiPaolo
Jed DiPaolo has served as a Senior Energy Advisor for Duff & Phelps, LLC since 2011. He brings more than 42 years
of experience in the energy industry.
Jed was a Partner at Growth Capital Partners, L.P. for eight years. Prior to that, Jed worked for over 27 years at
Halliburton Company where he held several managerial and technical positions. Jed retired as a Group Senior Vice
President of Global Business Development with Halliburton Company in 2003. Prior roles at Halliburton included
serving as North American Regional Vice President and Far East Regional Vice President. In these roles, he was
responsible for overall operations of Halliburton Energy Services’ North America and Far East operations.
Jed currently serves as the Lead Director of Evolution Petroleum (AMEX:EPM), and a Member of the Board of
privately-held Deep Well Services, portfolio company of White Deer Energy, Air Drilling Solutions, a portfolio company
of Black Bay Energy Capital, Altitude Energy Partners, also backed by Black Bay, and Danos Energy Services.
He successfully restructured Seventy Seven Energy through Chapter 11 Bankruptcy and facilitated its sale to
Patterson-UTI (NASDAQ:PTEN). Additionally, he served as Interim Chairman of the Board of Directors of Boots and
Coots Group. He also served on Superior Well Service Board prior to being sold to Nabors Industries and the Edgen
Group Board before being acquired by Sumitomo Corporation. In addition, he served on the Board of Innicor
Subsurface Technologies prior to it being sold to BJ Services.
Jed received his undergraduate degree in Agricultural Engineering from West Virginia in 1976 and an Honorary
Doctorate of Science in 2013. He also serves on the Advisory Board for the West Virginia University College of
Engineering and is a member of the Society of Petroleum Engineers.
4
Senior Energy Advisor
Houston
+1 713 986 9327
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Jim Rebello
Jim Rebello is a managing director and head of the Energy M&A Advisory practice, based in the Houston office. He
leverages more than 25 years of principal investing and M&A origination, execution and management experience,
assisting companies in the Southwest with all aspects of transaction execution.
Prior to joining Duff & Phelps, Jim was a managing director and member of the Executive Management Committee of
Growth Capital Partners, L.P. (GCP), a merchant and investment banking firm in Houston. In addition, he was a
Principal of both SMI I and SMI II, GCP’s mezzanine investments funds. Before that, he held the title of corporate
financial analyst with Energy Ventures, Inc., where he was responsible for treasury management functions. He also
analyzed the financial performance of Energy Ventures and its corporate subsidiaries as well as potential acquisition
candidates. Earlier in his career, Jim was a Credit Analyst for Prudential Capital’s Southwestern Energy Group.
Jim has extensive experience managing merger & acquisition, divestiture, recapitalization, restructuring and private
placement transactions for a variety of clients across a range of industries, including exploration and production, oilfield
services, distribution, industrial services, business services, metals and manufacturing. He currently serves on the
board of Unifocus Corporation and a member of the Independent Petroleum Association of America, the Houston
Association for Corporate Growth. He previously served on the boards of Paradigm Valve, White Petrov and Growth
Capital Partners.
Jim received a B.S. in business administration with concentrations in marketing and management from Northeastern
University, graduating summa cum laude. Jim is a FINRA Series 7, 79 and 63 registered representative. He also
serves on several local non-profit community-based organizations.
5
Managing Director and Head of Energy M&A Advisory
Houston
+1 713 986 9318
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Martin Rubio
Martin Rubio is a managing director in the Corporate Finance practice, based in the Houston office. Martin leverages
more than 20 years of experience in the energy industry advising equipment suppliers, distributors and other providers
of technical and specialty services on mergers and acquisitions and recapitalization assignments. He also has
experience in both middle-market corporate finance and in operating positions for the energy industry.
Prior to joining Duff & Phelps, Martin served in finance and business development roles at Turbine Air Systems, Ltd., a
packager of modular energy systems. Before that he held commercial operations and project management positions at
GE Energy and Stewart & Stevenson Services, Inc., a leading designer, manufacturer and distributor of specialized
equipment and aftermarket parts and service for the energy industry based in Houston.
Martin received a B.A. in political science from Loyola University New Orleans and an MBA from The University of
Texas at Austin with a concentration in finance. He is a FINRA Series 7 and 63 registered representative.
6
Managing Director, Energy M&A Advisory
Houston
+1 713 986 9311
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Oil is a Geopolitically
Driven Commodity
Jed DiPaolo
Senior Energy Advisor
OPEC and OPEC + Members
8
Have Nots
Venezuela
Algeria
Nigeria
Libya
Ecuador
Angola
Congo
Equatorial Guinea
Bahrain
Brunei
Malaysia
Sudan
Haves
Saudi Arabia
UAE
Kuwait
Qatar
Russia
Want to Be
Iran
Iraq
Azerbaijan
Oman
Kazakhstan
Mexico
OPEC
OPEC +
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OPEC + January 2020 Production (thousands of barrels a day)
9
OPEC Nations OPEC + Nations
24,708 16,355
Source: Bloomberg
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Spare capacity < 2.5 million barrels per day
$0
$20
$40
$60
$80
$100
$120
$140
0
1
2
3
4
5
6
7
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
OPEC Spare Capacity WTI Crude Oil Price
OPEC Spare Production Capacity & WTI Prices
10
Spare capacity (millions barrels per day) $/b (real 2010 dollars)
forecast
Source: EIA, Refinitiv
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Oil Prices and Production (Pre-Pandemic)
11
Note: OPEC output includes all members; Brent prices as of Feb. 24 2020
Sources: Bloomberg, ICE Futures Europe, U.S. Energy Information Administration
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Capital Markets
Jim Rebello
Managing Director,
Head of Energy M&A
Advisory
COVID-19 / Capital Markets
13
$187.4
$159.8
$78.8
$25.8
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
Jan-1
7
Apr-
17
Jul-1
7
Oct-
17
Jan-1
8
Apr-
18
Jul-1
8
Oct-
18
Jan-1
9
Apr-
19
Jul-1
9
Oct-
19
Jan-2
0
Apr-
20
PHLX Oil Service Sector Index (^OSX) - Index Value
~67%
decrease since
Jan’20
$52.4
$77.4
$63.0
$8.9
$0
$10
$20
$30
$40
$50
$60
$70
$80
Jan-1
7
Apr-
17
Jul-1
7
Oct-
17
Jan-1
8
Apr-
18
Jul-1
8
Oct-
18
Jan-1
9
Apr-
19
Jul-1
9
Oct-
19
Jan-2
0
Apr-
20
WTI Spot Price
~85% decrease
since Jan’20^OSX
WTI Spot Price
Source: CapitalIQ, EIA
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282,000
3,307,000
6,867,000 6,615,000
5,245,000
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
1/4
/20
1/1
1/2
0
1/1
8/2
0
1/2
5/2
0
2/1
/20
2/8
/20
2/1
5/2
0
2/2
2/2
0
2/2
9/2
0
3/7
/20
3/1
4/2
0
3/2
1/2
0
3/2
8/2
0
4/4
/20
4/1
1/2
0
-25.0%
-30.0%
-33.0%
-34.0%
-8.4%
-10.0%
JPM
MS
DB
GS
Q4 2008
Q1 1958
Volatility Expected to Continue
14
Economic Contraction
YTD 2020 Weekly Unemployment Claims
Worst quarterly US GDP contractions since Great Depression (% q/q, annualized)
Q2’20 U.S. GDP forecasts (% q/q, annualized)
Source: Deutsche Bank, US Department of Labor
▪ Q2’20 economic contraction
expected to be 3x larger than worst
quarter by contraction ever
▪ More than 22 million unemployment
claims in the last 4 weeks
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World Crude Oil Demand/Effects of Covid-19
15
97 99 99 99 100 100 101 101 100 100
101 101
99
60
65
70
75
80
85
90
95
100
105
20
17 Q
1
20
17 Q
2
20
17 Q
3
20
17 Q
4
20
18 Q
1
20
18 Q
2
20
18 Q
3
20
18 Q
4
20
19 Q
1
20
19 Q
2
20
19 Q
3
20
19 Q
4
20
20 Q
1
20
20 Q
2
Actual Demand Reduced Demand Forecast
World Oil Demand (millions barrels per day)
Source: Spears & Associates
Lock-down
among
global
economies
expected
to result in
a 30 to 35%
reduction
in demand
during
Q2’20
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U.S. Crude Oil Storage Capacity
16
US Crude Oil Stocks (thousands barrels per day)
653,448
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
1/1
7/2
0
1/2
4/2
0
1/3
1/2
0
2/7
/20
2/1
4/2
0
2/2
1/2
0
2/2
8/2
0
3/6
/20
3/1
3/2
0
3/2
0/2
0
3/2
7/2
0
4/3
/20
4/1
0/2
0
Crude Stock Pipeline Fill & Stock in Transit Working Storage Capacity
Source: EIA
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953
973
984
1,089
1,235
1,277
1,279
1,471
1,548
1,582
1,598
2,043
2,257
2,377
2,525
3,018
4,287
4,961
14,035
20,291
0 5,000 10,000 15,000 20,000 25,000
Turkey
Taiwan
Netherlands
Australia
Italy
Spain
Thailand
Indonesia
Mexico
France
United Kingdom
Saudi Arabia
Brazil
Germany
Canada
Korea
Japan
India
China
United States
17
Crude Oil Demand for Q2 Reduction Forecasted 2019 Top 20 Crude Oil Consumption Country (thousands bpd)
Source: JODI Oil Dataset, Monthly Update, Spears & Associates
101
0
20
40
60
80
100
2019 Q4 2020 Q2
Mill
ions B
arr
els
per
Day
Demand Forecast Reduced Demand Forecast
~10
mbpd
cuts
(1) Assumes 35% demand reduction
Global
Economic
Rebound
Plus
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OPEC Response/Demand Rebound
2%
10%11%15%16%
22%22%23%23%27%
30%32%32%36%
40%41%46%
63%
81%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Ba
nkin
g
Utilit
y
Consum
er
Goods
Me
dia
Tech
Ba
sic
In
du
str
y
Insura
nce
He
alth
care
Tele
com
Cap
ita
l G
ood
s
Se
rvic
es
HY
In
de
x
Fin
Se
rvic
es
Leis
ure
Re
al E
sta
te
Au
tom
otive
Re
tail
Tra
nsp
ort
ation
En
erg
y
Distressed Debt Rising Rapidly
18
% of High Yield Index Trading at Distressed Level (% of Face Value)
Source: Deutsche Bank, CreditSights (data as of April 7, 2020)
▪ More than
$140 billion
of high yield
energy debt
is trading at
distressed
levels
(spread
>1,000 bps)
▪ Highest ever
energy
sector
distress ratio
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Conclusion and Recommendations
Martin Rubio
Energy M&A Advisory
513
876
1,032
943
780
417
318 332407
515
675
0
200
400
600
800
1,000
1,200
Land Offshore
U.S. Rig Count, Drilling and Completion (D&C) Spending
20
Source: Baker Hughes, Spears & Associates
$73
$104
$138$130
$23$13 $10 $11
$50$66
$94
$0
$40
$80
$120
$160
Drilling and Completion Spending
Rig Count $ in billions
Estimated 2020 D&C
Spend of $57B
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What should Companies do in the Current Environment?
21
▪ Discontinue unprofitable divisions/product lines
▪ Evaluate liquidation of non-core/underutilized assets
▪ Scrutinize/defer working capital and capex investments
▪ Evaluate credit policies
Lack of Visibility Drives Increased Need to Reduce
Costs and Manage Cash
▪ Three year strategic and operating plan
▪ Extended cash flow and liquidity forecasts
▪ Discuss your plan with all stakeholders
▪ Evaluate capital structures that will provide liquidity to
achieve your three year plan
Develop a Survival Plan
You are not alone in this.
Have vision, stay positive, think long term.
We will get back to normal…eventually
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Q&A
Light At the End of the Tunnel?
23
Testing
Therapies
Vaccine
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Appendix
Duff & Phelps Overview
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Duff & Phelps is the global advisor that protects, restores and maximizes value for clients
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clients across diverse sectors, mitigating risk to assets, operations and people.
MORE THAN
19,000ENGAGEMENTS
PERFORMED IN 2019
4,000+TOTAL
PROFESSIONALS
GLOBALLY
THE
AMERICAS
1,900+PROFESSIONALS
EUROPE AND
MIDDLE EAST
1,100+PROFESSIONALS
ASIA
PACIFIC
700+PROFESSIONALS
13,500CLIENTS INCLUDING
NEARLY
47% OF THE
S&P 500
An End-to-End Integrated Platform
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Assessment of strategic
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Financial
Analysis
and
Structuring
Financial projections and
transaction modeling
Business and asset
valuation
Market assessments
Accretion / Dilution
analyses
Preliminary purchase price
allocation
Valuation and structuring
of contingent consideration
and earn-outs
Valuation of guarantees /
Indemnifications
Carve-out requirements
Tax valuations and
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Deal
Negotiation
and Closing
Anti-trust / Merger trustee
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Our Results
James Rebello
Head of Energy M&A Advisory
(713) 986-9318
Martin Rubio
Managing Director
(713) 986-9311
550+Restructuring
transaction
completed
$850+Billion in
aggregate
liabilities
restructured
#4Ranked
middle-market
M&A practice
Restructuring RestructuringRestructuring Restructuring
Financial Advisor to the
Company
Financial Advisor to the
Company
Financial Advisor to the
Company
has expanded its existing
facilities through the
completion of a priority
term loan
Restructuring RestructuringRestructuringRestructuring
Financial Advisor to the
Official Committee of
Unsecured Creditors
Financial Advisor to the
1st Lien Lenders
Financial Advisor to the
Official Committee of
Unsecured Creditors
Financial Advisor to the
Committee of Equity
Holders
Restructuring RestructuringRestructuring Restructuring
Financial Advisor to the
Secured Creditor
Financial Advisor to the
Pass Through Trust
Certificate Holders
Financial Advisor to Ad
Hoc Note Holders
Financial Advisor to the
Ad Hoc Committee of
Note Holders
Restructuring RestructuringDistressed M&A Restructuring
Financial Advisor to the
Company
Financial Advisor to the
California Public Utilities
Commission
Financial Advisor to the
Ad-hoc Committee of
Unsecured Noteholders
Financial Advisor to the
Senior Secured
Convertible Noteholders
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