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    Power & Energy Q3 2019

    Q3 Power Energy

    M&A Transaction Trends

    Largest Transactions Closed

    • Target
    • Buyer
    • Value($mm)

    Source S&P Capital IQ as of 10/10/2019 and PCE Proprietary Data

    M&A Industry Trends

    September Sees Worst Oil Manufacturing Numbers in a Decade

    Amid weak demand from refineries and recovery from the early September attacks, oil prices have slumped. The September manufacturing numbers released on 10/1/2019 are the worst in more than a decade, causing oil prices to slide. The decline is due to demand by the transport and shipping industries, which are key to the manufacturing supply chain. The ample supply means steady and possible increased revenue expectations for oil refiners who benefit from the low cost of crude.1

    Mega Oil Conglomerates Poised to Buy up Smaller Companies as Spending Cuts Loom

    Due to a slowdown in the US, shale industry companies will need to implement spending cuts, which could lead to significant consolidation in the industry. The companies that stand the most to gain are the mega oil conglomerates, ExxonMobil, Chevron, Shell and BP. Their access to large amounts of capital will allow them to buy up smaller companies when their valuations go down. Exxon CEO Darren Woods said, “If there is the opportunity to acquire something that brings unique value to Exxon Mobil, we’ll be in a position to transact on that.” According to industry experts, several large oil refinery transactions are forecasted to close in the coming several quarters; most likely involving all of the current major players.2

    Aramco Still on Track for an IPO by Year End

    Saudi Arabia’s Aramco decided to revive their plans for an IPO, despite recent shocks to Aramco’s refineries in September. Top executives and bankers are looking to offer 10% for Aramco after the Saudi crown prince convinced them to increase the float. $10.0 billion or 1% of the company will be offered to the Saudi Arabian market by the end of 2019, followed by another 1% offering the next year and a 3% offering in an international market such as Tokyo. The company is valued at nearly $2.0 trillion making this the largest company ever to make a public offering.3

    Sustainable Energy Companies See a Rise in Profits

    A report published by the Wall Street Journal showed that fossil fuel reliant firms had seen a steep decline in their return on invested capital (ROIC) due to tighter government restrictions on emissions, led by European countries. Regulations have caused renewable energy companies to begin to turn a profit. ROIC at Chevron fell from 25% in 2011 to only 10% in Q3 of 2019. In relation to Chevron, one of Denmark’s largest wind turbine manufactures, Vestas Wind Systems has seen its ROIC increase from -5% in 2011 to 22% in the past year. The growing outcry for sustainable energy sources is making investments in the industry profitable.4

    Contiago Leads the Oil Industry as Best Performing Company

    Contiago Oil & Gas Co. was the best performing company in the oil industry in September due to a refinancing deal that included a new stock offering, an expanded line of credit, and the announcement of two strategic acquisitions. Contiago bought drilling land in Oklahoma and several hundred oil producing wells from White Star Petroleum LLC in an asset sale in bankruptcy court for $123.3 million. In early September Contiago bought the assets of Will Energy Corp, a privately held company with oil and gas producing wells in several midwestern states for $23 million. Finding companies with “in production” wells has become a strategy for smaller firms looking to expand their operations without taking on the risk of adding an oil exploration arm.5

    Two Chapter 11 Coal Mines Trade Hands

    Blackjewel LLC filed for Chapter 11 bankruptcy in July of 2019 and sold its Eagle Butte and Belle Ayr mines in Campbell County, Wyoming, to Contura Energy for $33.75 million. Now Eagle Specialty Materials LLC has agreed to acquire the two large coal mines in Wyoming, and a Pax Surface Mine in West Virginia from Contura Energy. The deal announced on September 18th values the mines at $90 million, with an additional $13.5 million paid to Campbell County for back taxes.6

    Demand Growing for Ocean Powered Homes in Europe 

    A Scottish firm, Orbital Marine Power, has developed what it calls “the worlds’ most powerful tidal turbine.” After being awarded a contract from the Scottish government for $4.17 million in funding, the company designed and built a floating super structure capable of powering 1,700 homes annually, exploiting the “natural ebb and flow of the coastal tides.” Harnessing ocean energy has the potential to become a large market in Europe, according to the European Commission, which expects it to contribute roughly 10% of Europe’s power demand by 2050.7

    News of a Mergers Sees Company Share Prices Soar

    Two large oil and gas storage and transportation companies are in talks for a merger. Energy Transfer LP is looking to merge with SemGroup Corp in a 40/60 cash to stock deal valued at $5.0 billion. This deal would expand Energy Transfer LP’s reach and expand its access into Canada with SemGroup’s Canadian Processing Plants. On news of the merger, SemGroup’s shares increased by 59%.8

    Largest M&A Transactions Closed

    Target Buyer Value($mm)
    Energy Transfer Operating, L.P. Energy Transfer LP $69,264
    Enbridge Energy Partners, L.P. Enbridge (U.S.) Inc. $15,263
    SCANA Corporation Dominion Energy, Inc. $14,872
    Western Midstream Operating, LP Western Midstream Partners, LP $12,548
    EnLink Midstream Partners, LP EnLink Midstream, LLC  $11,356
    Vectren Corporation CenterPoint Energy, Inc. $8,149
    Antero Midstream Partners LP Antero Midstream Corporation $7,360
    Gulf Power Company 700 Universe, LLC $5,816
    AmeriGas Partners, L.P. UGI Corporation $5,308
    Rowan Companies PLC Valaris PLC $4,166

    Source S&P Capital IQ as of 10/10/2019 and PCE Proprietary Data

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    Data Assumptions

    This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.

    Glossary

    EBIT - Earnings Before Interest and Taxes
    EBITDA - Earnings Before Interest, Taxes, Depreciation, Amortization
    LTM - Last Twelve Months
    TEV - Total Enterprise Value

    Sources:

    1. Ramkumar, Amrith and Toy, Sarah, “Gloomy Economic Outlook Takes Toll on Oil Prices,” The Wall Street Journal, Oct. 1, 2019.
    2. Cunningham, Nick, “The Coming M&A Wave in U.S. Shale,” OilPrice.com, Sept. 30, 2019.
    3. Said, Summer; Steinberg, Julie, “Saudi Arabia Considers Doubling Stakes in Aramco Public Offering,” The Wall Street Journal, Sept. 24, 2019.
    4. Silvia Laughin, Lauren, “Green Investments are in the Black,” The Wall Street Journal, Sept. 27, 2019.
    5. Dezember, Ryan, “A Real-Estate Mogul Is Behind the Hottest Stock in the Oil Patch,” The Wall Street Journal, Oct. 1, 2019.
    6. Courier, Bristol, “Contura find buyer for 2 Wyoming Coal mines,” The Herald Courier, Sept. 19, 2019.
    7. Frangoul, Anmar, “The ‘world’s most powerful’ tidal turbine secures funding from Scottish government,” Aug. 27, 2019.
    8. Wack, Chris, “Energy Transfer to Buy SemGroup in $5B Transaction,” The Wall Street Journal, Sept. 16, 2019.
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