Bill Boyar, Founding Shareholder, BoyarMiller; Paul Perea, Managing Director, Co-Head of M&A Investment Banking, Tudor, Pickering, Holt & Co; John Berger, Chief Executive Officer, Sunnova Energy; Sanjiv Shah, Managing Director, Simmons & Company International; Chris Hanslik, Chairman, BoyarMiller
HOUSTON (May 4, 2018) – BoyarMiller welcomed more than 100 key energy stakeholders from across the industry to hear a panel discussion from three experts about the outlook ahead for oil and gas, and renewable energy sources. The continued industry rebound, increased M&A activity and opportunities for consolidations, and the growing demand for energy storage innovations were central to the conversations.
Chris Hanslik, chairman of BoyarMiller, shared that the BoyarMiller Energy Forum was one of three the firm presents annually.
“Our presenters shared strategies that shape the world of energy both globally and in our own backyards. We heard about how new technologies have opened the door for cost savings and more efficient production in large-scale pure plays, all of which will steer this rebound safely to steady growth. The overviews of the robust return of investment in M&A and oilfield services, as well as the role solar power will play in the future, armed us with essential knowledge for profitable decision-making,” said Hanslik. “Their insights invoked thought, demonstrated leadership and provided attendees with some tools to handle what lies ahead successfully.”
Presentations were delivered by Paul Perea, co-head of energy M&A of Tudor, Pickering & Holt Co.; John Berger, founder and chief executive officer, Sunnova Energy, a leading U.S. residential solar and storage service provider; and Sanjiv Shah, managing director, Simmons & Company International, Energy Specialists of Piper Jaffray.
A macro perspective
“We’ve had a nice pickup in oil price since the beginning of the year that has been driven by a combination of OPEC compliance and geopolitical tensions in Syria and elsewhere,” said Sanjiv Shah, managing director at Simmons & Company International. “I think the ability for quick supply responses from shale plays and OPEC will dampen and mitigate any material price spikes. OPEC is controlling the price to prevent any price inflation. Current oil price is good for Saudi, much better than it has been in the last couple of years. We don’t foresee any rocket ship back to $100/bbl absent a major geopolitical event.”
On the capital markets side, while we have seen issuance activity, the OSX index that tracks oilfield service large caps is currently trading just a little higher than it was in February 2016, so a 2.5x increase in oil prices during that timeframe has led to very little response in public equity prices.
US onshore activity lead by Permian Basin, a vast Texas land prone to rattlesnakes and grassfires
“The Permian continues to be a key part of the conversation,” said Paul Perea, co-head of energy M&A at Tudor, Pickering, Holt & Co. “We expect that focus to continue, especially after the recently announced RSP-Concho combination, which will create a $35 billion Permian company. There has been a lot of anticipation around consolidation in the Permian and the form that will take. If you compared a map of the basin today to a few years ago, you would see that the number of opportunities to acquire ‘blocky’ positions in asset transactions or from private sellers is down significantly. This points to more corporate transactions, but how many more of those we will see is difficult to predict in light of the myriad issues that come into play in those types of transactions.”
Commenting on energy M&A activity more broadly, Perea continued that, “Stability and visibility in the underlying fundamentals has allowed buyers and sellers to have a meeting of the minds on value and transact. Broader energy M&A volumes are strong and have been high since 2016. Despite these factors, the upstream and midstream capital markets are quite dislocated and have not tracked the performance of commodity prices. These challenged capital markets have created an environment that is ripe for both shareholder activism and (friendly) private equity and alternative capital investing. There has been a big inflow of new ‘technology’ when it comes to investing.”
“Everything we’ve been working on the last couple of years has been within U.S. land,” agreed Shah. “Mostly Permian, Mid Continent and Marcellus, with a focus on products, consumables and completion-oriented businesses. Completions have recovered the fastest.”
Big ramp up in cheap natural gas
“I think domestic natural gas will be the feedstock for a lot of industrial operations,” said Shah, who serves on the Advisory Board of the Petroleum Equipment & Services Association and on the Emerging Leaders committee from 2015 to 2017. Given the shale revolution, we’re seeing a big ramp up in demand. There’s long visibility on cheap gas prices. This has driven a lot of industrial back to the U.S. by producing at an all-time high in the Permian, but that doesn’t mean solar doesn’t have a place for residential use in a decentralized platform.”
Top players in the Permian include Chevron, which controls 2.2 million acres of Permian rock, Apache, Oxy, EOS and ExxonMobil. In a recent Bloomberg article, Kevin Crowley and Javier Blas note the rising importance of robotics to screw lengths of pipe together, saving seconds each time drill pipes are linked. Those seconds translate into millions in cost savings across Chevron’s huge operation.
A little less talk and a lot more action
“Oilfield service issuers have definitely picked up materially,” said Shah. “We had our first two IPOs in October 2016, with Mammoth and Smart Sand going public. We then had seven IPOs in the oilfield services sector in 2017 – that was an all-time record and now we have five in January and February of this year. There are three or four companies on file publicly and many others are on file confidentially. The difference between oilfield services and the E&P and midstream sectors is lack of alternative for many oilfield services companies other than going public.”
Solar plus battery storage – the third wave of energy technologies
“There have been three big game changers in the energy industry and Houston was fortunate to be effectively ground zero for the first, which was fracking,” said John Berger, CEO of Sunnova. “The second one is solar, and now solar is looking for a storage medium and you can see that happening with solar plus battery storage solutions as the third technology change. These technological changes are important to pay attention to as I would love to see Houston maintain its status as the energy capital of the world.”
Solar panel pricing has gone down 95 percent in costs. “Incremental technologies have gotten the pricing down and increased the efficiency,” said Berger. “The panels I put on my house ten years ago were $5.50 a watt; the ones I put on last year are roughly 40 cents a watt. Battery storage innovations are expected to result in the same sort of favorable price decline.”
Sunnova has raised $2.5B since inception and now has 60,000 customers across the U.S., in Guam, Puerto Rico and the Northern Mariana Islands.
“Be on the lookout for the administration to subsidize coal and nuclear power plants,” Berger said. “We have a very Byzantine structure regulatory-wise where the federal government doesn’t have a lot of power. The states do. We want a competitive power market, so we will continue to advocate for an open market approach.”
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