Energy & Industrial Sector Observations

Barclays: Oil, Gas Companies to Spend 6% More in 14. Global oil and gas companies will spend about $723 billion on exploration and production in 2014, an increase of 6.1% from 2013, Barclays Bank said in a report. For North America, Barclays forecast an increase of more than 7% in E&P spending in 2014, compared with a 2% increase in 2013, based on a survey of more than 300 oil and gas companies conducted last month. E&P companies are basing their spending budgets for the year on oil prices of $98 per barrel for Brent and $89 per barrel for West Texas Intermediate, and a benchmark U.S. natural gas price of $3.66 per British thermal unit, the bank said. (Reuters December 9, 2013) Fracking Boom Pushes U.S. Oil Output to 25-Year High. U.S. crude production rose to the highest level in a quarter-century as a shale drilling boom in states such as Texas and North Dakota cut the need for foreign oil and pushed the country closer to energy independence. The U.S. pumped 8.1 million barrels a day in the week ended Dec. 6, a gain of 0.8%, or 64,000 barrels a day, the Energy Information Administration said today. Its the most since October 1988. U.S. oil output grew 18 percent in the past 12 months, the fastest pace on record, boosting fuel exports and reducing reliance on imports, according to the EIA. The boom will make the country the worlds largest producer by 2015, five years sooner than last years forecast, the International Energy Agency in Paris said last month. Domestic oil output will average 8.54 million barrels a day next year, according to the EIA, the statistical arm of the Energy Department. (New York Times December 11, 2013 BHP Billitons Former Oil Chief Expects More U.S. M&A. BHP Billiton Ltd. (BHP)s former oil and gas head J. Michael Yeager expects more industry mergers and acquisitions in the U.S. as onshore developers seek to sell assets they cant develop and boost their technical skills. Theres a lot of churn thats going to go on and you will continue to see a lot of transactional work, Yeager said today in a phone interview. When you take these large amounts of acreage, you have to drill it up, or you have to give it up. In some cases you may have three years to drill as much as you can and you lose the rest of it, so theres acreage that people cannot handle on the market. Theres a lot of opportunity. Yeager said a need for more technical expertise will also drive companies to combine. (Bloomberg November 7, 2013) Demand to Export U.S. Crude Expected to Increase, Citigroup Report Predicts. Demand to export U.S. crude is poised to soar as the nations surging supply of hydrocarbons creates a glut of the feedstock, according to Citigroup Inc., the bank that predicted a slump in the nations imports. The current crude glut on the U.S. Gulf Coast will continue to spark requests for crude oil export licenses and a positive but restricted response is inevitable, Edward Morse, Citigroups New-York based head of commodities research said. Applications for exports should start to soar. (Bloomberg November 12, 2013

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Sector Update | January 2014 phone 972.831.1300 | web WS-iBank.com

New Data Shows Meteoric Rise of Texas Oil. Oil production in Texas has hit its highest monthly rate on record, more than doubling in less than three years, according to new federal data. The state pumped 2.7 million barrels of crude per day during September, the highest average since monthly record-keeping began in January 1981. That marked a 30% jump over September 2012, according the U.S. Energy Information Administration. For 25 straight months, the states oil production rate has increased by more than 25% year-over-year. The E.I.A projects total U.S. oil production will rise to 8.2 million barrels per day in 2014. (Houston Chronicle December 3, 2013 New Oil Boom Lurks in Denver Julesburg Basin. Denver-based Whiting Petroleum sold its Texas holdings for $816 million in July and said it would use the cash to "accelerate" development of Colorado's Niobrara shale. "The one thing we don't have to worry about in the Niobrara is oil in place," James Brown, the company COO, told analysts in November. "There is a tremendous amount of oil in place." The discovery of an easy-to-drill and oil-rich stratum fueled nearly $4 billion in spending in 2013 by the top operators who have plans to spend and drill even more in 2014. More than $1 billion is being spent on plants, pipelines and rail terminals to process and ship the oil. "We are still finding out how big this is going to be," said Dan Kelly, vice president at Noble Energy, the basin's largest operator. The opportunity is there." Still, interviews with company executives and financial analysts and a review of corporate filings paint a picture of a resource so promising and profitable that it will continue to lure big investments. (Denver Post December 15, 2013) $14.5 Billion Cline Shale Impact. A new study estimates that the oil and gas industry had a $14.5 billion impact last year on the Cline Shale region, east of the traditionally busier drilling area of the Permian Basin. The University of Texas at San Antonios Institute for Economic Development found the industry supported 21,450 jobs, with $1 billion in salaries and benefits to workers last year. We expect to see that continue, said Thomas Tunstall, research director with the Institute for Economic Development. (San Antonio Express December 20, 2013)

Broader Middle Market M&A Trends Historical M&A Volume

6,000 5,000 4,000 6.0x 3,000 2,000 1,000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 LTM

Transaction Valuations
10.0x (EBITDA Multiple; Completed Deals<$500 Million) 9.4x 9.2x 8.5x 8.4x 8.4x 8.2x 7.9x 7.4x 7.4x 7.1x 7.0x

(Completed Deals < $500 Million) 10 Year Avg. = 3,771

8.0x

4.0x 2.0x 0.0x

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 LTM

Sector Update | January 2014 phone 972.831.1300 | web WS-iBank.com

Energy Stock Price Performance

2,250 2,000 1,750 1,500 1,250 1,000

U.S. Rig Count

90.0% 80.0% 70.0% 60.0% 50.0% 40.0%

750
500 250 0 Jan-07Jul-07Jan-08Jul-08Jan-09Jul-09Jan-10Jul-10Jan-11Jul-11Jan-12Jul-12Jan-13Jul-13
Oil Gas % Oil

30.0%
20.0% 10.0% 0.0%

(As of January 6, 2014)

Red New York Stock Exchange Composite Blue Oilfield Services Index Green Exploration & Production

Basin Permian Eagle Ford Williston

Rig Count 468 228 185

YoY Rig Change -5 -5 -9

% Change -1% -2% -5%

Industrial Stock Price Performance

75.0 70.0 65.0 60.0 55.0

U.S. Industrial Manufacturing (ISM)

PMI

50.0 45.0 40.0 35.0

30.0
25.0 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13

(As of January 2, 2014)

Red New York Stock Exchange Composite Blue Industrial and Infrastructure

Oct-13 Nov-13 Dec-13 PMI 56.4 57.3 57.0

Sector Update | January 2014 phone 972.831.1300 | web WS-iBank.com

Notable Energy & Industrial Transactions

Announcement Date
1/3/14

Acquiror

Target

Target/Transaction Description

Transaction Value ($M)

Energy & Industrial Manufacturing and Services

Enterprise Group Hart Oilfield Rentals Provider of site services and equipment rentals, such as wellsite trailers, medical facilities, fire suppression systems and scaffolding Texas-based supplier of pump & integrated flow control solutions to the oil & gas and power generation industry Texas-based distributor of bearings, oil seals, power transmission products and other replacement parts for use in mud pumps, swivels, draw works and rotary tables Texas-based provider of chemicals that serve as drag reduction agents to maximize the flow potential of pipelines Indiana-based provider of fleet equipment rental, sales and services Provider of oilfield hauling services and equipment rentals with a fleet of 79 trailers, 15 conventional tractors, 14 winch trucks, 3 cranes and 395 pieces of rental equipment Capital commitment to fund an acquisition strategy that augments Torqs six transloading terminals and transportation services Provider of electrical infrastructure and automation services from initial development throughout the life of an oilfield, including ongoing infrastructure upgrades and maintenance Acquisition of the field solutions portion of Valerus including the processing and treating, production equipment, compression and integrated service business lines Provider of specialty chemical solutions, such as drag reducing additives to the pipeline industry Designer and manufacturer of flow control valves & regulators used in transportation, delivery and storage of LPG, LNG and industrial gases Texas-based manufacturer of proprietary deep and shallow water pipeline connectors for subsea pipeline construction, repair and expansion projects $21.2

1/2/14 1/2/14

DXP Enterprises Applied Industrial Technologies Berkshire Hathaway

B27/Champlain Capital Texas Oilpatch Services Phillips Specialty Products NESCO/Platinum Equity M&K Hotshot & Trucking/M&K Rig Services Torq Energy Logistics

$285.0

--

12/30/13

--

12/26/13 12/24/13

Energy Capital Partners Aveda Transportation and Energy Services Kohlberg Kravis Roberts First Reserve

--

$40.0

12/24/13

$240.0

12/19/13

Dixie Electric

--

12/9/13

Kentz Corp., Ltd.

Valerus Field Solutions

$435.0

12/9/13 12/4/13

Arsenal Capital Partners Windjammer Capital

Flowchem Engineered Controls International Quality Connector Systems, LLC

--

--

12/3/13

Oil States International

--

Sector Update | January 2014 phone 972.831.1300 | web WS-iBank.com

Notable Energy & Industrial Transactions (Contd)

Announcement Date
11/21/13

Acquiror

Target

Target/Transaction Description

Transaction Value ($M)

Energy & Industrial Manufacturing and Services (Contd)

SCF Partners Oil Patch Group Texas-based provider of accommodation & support, drill pipe & tubular rental and production testing and flow back services Wyoming-based operator of 24 well service rigs and 1 plugging/cementing unit. Combined, the companies will have 100+ well service rigs Oklahoma-based provider of mobile inspection, testing and cleaning services of OCTG and drill tools Texas-based provider of industrial cleaning solutions to the refining, chemical, power and other industrial markets Texas-based provider of engineered drilling equipment and associated inspection & maintenance services to the offshore industry Merger of TC Companies and EnerSafe which as a combined company provides safety services and products, including H2S safety packages, flaring technologies and safety consulting services Provides wireline services, production testing services and rental, fishing & pipe recovery services Provider of chemical products and services used by the drilling, fracturing and production segments Provider of rental equipment and fishing tools and related services to the Marcellus and Utica Shale Manufacturer of thermal spray-on casing centralizers, stabilizers and stop collars for cementation and casingwhile drilling applications for the offshore industry Provider of pipe transportation, handling, storage and logistics management services to the pipeline construction industry; Performance Energy is a provider of steel structure fabrication, mechanical installations, electrical & instrumentation services and maintenance & repair for the offshore industry --

11/20/13

Beckman Production Services/SCF Partners Inspection Oilfield Services/Calvert Street Capital Aquilex HydroChem/ Centerbridge Partners Integral Oilfield Services/OFS Energy Fund Hammond Kennedy Whitney

Northern Production

--

11/20/13

Oilfield Tubular Inspection Inland Industrial Services Group/ Strength Capital ODS International

--

11/18/13

--

11/7/13

--

11/6/13

TC Companies/ EnerSafe

--

11/5/13 11/4/13 11/4/13

BEC Acquisition/Mill City Capital Innospec BE Aerospace

Bonnetts Energy Corp. Bachman Services Blue Dot Energy Services/LongueVue Capital WearSox

$110.0 --

$75.0

11/4/13

Antelope Oil Tool & Manufacturing/ Intervale Capital Quanta Services

--

10/31/13

T.G. Mercer Consulting Services/ Performance Energy Services

--

Sector Update | January 2014 phone 972.831.1300 | web WS-iBank.com

Notable Exploration & Production and Midstream/Downstream Transactions

Announcement Date
12/31/13 12/30/13 12/30/13

Acquiror

Target

Target/Transaction Description

Transaction Value ($M)

Exploration & Production and Midstream/Downstream

BreitBurn Energy Partners SM Energy Vanguard Natural Resources Eagle Rock Energy Partners CrownRock LP EnerVest, Ltd. Undisclosed seller Acquisition of assets located in the Permian Basin that produce 2,900 Boep/d, 60% of which is oil Acquisition of assets located in the Anadarko Basin that produce 8,500 Boep/d, 75% of which is natural gas Acquisition of assets located in Southwestern Wyoming that consist of 87,000 gross acres, producing 113.4 MMcfe/d, 80% of which is natural gas Consideration from Eagle Rock for the MLP that specializes in gathering and processing, contract compression, contract treating, transportation, fractionation and storage of natural gas and natural gas liquids Providers of marine transportation of crude oil, condensate and refined products with a fleet that consists of five medium range product tankers each with 333,000 barrels of cargo capacity and the commission of five new tankers of the same size Acquisition of 35 wells and non-operated interests in 31 wells located in the Anadarko Basin Acquisition of assets located in the Texas and Oklahoma Panhandle Acquisition of assets located in North Dakota that consists of 100 wells either producing or in various stages of development Acquisition of assets located in the Marcellus Shale that consist of 75,000 acres, 40 operated wells and production of 130 MMcf/d Acquisition of assets located in Texas Pandhandle and western Oklahoma that consist of 26,000 net acres Acquisition of assets located in the Williston Basin consisting of an undisclosed amount of wells and acreage Acquisition of natural gas properties located in the Uinta Basin in Utah Acquisition of properties located in the Permian Basin that consist of 6,700 Boep/d, 68% of which is crude, and 47 MMBoe of proved reserves Sale of non-core properties located in the Mid-Continent that consist of production of 15 MMcfe/d Sale of assets located in the Eagle Ford that consist of 1,200 net acres, 3.7 MMBoe of proved reserves and production of 655 Boep/d $302.0 $329.0

$580.0

12/23/13

Regency Energy Partners

$1,325.0

12/23/13

Kinder Morgan

American Petroleum Tankers/State Class Tankers/Blackstone Group/Cerberus Capital Mgmt. Primary Natural Resources Chaparral Energy Sundance Energy

$962.0

12/20/13 12/20/13 12/20/13

Peregrine Petroleum Cabot Oil & Gas Natural Resource Partners Chief Oil & Gas of Dallas/Enerplus/Tug Hill Jones Energy Black Ridge Oil & Gas EnerVest, Ltd. QEP Resources

-$160.1

$33.7

12/19/13

Chesapeake Energy

$500.0

12/19/13 12/16/13 12/12/13 12/11/13

Sabine Oil & Gas Undisclosed seller Bill Barrett Corp. EnerVest, Ltd.

$195.0 $20.6 $369.0

$950.0

12/9/13 12/8/13

Undisclosed buyer Undisclosed buyer

Cabot Oil & Gas Abraxas Petroleum

$123.0

$73.0

Sector Update | January 2014 phone 972.831.1300 | web WS-iBank.com

Notable Exploration & Production and Midstream/Downstream Transactions (Contd)

Announcement Date
11/26/13

Acquiror

Target

Target/Transaction Description

Transaction Value ($M)

Exploration & Production and Midstream/Downstream (Contd)

Templar Energy/Le Norman Operating Forest Oil Corp. With the acquisition of acres located in the Texas Panhandle, Templar and Le Norman Operating will produce in excess of 20,000 net Boep/d with an estimated proved reserve base of net 145 MMBoe Acquisition of petroleum producing properties located in Hardeman County, TX Acquisition of the North Fork Unit and natural gas fields located in Alaska Acquisition of one well producing 433 Boep/d and 20,000 net acres located in the Eagle Ford BS&W Solutions purchases and processes oil with high water or sediment content and sells recovered oil; West OK Disposal provides oilfield waste fluid handling and disposal; West OK Trucking provides transport services Acquisition of Eagle Ford assets that include 53,000 Boep/d of current production, 82,000 net acres, 1,200 undrilled locations and 400 MMBoe of risked recoverable reserves, the majority of which are proved reserves Acquisition of Midcontinent assets that include a 80.5% net revenue interest in 24,000 acres Acquisition of Canadian assets that include 127,000 net acres and will add 11,000 Boep/d to its production Acquisition of assets located in the Utica Shale that include 5,900 net acres Liberty Resources is a new energy platform focused on undeveloped resources in the DJ Basin, Permian Basin and Powder River Basin with private equity commitments from both Riverstone and Oakmont Corp. Acquisition of the midstream company that operates integrated crude oil storage, terminal and pipeline assets located in Oklahoma, Texas and Louisiana $944.0

11/26/13 11/25/13 11/21/13

Eagle Energy Miller Energy Resources Comstock Resources

Undisclosed seller Undisclosed seller Ursa Resources Group/Denham Capital BS&W Solutions/ West OK Disposal/ West OK Trucking GeoSouthern

$26.3 $65.0

$66.5

11/20/13

Lakewood Midstream/Energy Spectrum Devon Energy

--

11/20/13

$6,000.0

11/15/13 11/8/13 11/7/13 11/7/13

Gastar Exploration Progress Energy Carrizo Oil & Gas Riverstone Holdings/Oakmont Corp. NGL Energy Partners

Lime Rock Resources Talisman Energy Avista Capital Liberty Resources

$172.4 $1,430.0 $73.0

$350.0

11/6/13

Gavilon, LLC

$890.0

Sector Update | January 2014 phone 972.831.1300 | web WS-iBank.com

Wilcox | Swartzwelder & Co.

Wilcox Swartzwelder & Co. is a boutique investment bank, specialized in delivering high quality financial advice exclusively to owners of middle market companies and oil and gas properties in the energy and industrial sector. Advisory services include company sales, mergers and acquisitions, private placements of debt and equity, oil and gas property acquisitions and divestitures, institutional capital raises, and general corporate finance matters. Through its merchant funding activities, the Firm acts as direct investor providing flexible capital to support small, entrepreneurial companies. Principals have more than 40 years of combined investment banking experience, closing over 100 transactions with an aggregate value in excess of $3.9 billion. They have also acted as investors with capital at risk, operators and board members in multiple companies, having navigated through various business cycles and completed transactions in both up and down markets. The Firm is fully licensed and registered. Securities are offered through PetroGrowth Energy Advisors, LLC, a registered broker-dealer and member of FINRA/SIPC.

Notes:
The information and views contained in this report were prepared by Wilcox Swartzwelder & Co. LLC and should not be construed as an offer to buy or sell or a solicitation to buy or sell any financial instruments or to participate in any trading strategy. The information contained herein is believed to be reliable, but Wilcox Swartzwelder & Co. LLC makes no representation as to its accuracy or completeness. Indices: Dow Jones U.S. Select Oil Equipment and Services Index (DJSOES), Dow Jones U.S. Select Oil Exploration and Production (DJSOEP), Industrial Select Sector SPDR (XLI), NYSE Composite Index (NYA) Data Sources: Dealogic, Capital IQ, Stockcharts.com, Baker Hughes, RigData, Rig Zone, Energy Information Agency (EIA), Association of Energy Service Companies (AESC), Institute of Supply Management (ISM), Wilcox Swartzwelder Proprietary Energy and Industrial M&A Database Copyright 2014 Wilcox Swartzwelder & Co. LLC, all rights reserved.

Sector Update | January 2014 phone 972.831.1300 | web WS-iBank.com