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Energy Industry Check-Up 2009: Trends & Financial Outlook

Stay informed on the latest industry developments including commodity prices, drilling activity, M&A trends, and equity market insights. Explore how changing financial landscapes impact capital expenditure plans and future prospects. ATB Financial's approach in 2009.

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Energy Industry Check-Up 2009: Trends & Financial Outlook

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  1. AGENDA • ATB Corporate Financial Services • Industry Check-Up: • Commodity Prices • Drilling • M&A Activity • Upstream Equity Market • Leverage Results • Equity Markets • Interest Rates • Capital Expenditure Plans • Technical Reserve Definitions • Changing F.I. Landscape • What Does The Future Hold? • ATB Approach circa 2009

  2. ATB Financial • Crown Corporation (AAA credit rating) • 75 Year-old financial institution offering a broad range of solutions • Mandate to provide financial services for all Albertans • $1.7B in Equity; $25.7 in Total Assets • Operates as four distinct lines of business: • ATB Corporate Financial Services (including Cash Management and Derivatives) • Retail Financial Services • Business & Ag Financial Services • ATB Investor Services (Wealth Management)

  3. ATB Corporate Financial Services – Energy Group • Industry specialization with a focus on Exploration & Production (E&P), Midstream, Drilling & Services, Pipelines and Utilities • Authorized loan book of $4.1 Billion (~ 240 borrowers) • Deposits under management over $1.4 Billion (~ 450 deposit clients) • Staff of 30 professionals, including relationship managers, account managers, derivatives traders and engineering support • Participation in 65 syndications • Hold limits range from $15MM (B equivalent rating – S&P) to over $100MM (A rating)

  4. Commodity Prices – Crude Oil 2008 average: $99.65 2009 YTD: $40.87 2009 WTI forecasts range from $50-$60 As of March 17 Source: Energy Information Administration

  5. Commodity Prices – Natural Gas 2008 average: $8.12 / mcf YTD Spot: $5.62 / mcf 2009 Average AECO forecasts range from $4.00-$6.00 As of March 17 Source: Canadian Association of Petroleum Producers

  6. U.S. Natural Gas Storage Current Stock: 1,681 BCF Last Year: 1,410 BCF 5 Year Average: 1,484 BCF Source: Energy Information Administration

  7. Drilling Activity 2008 actual well completions were down 12% year over year (excluding completion backlog) Average over period: 19,200 wells Source: CAODC

  8. M&A Market There is approximately 50,000 BOE in production currently for sale or under review in the market according to Sayer Energy Advisors Average per BOE: $17.84 Source: ATB Financial

  9. M&A Market Number of transactions announced fell substantially in Q4 2008 compared to the first 3 quarters. As financial and engineering audits are completed the expectation is that M&A activity will increase. Average per BOE: $55,000 Source: ATB Financial

  10. Upstream Equity Market 2008 Flow through total $594MM Source: Sayer Energy Advisors

  11. Leverage Results – E&P Q3 WTI Price As of Q3 2008, the industry as a whole is in good shape financially after enjoying record oil prices. Best positioned: > 20,000 BOED Leverage: 0.8x Mid Cap: 1,000 - 20,000 BOED Leverage: 1.03x Most leveraged: < 1,000 BOE/D Leverage: 2.3x Source: Canoils Database

  12. Equity Market Index is down 38% year over year

  13. Interest rates Prime to BA spread was 2.00% in December 2008 compared to an average of 1.66% over the 3 year period. Current spread is 1.85%.

  14. Capital Expenditure Plans Report by Credit Suisse covering 37 major Upstream North American Companies indicates a US$ 35.6 Billion decrease in 2009 capital investment compared to 2008 In Canada, budget cuts compared to spending last year is $17.0 Billion Announcements related to the delay of certain oil sands projects in Alberta impact nearly 2.0MM barrels of oil production per day, a decrease in over $10 Billion in spending between 2008 and 2009 15,800 Alberta jobs lost in December

  15. Technical Reserve Definitions Proven + Probable + Possible Total Proven Proven + Probable Proved Developed Producing

  16. Changing F.I. Landscape • In 2008 Large Borrowers took steps not to open banking agreements due to pressure on existing terms and conditions • Risk of deferral if markets do not improve before committed period ends • Portfolio weighting issues may impact Junior market if Lenders are unable to free up capital • Terms are being reduced due to cost of capital issues – 3 and 5 year committed terms will require premiums • In recent deals covenants have been added and levels tightened in favor of lenders, focus on debt coverage

  17. Changing F.I. Landscape • Companies requiring financing have seen BA pricing increases of 20 – 125 bps at the top of the grid and 75 – 250 at the bottom • Cross border financings are expensive due to scarcity of capital and fewer participants • Borrowers requiring underwritten deals will pay a large premium for the certainty and risk to the Agent • Debt providers must see returns on own merit. No roll up to total capital markets return • Lenders have exited big names, citing return

  18. Changing F.I. Landscape • Some banks are turning away new business, struggling to maintain current portfolio • Portfolio “clean-up” – dropping weakest borrowers or lowest return accounts in order to conserve capital • Lenders are stepping up only for Borrowers that provide a sufficient amount of ancillary business • Foreign banks with liquidity issues at home are at best staying flat or exiting completely • Other institutions are moving to a full service capital markets platform

  19. What Does The Future Hold? • Borrowing bases will be tested due to lower price deck, lack of reserve growth and reserve write-downs • Borrowers fully drawn may be in a shortfall position and required to term-out debt • Special attention will be given to working capital management, funding check, reserve replacement and flow through obligations • Single bank deal pricing is moving up – expect at least a 25-50 bps increase on Prime loans and higher for riskier borrowers • Increase in new money and facility fees

  20. What Does The Future Hold? • Terms predominantly demand, although committed facilities will be available for larger Juniors (> 5,000 BOE/D) • Stretch financing / bridge loans available on a very selective basis • M&A market is expected to be very robust despite management entrenchment • Private capital and sub debt is still available albeit on tighter terms

  21. ATB Approach circa 2009 They are called CUSTOMERS for a reason Call a spade a spade Is it the assets or the people that’s the “problem”? Use of 3rd parties: run assets // buy assets

  22. Any Questions? Please Contact: BRUCE E. EDGELOW Vice President - Energy Corporate Financial Services ATB Financial 3rd Floor, 239 – 8th Ave SW Calgary, AB T2P 1B9 tel. (403) 974 - 5736 e-mail: BEdgelow@atb.com

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