December Edition: 2015 Oilfield Equipment & Services Market Update As the media and market react to OPEC’s announcement of its 2016 production plans, oil and gas companies around the world are buckling down for more of the same in the year ahead. Oil and gas companies navigated the uncertain waters of 2015 by delivering increased efficiencies, running lean, and staying disciplined with capital expenditures. Barring a major hiccup which substantially worsens market conditions, this prudent approach will continue to serve the industry’s constituents well in the year ahead as operators develop the lowest-cost assets in their portfolios and equipment and service companies streamline operations and minimize waste. In this Newsletter, Founders Investment Banking will begin by discussing the trends and outlook of the Global Oilfield Equipment & Services Market and conclude by providing further analysis on the North American region. Though the overall size of the Global Oilfield Equipment & Services Market expects to contract further in 2016, the estimated (6%) change is considerably less than what oil and gas companies overcame in 2015. According to the Spears & Associates October 2015 Oilfield Market Report, the global market is expected to have declined from $452 billion to $336 billion from 2014 through the end of 2015; a 25.7% reduction. Further complicating the decline was the compounded annual growth rate of 46.2% the industry realized from 2011 to 2014. The outsized growth rate fostered a business climate where many companies could offset rising expenses by increasing capacity to meet elevated demand and benefit from high margins.

Figure A:

Prepared by: Duane Donner [email protected] Joe Brady [email protected] John Sullivan [email protected] John Ortstadt [email protected] Andrew Summerlin [email protected] Vaughn McCrary [email protected]

Annual Global Oilfield Equipment & Services Market

$500 $450 $400 (in USD billions)

$350 $300 $250 $200 $150 $100 $50 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016P

Source: Spears & Associates

Global Oilfield Equipment & Service Market Overview Above, Figure A shows the total market size of the Global Oilfield Equipment & Services Industry from 2005 through projected 2016. After experiencing a compounded growth rate of 51.9% from 2005 to 2008, the Global Oilfield Equipment & Services Market began to contract in 2009 as the Great Recession caused Brent and WTI prices to drop to $33.73 and $30.28, respectively. From year-end 2008 to year-end 2009, the market’s size declined 16.5% from $319 billion to $266 billion.

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Since the inception of the Oilfield Market Report in 1996, Spears & Associates has never reported two consecutive years of decline. Though this tendency expects to be broken in the year ahead, at $316 billion, 2016’s overall market size projects to remain within 1.1% of the pre-Great Recession high of $319 billion realized in 2008. This data point is highlighted for those who have made their livelihoods in the oil patch. Though 2015 required immediate redirection and 2016 projects to be down yet again, the year ahead will provide work opportunities for companies able to differentiate their equipment and services by providing greater efficiencies than their respective peers.

Figure B:

Annual Revenue by Market Sector

2014

2016

2015

$10,961 (3.5%)

$11,661 (3.5%)

$16,234 (3.6%) Exploration

$89,296 (19.7%)

Drilling

$37,434 Completion (8.3%)

$127,285 (28.1%)

Production

$62,389 (19.8%)

$69,736 (20.7%) $182,529 (40.3%)

$29,286 (8.7%) $87,091 (25.9%)

$138,717 (41.2%)

$28,608 (9.1%)

$130,821 (41.5%)

$82,727 (26.2%)

Capital Eqpt & Offshore Svs

Source: Spears & Associates

Global Oilfield Equipment & Services Sectors The decision by OPEC to continue its pursuit of recapturing market share has not only affected the overall size of the industry, but how and where the industry focuses its resources. As seen in Figure B, the industry’s allocation of capital is evolving year-overyear to adjust to the market’s demand and drivers. To simplify the analysis, equipment and service providers have been categorized to sectors according to their place along the Oil & Gas value chain.  Exploration - The sector is led by companies providing geophysical equipment and services to E&P companies across the world. The market size of this sector reached its peak in 2012 at $17.1 billion, but has been on a steady decline since. Global spending expects to be $11.6 billion at the end of 2015, and declining to $10.9 billion in 2016. Even though exploration is necessary to stay ahead of oil demand, operators are expected to remain conservative in this space as they focus on known assets in their portfolio.

“

WE DO KNOW IT WILL TURN AROUND AND WHEN IT DOES, ONE DAY THE PHONES WILL LIGHT UP AND PEOPLE WILL ALSO NEED IT YESTERDAY. AND SO THAT’S THE OTHER SIDE OF THIS.

–Clay Williams, National Oilwell Varco

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 Drilling - Drilling as a percentage of total spend increased slightly in 2015, which may be counterintuitive to those outside of the Oil & Gas Industry. Because drilling a well does not equate to new production, many operators utilized a “Drill But Do Not Complete” strategy in order to remain prepared for the market’s recovery and to fulfill existing contracts and leases. However, with the market’s expected recovery being pushed out beyond 2016, the “Drill But Do Not Complete” strategy is not expected to continue among many operators in the year ahead. This is forecasted to cause the drilling sector to decline another 5.7% to $130.8 billion.  Completion - The completion sector experienced the greatest global contraction from 2014 to 2015, declining 31.6% from $127.3 billion to $87.1 billion. With supply outpacing demand by approximately 1 million barrels per day for much of 2015, operators deferred the completion of wells in an

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effort to rebalance the world market. The year ahead will provide the industry numerous lessons on the long-term viability of the “Drill But Do Not Complete” strategy utilized in 2015. These lessons, including how initial production rates and depletion rates are affected, will alter the strategic decisions and capital budgets of operating companies in the future. If the wells yield returns sufficient to an operating company’s expectations, we expect the strategy to remain as American shale transitions to the “Global Swing Producer”.

Figure C:

2016 Projected Global Growth Rates for Oilfield Equipment & Services

Cementing

1.0%

Artificial Lift

1.0%

Production Testing

1.0%

Rental & Fishing Services

0.0%

Petroleum Aviation

-2.0%

Contract Compression Services

-2.0%

Well Servicing

-3.0%

Completion Eqpt & Svs

-3.0%

Subsea Equipment

-3.0%

Surface Data Logging

-3.0%

Specialty Chemicals

-5.0%

Surface Equipment

-5.0%

Coiled Tubing Services

-6.0%

Geophysical

-6.0%

Drill Bits

-6.0%

Casing & Tubing Services

-6.0%

Land Contract Drilling

-6.0%

Directional Drilling Services

-6.0%

Drilling & Completion Fluids

-6.0%

Offshore Contract Drilling

-6.0%

Inspection & Coating

-6.0%

Wireline Logging

-6.0%

Logging-While-Drilling

-6.0%

Supply Vessels

-7.0%

Unit Manufacturing

-7.0%

Oil Country Tubular Goods

-7.0%

Solids Control & Waste Mgmt

-7.0%

Floating Production Services

-8.0%

Downhole Drilling Tools

-9.0%

Hydraulic Fracturing

-9.0%

Offshore Construction Services Rig Equipment

Exploration

-10.0% -16.0% Drilling

Completion

Production

Capital Eqpt & Offshore Svs Source: Spears & Associates

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 Production - It is of little surprise equipment and service companies in the production sector of the global market experienced the lowest decline rate from 2014 to 2015. Though the sector is projected to have contracted 21.8% by the end of 2015, the point of emphasis by operators to maximize the returns of wells already in production offers ongoing work opportunities for equipment and service companies able to provide increased efficiencies and/or added-value solutions. The sector is expected to contract a minimal 2.3% in 2016, allowing leading equipment and service companies to vie for market share in a more stabilized sector.  Capital Equipment and Offshore Services(1) - The capital intensive nature of equipment and service companies categorized in this sector justifies a different lens when analysis is performed on the sector’s health, economics, and investment horizons. For those within the sector, a downturn often means an immediate hold is placed on potential new orders as operators adjust budgets to strengthen cash positons and limit new debt. For projects already underway, operators are forced to decide on how deep they must cut by weighing market optimism versus market reality. This optimism slowed the sector’s contraction to a rate of 21.9% in 2015; second only to production’s smaller decline rate. However, the continuation of depressed crude prices is expected to cause the sector to experience the industry’s largest contraction in 2016 at a rate of 10.5%.

Figure D:

Sub Total % of Total

DRILLING 100%

Offshore Contract Drilling Land Contract Drilling Oil Country Tubular Goods Directional Drilling Services Drilling & Completion Fluid Cementing Drill Bits Logging-While-Drilling Solids Cntl & Waste Mgmt Casing & Tubing Services Surface Data Logging Inspection & Coating

$4,664 Sub Total 3%

COMPLETION

ENOUGH YET TO CALL THE EXACT SHAPE OF THIS RECOVERY, BUT WE DO EXPECT THAT THE LONGER IT TAKES, THE SHARPER IT WILL BE.

”

– David Lesar, Halliburton

25% 24% 12% 8% 11% 7% 3% 2% 3% 3% 1% 1%

Hydraulic Fracturing Subsea Equipment Wireline Logging Completion Eqpt & Svs Coiled Tubing Services Rental & Fishing Services Surface Equipment Production Testing

$54,189 Sub Total 39%

PRODUCTION 37% 11% 11% 15% 8% 8% 7% 5%

Artificial Lift Specialty Chemicals Well Servicing Floating Production Svs Contract Compression Svs

$41,793 Sub Total 30%

Grand Total (All Segments) (1)

I’M NOT CONFIDENT

2015 North American Oilfield Equipment & Services Market (in millions)

EXPLORATION Geophysical

“

The Capital Equipment and Offshore Services Sector includes both onshore and offshore equipment and service companies.

CAPITAL EQPT & OFFSHORE SVS(1) 45% 24% 14% 1% 16%

Offshore Construction Svs Rig Equipment Supply Vessels Petroleum Aviation Unit Manufacturing Downhole Drilling Tools

$15,875 Sub Total

30% 35% 10% 11% 7% 8%

$22,354

11%

16%

$138,876 Source: Spears & Associates

North American Oilfield Equipment & Services Market Recap In recent years, North American operators made meaningful innovations in the processes and technologies used to produce the region’s unconventional reserves, reducing cost and increasing the returns of the region’s shale wells. These advancements shifted much of the market’s attention, investments, and spending to North America, and have allowed the region’s companies to earn global recognition as leading producers and innovators. North America was the largest macro-region in the world in 2014 as it accounted for 47% of the Global Oilfield Equipment & Services Market. The region’s market share is projected to have declined to 41% by the end of 2015, but it remains the world’s largest region at $138.9 billion. Above, Figure D forecasts the expected market size in North America of the respective services in 2015.

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North American Oilfield Equipment & Services Market by Sector In its new role as the market’s “Global Swing Producer”, the development of North American shale resources continues to affect the region’s overall spending patterns. Below, Figure E reports the loss of revenue in each sector from 2014 through the end of 2015 (projected). The 44.1% contraction of the completion sector aligns with the decision of many of the industry’s operators to defer bringing drilled wells online. The rest of the industry may have fared better than the completion sector, but near 30% cuts in the drilling and production sectors have caused equipment and service companies to again seek greater efficiencies to protect margins. Spending in 2016 is expected to be more strategic and less reactive compared to the deep and swift budget cuts across the industry in 2015. This means operators will look to reallocate resources to the market sectors that allow reserves to yield the greatest returns on capital.

Figure E:

2015 Growth Rates by Market Sector Completion

-44.1%

Drilling Production Capital Eqpt & Offshore Svs Exploration

-31.9% -29.5% -26.1% -24.3% Source: Spears & Associates

Industry Chatter - Recent Earnings Calls • “I’m not confident enough yet to call the exact shape of this recovery, but we do expect that the longer it takes, the sharper it will be.” – David Lesar, Halliburton • “Based on this industry outlook, we expect E&P investments to fall for a second successive year in 2016, which is the first time since the 1986 downturn when the spare capacity cushion was more than 10 million barrels per day.” – Paal Kibsgaard, Schlumberger • “One observation I have…is the pent-up desire for industry to declare a bottom to this downturn. I don’t believe we will know when we have bottomed until that period is well behind us.” – David Dunlap, Superior Energy Services • “We’re seeing customers be far more aggressive. I think, in this downturn with regards to cannibalizing their equipment, about repositioning it…We do know it will turn around and when it does, one day the phones will light up and people will also need it yesterday. And so that’s the other side of this.” – Clay Williams, National Oilwell Varco • “If current oil pricing and related oil selectivity endure, let alone deteriorate further, we do not believe the industry will be able to manage the required oil supplies as early as 2017. This means oil demand will not be met by existing oil capacity. Inventory overhang will help. That isn’t sustainable solution for long. We’re quite sure of this.” – Bernard Duroc-Danner, Weatherford

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Select 2015 M&A Activity Announced Date

Target/Issuer

Buyers/Investors

Transaction Value ($USDmm)

11/23/215

Archer Well Services

Quintana Energy Partners, L.P.

-

11/16/2015

Fluid Inclusion Technologies, Inc.

Schlumberger Limited (NYSE:SLB)

-

11/05/2015

Ultrafab Industries Ltd.

Nalco Champion

-

11/05/2015

ITG Energy Research Group

Kratos Energy Inc./Warburg Pincus

10/23/2015

Digital Petrodata LLC

TGS Nopec Geophysical Co. ASA (OB:TGS)

-

10/21/2015

Paragon Fabricators, Inc. and Paragon Field Services, Inc.

Alpine 4 Automotive Technologies, Ltd.

-

10/06/2015

Hybrid Tool Solutions, LLC

Hastings Equity Partners, LLC

-

10/05/2015

Willbros United States Holdings, Inc.

TRC Solutions, Inc.

10/05/2015

Mud Bay Drilling Co. Ltd.

Conetec Investigations Ltd.

09/25/2015

Gulf Coast Downhole Technologies, LLC

Prysmian S.p.A. (BIT:PRY)

66.0

9/02/2015

Pat Greenlee Builders, LLC

Nine Energy Service, Inc.

-

09/01/2015

SL Oilfield Construction Ltd.

Northern Frontier Corp. (TSXV:FFF)

-

08/26/2015

Cameron International Corporation (NYSE:CAM)

Schlumberger Limited (NYSE:SLB)

08/11/2015

Elite Energy Products Ltd.

Weatherford International plc (NYSE:WFT)

-

08/03/2015

Odessa Packer Service, Inc.

Team Oil Tools, Inc.

-

06/11/2015

CanElson Drilling Inc. (TSX:CDI)

Trinidad Drilling Ltd. (TSX:TDG)

04/24/2015

ROC Service Company, LLC

Coral Reef Capital, L.L.C.

-

04/06/2015

*Eagle Automation Limited

Panhandle Oilfield Services, Inc.

-

03/30/2015

GASFRAC Energy Services, Inc. (OTCPK:GSFV.F)

Calfrac Well Services Ltd. (TSX:CFW)

-

03/13/2015

Inspection Oilfield Services

LB Foster Co. (NasdaqGS:FSTR)

03/12/2015

*Timco Services, Inc.

Frank's International, Inc.

02/03/2015

J-Mac Tool, Inc.

Forum Energy Technologies, Inc. (NYSE:FET)

02/02/2015

C & C Technologies, Inc.

Oceaneering International, Inc. (NYSE:OII)

*Indicates Founders Investment Banking advised on the transaction

120.5

130.0 -

16,560.99

436

230 95

Source: CapitalIQ

230

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Commodity Prices

Crude Oil - WTI 100.00 90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00

Crude Oil

Current $36.27

Price per Barrel Prior Month $41.71

Prior Year $56.79

Change from Prior Month Prior Year (13.0%) (36.1%)

Natural Gas - Henry Hub 6.00 5.00 4.00 3.00 2.00 1.00 0.00

Natural Gas

Current $1.97

Price per MmBtu Prior Month $2.53

Prior Year $3.68

Change from Prior Month Prior Year (22.0%) (46.4%) Source: CapitalIQ

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Rig Counts

Onshore Rig Count 2,250 2,000 1,750 1,500 1,250 1,000 750 500 250 -

U.S. Onshore

Current 686

Rig Count Prior Month 734

Prior Year 1,833

Change from Prior Month Prior Year (6.5%) (62.6%)

Offshore Rig Count 200 180 160 140 120 100 80 60 40 20 -

U.S. Offshore

Current 23

Rig Count Prior Month 33

Prior Year 60

Change from Prior Month Prior Year (30.3%) (61.7%)

Source: Baker Hughes

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Rig Counts (continued)

U.S. Rig Count by Basin

Permian Eagle Ford

2,500

Williston

2,250

Marcellus

2,000

Mississippian

1,750

Granite Wash

1,500

Haynesville

1,250

DJ Niobrara

1,000

Utica

750

Cana Woodford

500

Barnett

250

Fayetteville Arkoma Woodford

-

Ardmore Woodford Others

U.S. Rig Count by Basin Permian

204

Eagle Ford

76

Williston

58

Marcellus 12

Granite Wash

14

Haynesville

27

DJ - Niobrara

23

Utica

16

Cana Woodford 7

Fayetteville

3

Arkoma Woodford

8

Ardmore Woodford

2

(326)

Eagle Ford

(124)

Williston

(121) (35)

Mississippian

(60)

Granite Wash

(38)

Haynesville

(13)

DJ - Niobrara

(35)

Utica

(33)

Cana Woodford

37

Barnett

Permian

Marcellus

42

Mississippian

Others

U.S. Rig Count by Basin YTD Change

(8)

Barnett

(17)

Fayetteville

(5)

Arkoma Woodford

3

Ardmore Woodford 180

Others

(4) (286)

Source: Baker Hughes

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Rig Counts (continued)

U.S. Oil vs. Natural Gas Rig Count 1,750 1,500 1,250 1,000 750 500 250 -

Oil

Oil Natural Gas

Current 524 185

Rig Count Prior Month 574 193

Natural Gas

Prior Year 1,546 346

Change from Prior Month Prior Year (8.7%) (66.1%) (4.1%) (46.5%)

Gulf of Mexico: Oil Rig vs. Natural Gas Rig Count 140 120 100 80 60 40 20 -

GOM Oil Rig Count

Oil Natural Gas

Current 19 4

Rig Count Prior Month 25 8

GOM Natural Gas Rig Count

Prior Year 42 16

Change from Prior Month Prior Year (24.0%) (54.8%) (50.0%) (75.0%) Source: Baker Hughes

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Domestic Production

Current 9.17

Crude Oil

Million Barrels per Day Prior Month Prior Year 9.23 9.20

Nov-15

Oct-15

Sep-15

Aug-15

Jul-15

Jun-15

May-15

Apr-15

Mar-15

Feb-15

Jan-15

Dec-14

Nov-14

Oct-14

Sep-14

Aug-14

Jul-14

Jun-14

May-14

Apr-14

Mar-14

Feb-14

Jan-14

10.00 9.50 9.00 8.50 8.00 7.50 7.00 6.50 6.00 5.50 5.00 4.50 4.00

Dec-13

(Mm bbl/day)

Crude Oil Production

Change from Prior Month Prior Year (0.7%) (0.3%)

Natural Gas

Billion Cubic Feet per Day Current Prior Month Prior Year 75.62 75.55 72.95

Nov-15

Oct-15

Sep-15

Aug-15

Jul-15

Jun-15

May-15

Apr-15

Mar-15

Feb-15

Jan-15

Dec-14

Nov-14

Oct-14

Sep-14

Aug-14

Jul-14

Jun-14

May-14

Apr-14

Mar-14

Feb-14

Jan-14

78.00 77.00 76.00 75.00 74.00 73.00 72.00 71.00 70.00 69.00 68.00 67.00 66.00 65.00 64.00 63.00 62.00 61.00 60.00

Dec-13

(Bncf/d)

Natural Gas Production

Change from Prior Month Prior Year 0.1% 3.7%

Source: EIA

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FOUNDERS INVESTMENT BANKING IS A MERGER AND ACQUISITION FIRM WITH AN OIL AND GAS SERVICES PRACTICE THAT BRINGS A W ALL STREET-LEVEL OF SOPHISTICATION TO THE WELL SITE. ITS TEAM'S PROVEN EXPERTISE AND PROCESS-BASED SOLUTIONS HELP COMPANIES AND BUSINESS OWNERS ACCESS CAPITAL AND PREPARE FOR AND EXECUTE LIQUIDITY EVENTS TO ACHIEVE SPECIFIC FINANCIAL GOALS.

O&G SERVICES LEAD ADVISORS: DUANE DONNER MANAGING DIRECTOR 205‐423-2548 [email protected] JOE BRADY DIRECTOR 205‐503-4023 [email protected] JOHN SULLIVAN VICE PRESIDENT 205-503-4010 [email protected] JOHN ORTSTADT BUSINESS DEVELOPMENT 205-503-4030 [email protected]

Guests at the previous Founders’ Blast & Cast Forum in Cameron Meadows, LA.

SELECT 2015 O&G TRANSACTIONS:

ANDREW SUMMERLIN SENIOR ANALYST [email protected] VAUGHN MCCRARY ANALYST [email protected]

FOUNDERS INVESTMENT BANKING, LLC 2204 LAKESHORE DRIVE BIRMINGHAM, AL 35223 WWW.FOUNDERSIB.COM – 866.594.4358 Securities-related services, including M&A advisory for transactions involving stock or debt are offered through M&A Securities Group, Inc., Member FINRA & SiPC. Founders Investment Banking & M&A Securities Group are not affiliated entities. Principals of Founders are registered investment banking agents with M&A Securities Group & shall perform such services on behalf of M&A Securities Group.

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