Presentation is loading. Please wait.

Presentation is loading. Please wait.

Wells Fargo Energy Capital Michael Nepveux Senior Vice President Presented to: IPAA Capital Markets Seminar January 16, 2008.

Similar presentations


Presentation on theme: "Wells Fargo Energy Capital Michael Nepveux Senior Vice President Presented to: IPAA Capital Markets Seminar January 16, 2008."— Presentation transcript:

1 Wells Fargo Energy Capital Michael Nepveux Senior Vice President Presented to: IPAA Capital Markets Seminar January 16, 2008

2 2 Developing RELATIONSHIPS. Providing SOLUTIONS. ® Who is the Wells Fargo Energy Group? Quick Facts: Over three decades of lending to the Energy industry Over three decades of lending to the Energy industry 105+ staff members in Houston, Dallas and Denver 105+ staff members in Houston, Dallas and Denver Our clients have revenues from $10MM to $50B+ Our clients have revenues from $10MM to $50B+ Broad product offering including senior debt, mezzanine debt, private equity, commodity and interest rate derivatives, and treasury management. Broad product offering including senior debt, mezzanine debt, private equity, commodity and interest rate derivatives, and treasury management. The mission of the Wells Fargo Energy Group is to be the bank of choice for all segments of the energy industry The mission of the Wells Fargo Energy Group is to be the bank of choice for all segments of the energy industry

3 3 Developing RELATIONSHIPS. Providing SOLUTIONS. ® Who is Wells Fargo Energy Capital? Quick Facts: Headquartered in Houston with representatives in Denver and Pittsburgh Headquartered in Houston with representatives in Denver and Pittsburgh 11 professionals on staff 11 professionals on staff Over $1B committed to the mezzanine finance sector since 1996 Over $1B committed to the mezzanine finance sector since 1996 In 2007 completed 43 deals totaling over $300MM In 2007 completed 43 deals totaling over $300MM Funds provided for development drilling; highly leveraged acquisitions and bridge facilities Funds provided for development drilling; highly leveraged acquisitions and bridge facilities Make select equity investments in sponsored funds and private companies Make select equity investments in sponsored funds and private companies

4 4 Developing RELATIONSHIPS. Providing SOLUTIONS. ® Wells Fargo Energy Group $8.5B Energy Services & Equipment- 30% Refining & Petrochemicals- 10% Exploration & Production- 40% Pipelines, Gathering & Processing- 20%

5 5 Developing RELATIONSHIPS. Providing SOLUTIONS. ® Where Do We Fit in the Development Cycle? Production Start-Up Development Acquisition Development Development Loan, Equity Senior Revolver Subordinated Debt, Equity Syndicating Senior Revolver

6 6 Developing RELATIONSHIPS. Providing SOLUTIONS. ® PDPPDNPPUDProbablePossible Development/Exploitation (Engineering Risk) Exploration (Geologic/Geophysical Risk) Bank Loan 0 Target Rate of Return, % Reserve Risk Mezzanine Debt Equity PDPPDNPPUDProbablePossible Development/Exploitation (Engineering Risk) Exploration (Geologic/Geophysical Risk) Bank Loan 0 Target Rate of Return, % Reserve Risk Mezzanine Debt (including sub debt and development loans) Equity Oil and Gas Industry Risk Spectrum

7 7 Developing RELATIONSHIPS. Providing SOLUTIONS. ® Definition of Mezzanine Debt  Good solution for companies who:  Need capital to acquire and/or develop undeveloped reserves  Require more capital than commercial banks will provide  Don ’ t want to sell or bring in an industry partner  Want to avoid ownership dilution inherent in raising equity capital Mezzanine (mĕz ‘ ə-nēn) n. [from Latin, medianus middle, median]: An intermediate story, usually not of full width, between two main floors, especially the ground floor and the one above it. Energy finance translation: a middle layer of capital, typically supported to a material extent by undeveloped reserves, with equity beneath and sometimes senior debt above; not meant to be a permanent or primary source of capital.

8 8 Developing RELATIONSHIPS. Providing SOLUTIONS. ® Mezzanine Debt Market  Started in early/mid ’80s with TCW and RIMCO  Numerous players have come and gone since then (Enron, Aquila, Williams, Shell Capital, Mirant, etc.)  After Enron and merchant sector collapse, only TCW and WFEC remained active  Numerous new players today (BlackRock, GasRock, Macquarie, NGP Capital, PetroBridge, Guggenheim, RBS, Goldman, Prospect, etc.)  Hedge funds are also now active, but more selective in recent months  Competition has driven returns down and increased risk  Advantages of mezzanine debt versus: Bank DebtPrivate Equity higher advance rateless expensive accelerates reserve developmentless control limited or non-recourse (projects) easier to amend or increase

9 9 Developing RELATIONSHIPS. Providing SOLUTIONS. ® Typical Mezzanine Structure and Pricing Project Debt  Secured with first lien  $3MM - $50MM  Fund development/acquisition of proven reserves  Bridges to conforming bank debt if reserves not sold  1-3 year maturity  IRR: 15% - 25%: Coupon Rate: 10% - 12%, ORRI < 5%, APO NPI 15% - 75%, warrants possibly  Cash Sweep: 75% - 95%  Runs deposited in a cash collateral account  Commodity hedging typically required Subordinated Debt  Secured with second lien  $10MM+  Fund development/acquisition of proven reserves; refinancings; recaps.  Advance Rate: senior + sub = up to 75% of NYMEX PV10%  Maturity set 6-12 mos. after senior maturity  IRR: 10% - 15% in the form of coupon; usually no equity kickers  Cash Sweep: no  Commodity hedging usually required  Typically no borrowing base; protection via asset coverage test (NYMEX PV10)

10 10 Developing RELATIONSHIPS. Providing SOLUTIONS. ® Mezzanine Advantages vs. Conforming Bank  Mezz shops take more reserve risk than commercial banks  Smaller equity contribution required  Higher advance rates than commercial banks  Accelerate funding and development  Typically non-recourse

11 11 Developing RELATIONSHIPS. Providing SOLUTIONS. ® Mezzanine Advantages vs. Private Equity  Retain greater portion of the upside  Cheaper way to finance a proved drilling program  Maintain control  Easier to exit

12 12 Developing RELATIONSHIPS. Providing SOLUTIONS. ® Second Lien Market Domino Effect  As the subprime spiral spread, it affected the investment firms that managed them and the hedge funds and other investors that bought them  When liquidity dried up arrangers were sitting on immense underwriting positions which created an overhang in the debt markets  This liquidity squeeze pushed the entire market into price-discovery mode and substantially increased risk aversion  High yield market “impaired but operational” – Treas. Sec. Paulson last week. Volumes down sharply, spreads wider.  Oil and Gas 2 nd Lien and mezzanine not immune. Markets are open, but at wider credit spreads, reflecting investor appetite and liquidity.

13 13 Developing RELATIONSHIPS. Providing SOLUTIONS. ® Market Trends

14 14 Developing RELATIONSHIPS. Providing SOLUTIONS. ® Market Trends

15 15 Developing RELATIONSHIPS. Providing SOLUTIONS. ® Contacts Mark GreenGary Milavec PresidentSenior Vice President Chris CarterMichael Nepveux Vice PresidentSenior Vice President

16 Thank you


Download ppt "Wells Fargo Energy Capital Michael Nepveux Senior Vice President Presented to: IPAA Capital Markets Seminar January 16, 2008."

Similar presentations


Ads by Google