Jefferies Take on the Energy Sector

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Subject: Jefferies Energy: Year-End Wrap-Up

Dear Clients and Friends,

2016 represented a milestone in global energy markets. With a firming commodity price environment, U.S. upstream M&A activity accelerated as operators repositioned their U.S. portfolios. Public capital markets were supportive of strategic acquisitions in core plays, allowing operators to build focused and high-quality inventory without compromising their balance sheets.

Much of 2016 upstream M&A activity (over 40%) was driven by activity in the Permian Basin and dealmaking intensified across a range of asset classes in the second half of 2016 as commodity prices stabilized. Q3 2016 M&A activity was $20 billion and Q4 2016 activity was $25 billion, with total 2016 activity up 117% YoY at nearly $70 billion.

Jefferies expects this momentum to carry forward into 2017. In a world where returns across all asset classes are extremely low, U.S. oil and gas is the highest-returning large asset class. Additionally, development economics continue to improve across virtually all major plays. With both capital and development opportunities plentiful, the key distinguishing element has become execution: the ability to drill wells on time, on budget and at scale.

Once again in 2016 we were the clear leader in both upstream and midstream M&A. In 2016, Jefferies completed ~$17 billion of upstream M&A transactions, including 4 of the 10 largest ones this year, and $13 billion of midstream transactions.

Most notably in upstream, we advised Brigham Resources in its sale to Diamondback Energy ($2.43 billion), Silver Hill Energy Partners in its sale to RSP Permian ($2.4 billion), Anadarko Petroleum in its acquisition of Freeport McMoRan’s Gulf of Mexico assets ($2.0 billion), Vitruvian Exploration II in its sale to Gulfport Energy ($1.85 billion) and Devon Energy in $2.0 billion of total asset sales across multiple non-core North American operating areas.

Most notably in midstream, we advised Plains GP Holdings in its simplification transaction with Plains All American ($7.2 billion), the Conflicts Committee of Columbia Pipeline Partners in its acquisition by TransCanada / Columbia Pipeline Group ($915 million), Lucid Energy in its acquisition of Agave Energy assets in the Delaware Basin and the Powder River Basin (price undisclosed), EnLink in its acquisition of Tall Oak Midstream in the STACK and CNOW plays ($1.55 billion), M3 Midstream in its divestiture of AGS/Stonewall to DTE Energy ($1.3 billion) and Chevron on multiple midstream sales as part of a multi-year divestiture campaign of non-core energy infrastructure in the United States and Canada. Since forming a dedicated midstream investment banking effort in mid-2012, Jefferies has played a leadership role on over $133 billion of midstream transactions, including 5 of the 10 largest midstream mergers over that time period.

Furthermore, Jefferies raised more than $3 billion in private capital in 2016. Jefferies’ position as the leader in both M&A and private financings affords us a superior ability to create and execute value-adding solutions for our clients. We welcome the opportunity to discuss our thoughts regarding specific ideas for you.