Deals, decisions, and other marketplace deliberations are all served up in this month’s miscellany of articles. These are the full versions of the “Drilling Deeper” news items that appeared as abbreviated versions in the print edition of the January 2015 PBOG.
Mega-Merger
Halliburton Company and Baker Hughes Incorporated announced on Nov. 17 a definitive agreement under which Halliburton will acquire all the outstanding shares of Baker Hughes in a stock and cash transaction. The transaction is valued at $78.62 per Baker Hughes share, representing an equity value of $34.6 billion and an enterprise value of $38.0 billion, based on Halliburton’s closing price on November 12, the day prior to public confirmation by Baker Hughes that it was in talks with Halliburton regarding a transaction.
Upon the completion of the transaction, Baker Hughes stockholders will own approximately 36 percent of the combined company. The agreement has been unanimously approved by both companies’ boards of directors. The transaction combines two highly complementary suites of products and services into a comprehensive offering to oil and natural gas customers. On a pro-forma basis the combined company had 2013 revenues of $51.8 billion, more than 136,000 employees, and operations in more than 80 countries around the world. “We are pleased to announce this combination with Baker Hughes, which will create a bellwether global oilfield services company and offer compelling benefits for the stockholders, customers, and other stakeholders of Baker Hughes and Halliburton,” said Dave Lesar, Chairman and CEO of Halliburton. “The transaction will combine the companies’ product and service capabilities to deliver an unsurpassed depth and breadth of solutions to our customers, creating a Houston-based global oilfield services champion, manufacturing and exporting technologies, and creating jobs and serving customers around the globe.”
Lesar continued, “The stockholders of Baker Hughes will immediately receive a substantial premium and have the opportunity to participate in the significant upside potential of the combined company. Our stockholders know our management team and know we live up to our commitments. We know how to create value, how to execute, and how to integrate in order to make this combination successful. We expect the combination to yield annual cost synergies of nearly $2 billion. As such, we expect that the acquisition will be accretive to Halliburton’s cash flow by the end of the first year after closing and to earnings per share by the end of the second year. We anticipate that the combined company will also generate significant free cash flow, allowing for the return of substantial capital to stockholders.”
Martin Craighead, Chairman and Chief Executive Officer of Baker Hughes, said, “This brings our stockholders a significant premium and the opportunity to own a meaningful share in a larger, more competitive global company. By combining two great companies that have delivered cutting-edge solutions to customers in the worldwide oil and gas industry for more than a century, we will create a new world of opportunities to advance the development of technologies for our customers. We envision a combined company capable of achieving opportunities that neither company would have realized as well—or as quickly—on its own, all while creating exciting new opportunities for employees.”
Lesar concluded, “We believe that the expertise of both companies’ employees and leaders will be a competitive advantage for the combined company. Together with the people of Baker Hughes, we will establish a team to develop a detailed and thoughtful integration plan to make the post-closing transition as seamless, efficient and productive as possible. We look forward to welcoming the talented employees of Baker Hughes and are pleased they will be joining the Halliburton team.”
Under the terms of the agreement, stockholders of Baker Hughes will receive, for each Baker Hughes share, a fixed exchange ratio of 1.12 Halliburton shares plus $19.00 in cash. The value of the merger consideration as of November 12, 2014 represents 8.1 times current consensus 2014 EBITDA estimates and 7.2 times current consensus 2015 EBITDA estimates. The transaction value represents a premium of 40.8 percent to the stock price of Baker Hughes on October 10, 2014, the day prior to Halliburton’s initial offer to Baker Hughes. And over longer time periods, based on the consideration, this represents a one year, three year, and five year premium of 36.3 percent, 34.5 percent, and 25.9 percent, respectively.
Halliburton intends to finance the cash portion of the acquisition through a combination of cash on hand and fully committed debt financing. The transaction is subject to approvals from each company’s stockholders, regulatory approvals, and customary closing conditions. Halliburton’s and Baker Hughes’ internationally recognized advisors have evaluated the likely actions needed to obtain regulatory approval, and Halliburton and Baker Hughes are committed to completing this combination. Halliburton has agreed to divest businesses that generate up to $7.5 billion in revenues, if required by regulators, although Halliburton believes that the divestitures required will be significantly less. Halliburton has agreed to pay a fee of $3.5 billion if the transaction terminates due to a failure to obtain required antitrust approvals. Halliburton is confident that a combination is achievable from a regulatory standpoint. The transaction is expected to close in the second half of 2015.
Compelling Strategic and Financial Benefits
Leverages complementary strengths to create a company with an unsurpassed breadth and depth of products and services. The companies are highly complementary from the standpoint of product lines, global presence, and cutting-edge technology in the worldwide oil and natural gas industry. The resulting company will provide a comprehensive suite of products and services to customers in virtually every oil and natural gas producing market in the world. This strategic combination will create an oilfield services supplier with the ability to serve customers through strong positions in key business lines, a fully integrated product and services platform, increased capabilities in the unconventional, deepwater and mature asset sectors, substantial and improved growth opportunities and continued high returns on capital.
Generates significant opportunities for synergies. In addition to the compelling and immediate premium Baker Hughes stockholders will receive, the transaction will also yield significant synergies. The combination will provide substantial efficiencies of scale and geographic scope, particularly in the Eastern Hemisphere, which will enhance fixed cost absorption. Once fully integrated, Halliburton expects the combination will yield annual cost synergies of nearly $2 billion. These synergies are expected to come primarily from operational improvements, especially North American margin improvement, personnel reorganization, real estate, corporate costs, R&D optimization, and other administrative and organizational efficiencies.
Enables increased cash returns to stockholders. Halliburton expects the transaction to be accretive to cash flow by the end of the first year after closing and to earnings per share by the end of the second year. Halliburton expects that the combined company will maintain a strong investment grade credit profile and substantial financial flexibility. In addition, the combined company will generate significant free cash flow, allowing the return of cash to the combined investor base through dividends, share repurchases, and similar actions.
The combined company will maintain the Halliburton name and continue to be traded on the New York Stock Exchange under the ticker symbol “HAL.” The company will be headquartered in Houston, Texas. Dave Lesar will continue as Chairman and Chief Executive Officer of the combined company. Following the completion of the transaction, the combined company’s Board of Directors is expected to expand to 15 members, three of whom will come from the Board of Baker Hughes. Concurrently with the execution of the merger agreement, Halliburton withdrew its slate of directors nominated for the Board of Directors of Baker Hughes.
Clayton Williams Energy Farmout
Clayton Williams Energy announced that it had entered into a farmout and exploration agreement with Caza Oil and Gas covering a portion of the Company’s 71,000 net acre resource play in Reeves County, Texas. All of the approximate 15,000 net undeveloped acres covered by this agreement are located along the western flank of the Company’s acreage block. The Company has drilled no horizontal Wolfcamp wells within the farmout area. Under the terms of the agreement, Caza will pay 75 percent of the costs of the initial horizontal Wolfcamp well to earn 50 percent of the acreage associated with that well (either 640 or 1,280 gross acres, depending on lateral length). After the initial well, Caza will pay 100 percent of the costs of all other Carried Wells (as defined in the agreement) to earn 75 percent of the associated acreage. The Company will pay its 25 percent of the cost to drill and complete all density wells drilled on previously earned acreage.
In addition to the initial well, Caza is obligated to drill and complete two additional horizontal Wolfcamp wells in the farmout area by Dec. 31, 2015. Caza is subject to a penalty of $1.6 million per well for any obligation well not drilled. Caza must also drill a minimum of two carried wells per year in order to continue participation in the agreement beyond Dec. 31, 2015.
“We are very pleased with the terms of this strategic farmout arrangement,” stated Clayton W. Williams, Jr., President and CEO of the Company. “We have been impressed with Caza’s operating results in the Delaware Basin and look forward to a mutually beneficial exchange of knowledge through this venture. Through this drill-to-earn structure with Caza, we have effectively sold up to 75 percent of our interest in fringe acreage at an attractive price per acre. And more importantly, we have sharpened our focus on developing the remaining 56,000 net acres in the heart of our Reeves County position where we have effectively delineated the Wolfcamp A and are moving toward delineating the Wolfcamp C.”
GE Capital and Bird Electric
GE Capital announced Oct. 20 it is providing a $50 million credit facility to Bird Electric Enterprises, LLC (Bird Electric), a leading electrical services provider. GE Capital will be administrative agent for the financing. The facility will be used for general working capital and to support a majority investment by 3.5.7.11, a private investment and acquisition firm. Bird Electric is headquartered in Eastland, Texas, with additional facilities in Midland, Pecos, and Snyder, Texas, as well as Hobbs and Carlsbad, N.M.
The company specializes in providing low, medium, and high voltage electrical services to major oil, gas, and power companies operating across the Permian Basin in western Texas and southeastern New Mexico. Services include the design, construction, maintenance, and restoration of power transmission and distribution infrastructure.
“GE Capital provided us with a flexible capital structure to fund our growth,” said Brian Bird, founder and CEO of Bird Electric. “GE understood our business goals and constructed a custom solution to help us achieve them, which ultimately benefits our customers.”
“GE Capital’s scale, domain expertise, and extensive energy industry resources will help us to grow,” said Dale LeFebvre, chairman of 3.5.7.11, a majority owner of Bird Electric. “They matched capital with ideas that will enhance Bird Electric’s continuing transformation and ever-better customer delivery. We look forward to working together in the years to come.”
“We focus on tailored capital solutions for mid-size companies like Bird Electric,” said Paul Feehan, senior managing director for GE Capital, Corporate Finance. “By combining industry and structuring expertise, we provided capital that fully supports their immediate and longer-term growth.”
Oxy Sells Stake in BridgeTex Pipeline
Occidental Petroleum Corporation announced the entrance into an agreement with Plains All American Pipeline, L.P. (PAA) and Plains GP Holdings, L.P. (PAGP) to sell its 50 percent interest in BridgeTex Pipeline Company, LLC (BridgeTex) to PAA for $1.075 billion. BridgeTex, a company jointly owned by Occidental and Magellan Midstream Partners, L.P., owns the BridgeTex Pipeline, a 300,000 barrel-per-day crude oil pipeline extending from the Permian Basin to the Houston Gulf Coast area. The BridgeTex Pipeline began service in September 2014.
The sale of Occidental’s interest in BridgeTex includes two transactions: PAA will purchase for $1.075 billion Occidental’s interest in the approximately 400-mile northern leg of the BridgeTex pipeline which runs from the Permian Basin to East Houston, and Magellan will acquire Occidental’s interest in the approximately 40-mile, 24-inch southern leg of the BridgeTex pipeline from Houston to Texas City for $75 million.
“This sale allows us to monetize this important pipeline while retaining long-term cost-advantaged shipping commitments on BridgeTex to ensure access to the key Houston refining markets,” said Stephen I. Chazen, President and Chief Executive Officer. “This is in line with our previously announced strategic review to streamline our business, reinvest in areas where we have depth and scale, and maximize total return to shareholders.”
The BridgeTex transaction is contingent on the sale of a portion of Occidental’s Class A shares in PAGP.
Mexico’s License Framework
While the specific terms of Mexico’s new contractual frameworks for its oil and gas industry are yet to be announced, the regime appears to be an attractive one and should be conducive to active bidding, according to an analyst with research and consulting firm GlobalData. Mexico’s first licensing round is rapidly approaching, with bids for shallow water areas formally scheduled for the first half of this month. Round 1 is being staggered, with areas offered in the following order: shallow water, extra-heavy oil, Chicontepec and unconventional, onshore, and deepwater. Will Scargill, GlobalData’s upstream fiscal analyst, states that much will depend on the specific contracts and terms allocated to the blocks and fields on offer, as Mexico looks to counter the significant production declines that its energy sector has experienced in recent years.
However, Scargill explains, “Analysis of the details released so far for the royalty and tax license framework shows positive signs. In addition to royalties, income tax, and a predetermined signature bonus, contractors under this regime will pay a biddable additional royalty, which will be adjusted according to profitability. This mechanism is expected to be similar to that which will be applied for profit oil split under both production and profit-sharing contracts.”
Based on the information provided by the Mexican government to date, GlobalData’s assessment assumes an industry standard R-factor mechanism. No additional royalty is applied until cumulative net revenue equals cumulative investment, and the percentage of the bid that is applied increases linearly to 100 percent when cumulative net revenue reaches 2.5 times cumulative investment.
Scargill continues, “The fact that both the basic royalties and additional royalty are adjusted according to the commodity price and profitability, respectively, means that developments should remain commercially viable, even at low prices. This is particularly significant given the many heavy-oil areas on offer in Round 1 and recent falls in the world oil price.
“In comparison to the fiscal regime applicable to shallow water fields in the U.S. Gulf of Mexico, the basic Mexican royalty and tax regime before the additional royalty offers much higher investor returns. This leaves space for significant competition in the bidding round,” the analyst concludes.
RRC’s Comment on Denton Vote
Below are statements from the three Railroad Commissioners on the vote to ban the hydraulic fracturing well stimulation technique in the City of Denton:
Chairman Christi Craddick said, “While the ballot measure that passed in Denton is unfortunate, I expect that real facts and common sense will ultimately prevail. The charges delegated to the Railroad Commission of Texas are to manage the safe and responsible production of our state’s natural resources. We have ensured that our state has an exemplary environmental and public safety record. That record has fostered unprecedented economic growth and job creation. It is my goal that every community in Texas not only understands that they are safe, but they are the beneficiaries of our regulatory expertise.”
Commissioner David Porter said, “As the senior energy regulator in Texas, I am disappointed that Denton voters fell prey to scare tactics and mischaracterizations of the truth in passing the hydraulic fracturing ban. Texas is a global energy leader and has the best job climate in the country because of our fair, even-handed regulatory environment. Bans based on misinformation—instead of science and fact—potentially threaten this energy renaissance and as a result, the well-being of all Texans.”
Commissioner Barry Smitherman said, “”We are very disappointed that voters in Denton have taken this draconian step to ban frac’ing. Horizontal drilling and hydraulic fracturing are the transformative technologies that have changed the United States from an import dependent nation to one which now has surplus oil and gas reserves. And, importantly, great domestic jobs have been created along the way using this drilling technique.”
Allegiance Capital: Factors Driving Values
Like the motion of pump jacks sucking up black gold from oil wells around the globe, merger and acquisition (M&A) activity in the oil and gas industry also has its ups and downs. Recently, the dramatic drop in oil prices from $100 per barrel in August to below $60 in December has some oilfield service company owners wondering if they missed their opportunity to sell while the market was hot. “The value of a proven, well-managed, successful oilfield services company is not totally immune from the latest drop in oil prices, but we haven’t seen any negative impact on what buyers are willing to pay for companies,” stated John Sloan, Vice Chairman, Allegiance Capital. Sloan believes there are six critical factors that drive the values of middle-market oil and gas service companies, and these factors are not always directly linked to oil prices. They are as follows:
Investors are looking for successful companies—cash is available
“The price of oil is important, “says Sloan. “However, company owners need to know there is close to a trillion that investors need to invest, and they are looking for successful companies to buy. The key to maximizing company value is marketing your company to the largest number of qualified buyers who are most active in the industry.”
Buyers determine a company’s value—not oil prices
The value of a barrel of oil is not determined by what happens in one region of the U.S. The value is driven by the world oil markets. What is happening in China, Russia, and the Middle East all impact the price of a barrel of oil in the United States. Sloan emphasizes that company values may also be driven by world markets. “If a company is not marketed both nationally and internationally, an owner may not receive a premium price,” he explains. “Company values are driven by supply and demand. Successful, profitable companies are in high demand now, and the supply is low. The ultimate value of the company is based upon what potential buyers are willing to pay—not what is happening with the price of oil.”
Strategic investors often pay more—for the right company
As an example, Sloan cites an oilfield services company he worked with. “This was a unique company that owned a patent. We marketed it in the United States, and the best offer was 8 times EBITDA. We sold the company to a British investor for 12 times EBITDA, because the strategic investor wanted the technology to add to their existing product line.”
You can’t time the market—it’s a moving target
Owners of middle-market oil and gas services companies often think they can time the market. According to Sloan, that is virtually impossible to do. “Right now, the market for successful oil and gas services companies is impressive,” he emphasizes. “Investors have cash on hand. The industry has gained tremendous respect based upon its performance the last couple of years, and investors still see the industry as offering a good return on investment.”
Selling a middle-market company can take 9-12 months, and it is virtually impossible to determine where the price of oil will be one year from today. Trying to decide the best time to sell your company based on the price of oil today simply does not work. Timing of a sale must be based on the financial condition of the company. Investors are looking for good management teams with a solid track record of earnings and a long range forecast that provides for future growth.
Family funds take a long-term view of investments—this changes the game
As the oil and gas industry has grown, family funds have become more and more interested in investing. Family funds take a very different view on investments than many private equity firms. Family funds tend to buy and hold companies for an extended period of time, sometimes as long as 15 to 20 years. They are not looking for a quick return on investment. Rather, they are seeking a stable investment that will grow consistently over time.
“This is a game changer,” says Sloan. “Family funds have the financial resources to invest in proven middle-market companies long term, and are very pleased to receive a reasonable return on their investment. They don’t require the 20-30 percent returns many private equity firms demand. The cyclical nature of oil prices doesn’t have the same impact on their investment decision. Family funds know that, in the long term, their investments will perform well and provide a consistent return.”
International investors—new opportunities
The oil and gas industry is an international business. Decisions made on the other side of the globe can have a dramatic impact on operations in remote parts of the United States. On the other hand, the same international marketplace provides United States’ business owners with new opportunities to sell all or part of their business.
“International investors represent very unique opportunities,” Sloan explains. “Today, many countries have proven oil and gas reserves, but they do not have the technology or experience necessary to tap into those reserves. International investors know American companies can provide the technology they need and the experience required to get the job done quickly, and they are willing to pay for it.
What does this mean to owners of a United States based oilfield services company that has developed a unique process or technology? It means that an international buyer may be willing to pay considerably more for your company than a U.S. buyer.”
Sloan specifically cited the opening of oilfields in Mexico and developments in China and the Far East as examples of areas where oil and gas production is set to explode. Demand for U.S. technology and experience will be high.
The price of oil can affect the value of a middle-market oilfield services company. However, the impact can be minimized and possibly even avoided if a company is performing well, has desirable technology, and looks for potential buyers worldwide. Oil and gas companies are selling for premium prices today.
“If oil prices remain lower, the only change we may see would be in the way deals are structured,” Sloan explains. “Investors may begin asking owners to stay more financially engaged in the company for a longer period of time after a sale closes. However, we still believe a company is worth whatever the buyer is willing to pay. It’s extremely important to ensure your company is marketed well to maximize value and secure the best terms possible.”
Deployable Fiber Optic Systems
As the use of fiber optics has increased in the oil and gas industry to enhance production—via better data reliability, availability, and performance than traditional copper communication systems—so have the number of “deployable” systems used in remote locations. These applications range from offshore and land-based rig automation to real-time sensors for pipeline monitoring to systems for GEO exploration, wireless communications, security infrastructure, smart well controls, and operations control centers.
In the field, “deployable” systems are increasingly important to ensure satellite uplink networks, DCS/PLC automation/control, CCTV for physical security, SCADA for pipeline control, monitoring and wellhead automation, as well as LAN/WAN communication infrastructures for shore-to-platform and inter-platform connections. In contrast to fixed installations, deployable systems are designed to be quickly installed, retracted, and then relocated in the field in some of the most inhospitable environments on earth. As oil and gas exploration/production continues to get more remote as well as colder, hotter, or deeper, deployable systems will become even more vital to the industry.
Given the environments in which they reside, oil and gas-grade fiber optic systems are typically commercialized versions of field-tested, proven military-grade products.
As such, the component parts of the system are designed to withstand everything from dust and debris to chemical exposure, temperature extremes, UV, radiation, electrical power transients, interference, fire, moisture, humidity, water, crush, tension, flexing, impact, and vibration.
Rick Hobbs, Director of Business Development at Optical Cable Corporation (OCC), explains that when one designs a deployable fiber optic system, the system needs to be looked at in its entirety. Unlike fixed applications, a deployable system is designed from beginning to end (plug and play) and delivered to the customer as a complete solution. OCC designs and manufactures fiber optic cable, connectors, and assembly solutions for harsh and rugged environments.
According to Hobbs, the primary elements of a deployable system include hardened cable jacketing; “genderless” connectors for quick deployment without regard for male or female ends; hybrid systems that include copper along with fiber to deliver data communications and power; and reel systems that speed deployment and retraction while protecting the fiber while not in use or during transit.
Hardened Cabling
For purposes of deployment, OCC typically recommends its tight bound, tight buffered distribution style cabling, which is ideal because of its small diameter and lightweight construction.
Distribution-style cables have a tight-bound outer jacket, which is pressure extruded directly over the cable’s core. This combination of a helically stranded core, and a pressure extruded outer jacket provides an overall cable construction that offers better crush and impact protection and increased tensile strength. This also reduces outer jacket buckling during deployment.
According to Hobbs, escalating degrees of cable protection are available as needed to meet the specific needs of an application.
Various jacket materials are available, including PVC or polyurethanes, which are specifically tailored to meet the mechanical and environmental needs of the application. Options within each jacket material include coefficient of friction, cold temperature flexibility and temperature range, to name a few.
Water tolerant options are available that take advantage of the qualities of tight buffered cable and super absorbent polymer aramid yarn.
Fiberglass or metal braided jackets not only provide excellent abrasion resistance, but also deliver increased rodent protection. Custom rodent resistant cables are available that include metal or dielectric armor or additives to the outer jacket.
“In deployable applications, exposed cable is often an intriguing temptation for animals, which can, and often do, chew on it,” says Hobbs.
Hybrid Cables, Connectors
For applications that can benefit from fiber optics and copper, hybrid connector-cables offer both within the same cabling sheath.
A distinct advantage of hybrid cable-connector solutions is that the customer can bundle both the high performance of fiber with the copper power or control signals in one cable. This reduces the number of cables that must be designed, purchased, and deployed into a system. It also offers distinct savings in labor and cable structure costs for the customer.
Genderless Connectors
“Genderless” connectors have both male and female elements, and perhaps are more appropriately described as dual-gender, and are often called “hermaphroditic.” They are designed for quick deployment, allowing the user to unreel fiber cable without regard for male or female ends.
Companies such as OCC have further simplified the genderless design with user friendly mating interfaces (the company’s EZ-Mate family) capable of “blind mate” and/or applications that require thousands of mating cycles.
In addition, the connector system is designed to resist extreme harsh mechanical and environmental conditions including high vibration, mechanical and thermal shock, and fluid immersion.
Another benefit of genderless connectors is that multiple identical cable assemblies can be daisy-chained (sequenced) together to extend the distance of a deployable system while maintaining polarity. Polarity can be an issue when connecting an odd number of traditional male to female gender connectors. In such cases, an additional connector is required to correct polarity. However, such connectors are known for high loss and add additional components for the customer. Therefore, genderless connectors are uniquely advantaged over traditional interconnection systems.
Distances of several kilometers are possible, limited only by system link budget (dBm).
“This type of genderless connector provides extreme flexibility in the case of redeployment, where the length of the cable assemblies required for the next application are not fixed, or even known,” says Hobbs.
Reel Systems
The key characteristics of a reel system in deployable fiber optic applications are that it is lightweight, rugged, and stackable for storage and transit, says Hobbs.
To meet these requirements, companies such as OCC are providing lightweight alternatives to traditional metal reels, designed specifically for the demanding needs of harsh, oil and gas-environment fiber optic installations.
Reels can be used with simple deployable axle or a flange supported deployment and acquisition system. These types of systems include A-Frames, cable acquisition cradles, transit case systems, tripods, bumper mounts, backpacks, backpacks with fiber optic slip rings, and cartridge systems.
These cartridge systems are a specially designed protective case for deployable cable reels that permits full deployment and retrieval of cable without removing the reel from the case. The cartridge system, which comes with casters, is an ideal choice in many deployable applications.
“Using a cartridge system, a single person can handle multiple spools at once and can quickly deploy fiber and rewind on the reel without assistance,” says Hobbs.
To simplify shipping and transit, cartridge systems, transit cases, and reels are designed with interlocking stacking features.
Reel systems also provide a measure of protection of fiber optic cabling for unspooled cabling, or when the cabling is retracted.
“In harsh oil and gas environments, when you can put your fiber optic assemblies in a controlled environment storage system like a reel, possibly together with a cartridge, any potential damage to the cable or the connectors is minimized,” says Hobbs. “This reduces the need to refurbish components regularly, because the system is better protected during its deployment.”
Wireless Access/Data Communications
Although deployable fiber optic systems are largely “wired,” hybrid cabling (the combination of fiber optic and copper/electrical within the same cable sheath) also allows for installation of wireless access points anywhere. This is ideal when access points are constantly changing.
Unlike traditional wireless networking devices that require 110-Volt AC power for each device, with a hybrid system power can be supplied in the same cable that also carries voice and data.
As a result, any 802.11-certified devices are able to communicate through the network, including personal devices such as PDAs, laptops, VOIP devices, and cell phones.
This provides personnel with the means to communicate with each other and even make calls outside the system. In addition, sensor-based data such as temperature, humidity, airflow, and gas can also be collected and delivered wirelessly for use by the entire network.
Increasing Conversion to Fiber Optics
According to Hobbs, there are many oil and gas companies that are converting to fiber optics as the costs for components continue to drop, making fiber a better solution than copper in most applications. Even die-hard copper devotees are moving to fiber, and, when they do, they rarely look back.
“When oil and gas System Engineers realize the bandwidth opportunities, they usually expand their capabilities, and identify creative new ways to enhance the solutions for their applications,” says Hobbs.
Beating the Boomer Bust
By John F Dini
More than 60 percent of U.S. business owners are over 50 years old, and many of them are looking toward retirement and the process of attracting and vetting potential buyers to take the reins. The differences in yesterday’s and today’s business landscapes are stark—as Boomers were raised in a highly competitive environment, many face the problem of having built companies that won’t attract a new generation of buyers. Three major trends impact the salability of a business. Understanding these trends can help owners transition successfully in a challenging market, and ultimately identify the buyer who will carry their company’s torch going forward.
Why Do Boomers Work So Hard?
Baby Boomers are 2 ½ times more likely to own a business than the generations before or following. Between 1975 (when the first Boomers turned 30) and 1986, the formation of new businesses in America jumped from 300,000 to 700,000 annually. Faced with fierce competition on the pathway to success, many Boomers chose to chase the brass ring by going into business for themselves. New business start-ups have never again reached that level. The result is that nearly two-thirds of all businesses with fewer than 500 employees are in the hands of people who are preparing to retire.
The impact of the Baby Boomers at each stage of life created a one-time surge in many statistics. They tripled the number of college graduates and brought over 50 million women into the workforce. Between 1970 and 1980, the population of the United States increased by 11 percent, but the employment base grew by an astonishing 29 percent. Replacing such a massive portion of the population in the business sector is no easy feat.
The Perfect Storm
There are three major trends that challenge a small business owner preparing to exit. As if mimicking the movie The Perfect Storm, these three trends—demographic, psychographic, and sociographic—are combining to create a Tsunami that will change the entire landscape of independent business ownership.
• Demographically, the generation following the Boomers (Gen X) is much smaller. From a supply and demand perspective, there simply aren’t as many available buyers as the number of potential retirees seeking them.
• The psychographic profile of the buyer generation is unfavorable. What business owner hasn’t complained about the work ethic of the younger generation? Raised in a 40-ear period of economic growth (the longest sustained period of expansion in our history) Generation X and their successors (The Millennials) are more likely to choose family first, and perceive jobs and employers as merely the means to a personal end. They aren’t wrong. The parents of the Boomers’ understood the difference between work and personal life. One started when the other ended. In their drive for success, the Baby Boomers mixed the two and created the term “work/life balance.” Younger generations are actually returning to an older set of values.
• Sociographic trends favor alternative careers over business ownership. Corporate America is well aware of the issues and attitudes of the younger generations. They have already made many adjustments. Telecommuting, sabbaticals, family leave, and flex time are benefits designed to attract younger workers who have a different set of priorities. Few small businesses have the depth or breadth to allow skilled employees to come and go according to their individual priorities.
Young entrepreneurs have little interest in the service-oriented brick-and-mortar companies that dominate small business. They seek a level of freedom that doesn’t require being on call, schedules driven by customer convenience, or a 55-hour work week. Combined with the sheer lack of prospective buyers, a reduction in the number of small businesses becomes more than likely, it is inevitable.
Yet, many small business owners are depending on their company to fund a comfortable retirement. Their plan goes something like this: “I will work really hard until I am tired, and then I will find some energetic younger person just like me who is willing to commit everything for this great opportunity.”
Beating the Odds
Fortunately, if you are a successful business owner, you’ve already proven your competitive instincts and abilities. With some planning and foresight, you can still beat the Boomer Bust and achieve your retirement objectives. There are two pathways to succeeding in a crowded sales marketplace.
• Build to Sell
Your first option is to build a business that is attractive to your younger buyers. It allows for personal flexibility. It can’t require a huge down payment, since these generations were raised in a “buy-now-pay-later” world, where they are carrying substantial debt from the day they graduate college, and have little opportunity to amass liquidity.
Your technology doesn’t have to be cutting edge, but it needs to be current. Nothing turns off the tech-savvy young buyer faster than a company that is limping along on outdated software or (heaven forbid) paper. Of course, the other attributes of an attractive acquisition—growing margins, a distributed customer base, and predictable revenues—are a given.
• Hire Your Buyer
The second option is to hire your buyer. The stereotypes of different generations aren’t universal. Certainly we all know Boomer slackers, as well as young people who are ambitious and hard-working. Lacking capital, many of those younger go-getters would like to own a business but have difficulty seeing how they can make it possible. Identifying such a buyer in your own organization, or even reaching outside and recruiting one, is a viable option if your target date for exiting is a few years away.
Creating your own successor requires a commitment to planning and development, but the financial aspects are fairly simple. A few years of selling equity in small amounts can let your successor build a minority stake. Then he or she can obtain third-party financing for the balance of the purchase, so you can maintain control through the process and take the proceeds with you when you leave.
Remember: “The more you work in your business, the less it is worth.” Everything you do to reduce your business’s dependence on your personal talents, to reduce the time commitment of running it, and to make it easier for any successor (whether internal or external) to take over the reins, also increases its value to any buyer.
You can’t change the factors that create the most competitive selling environment in history. Understanding what the future looks like, and realizing that your buyer is unlikely to be someone “just like me” is a critical first step in the process.
John F. Dini is a coach, consultant and author of the award-winning book, Hunting in a Farmer’s World, Celebrating the Mind of an Entrepreneur and Beating the Boomer Bust. Widely recognized as one of the nation’s leading experts on business ownership, John has delivered over 10,000 hours of face-to-face, personal advice to entrepreneurs. For more information on John F. Dini, please visit www.johnfdini.com.
Enlink Midstream Completes Acquisition
The EnLink Midstream companies, EnLink Midstream Partners, LP, the Partnership, and EnLink Midstream, LLC, the General Partner (together “EnLink”) announced Nov. 3 that the Partnership completed its previously announced acquisition of Gulf Coast natural gas pipeline assets, including the Bridgeline system (“the natural gas assets”), from Chevron Pipe Line Company and Chevron Midstream Pipelines LLC.
“The acquisition of these highly strategic assets builds upon our franchise position in the Louisiana market and provides a substantial platform for growth in an area we know well,” said Barry E. Davis, EnLink Midstream president and chief executive officer. “Our core capabilities and strong financial position allow us to take advantage of growing demand in South Louisiana’s industrial, refining, and petrochemical marketplace. We look forward to providing high quality midstream services to our customers, both existing and new.”
The natural gas assets include approximately 1,400 miles of natural gas pipelines in three systems spanning from Beaumont, Texas, to the Mississippi River corridor, approximately 11 billion cubic feet of working natural gas storage capacity in three caverns in Southern Louisiana, and ownership and management of the title tracking services offered at the Henry Hub, the delivery location for NYMEX natural gas futures contracts.
Additional information regarding this transaction and the assets that were acquired is available in the company’s investor presentation on its website in the “Investors” section of EnLink’s website at www.EnLink.com.
ExxonMobil Awards
ExxonMobil Upstream Research Company has awarded Delta Screens and Filtration LLC a limited international license to ExxonMobil’s Alternate Path technology patent portfolio for gravel packing cased and openhole completion wells. Alternate Path is a patented technology developed by ExxonMobil to improve the reliability of wells completed in sand-prone reservoirs. The technology provides alternate flow paths called shunt tubes in the downhole tool used for packing gravel in the producing sections of a well. The shunt tubes enable the Alternate Path packing operation to continue when sand prematurely blocks the well annulus, which would stop a conventional packing operation. The shunt tubes divert the gravel slurry around sand blockages and through distributed portholes to fill voids in the annulus until a complete pack is in place.
“Alternate Path technology is one of several sand control completion technologies developed by ExxonMobil to improve reliability of sand-prone production wells,” said Sara N. Ortwein, president of ExxonMobil Upstream Research Company. “When the geology and the economics of a development call for openhole completions, Alternate Path technology is the technique preferred by ExxonMobil.”
The Alternate Path license allows Delta Screens to produce and deploy Alternate Path technology for ExxonMobil affiliates around the world and for ventures in which ExxonMobil participates.
“Alternate Path technology gives us a more reliable way to gravel pack wells where we need sand control,” said Delta Screens President, Richard Grifno. “Alternate Path is field proven and we’re very pleased to be approved as a licensee for ExxonMobil.
Smitherman on Passage of NARUC Resolution
The National Association of Regulatory Utility Commissioners passed a resolution reiterating both its 2009 resolution “supporting state regulation of hydraulic fracturing” and “recognizing and reiterating that states are well suited to effectively regulate their [own] natural resources.”
Railroad Commissioner Barry Smitherman—who completed two years as chairman of NARUC’s Gas Committee and more than 10 years as an active NARUC member—statement on today’s passage of this resolution is below:
“As we have demonstrated for nearly 100 years at the Railroad Commission with our regulation over the exploration and production of oil and gas, it is state regulation that provides the most effective method to develop our domestic energy resources—not one-size-fits-all directives from Washington, D.C., or patchwork reactionary regulations passed by local governments. States like Texas have clearly proven we can help achieve energy independence and move away from relying on unfriendly regimes for crude oil. And as a result, all U.S. citizens are now enjoying the benefits of dramatic drops in our personal energy expenses.”
Four Reasons Giving is Good for You
By Tim McCarthy
Many Americans are choosing to hold onto their money these days, a lesson learned from the 2008-09 financial crash. It’s good to have savings—but not to the point of hoarding, says entrepreneur and philanthropist Tim McCarthy, author of Empty Abundance (mindfulgiving.org). Americans are saving at a rate of 5.30 percent, well above the record low of 0.80 percent in 2005, according to the U.S. Bureau of Economic Analysis. The world’s billionaires are holding an average of $600 million each in cash, which is more than the gross domestic product of Dominica, according to the new Billionaire Census from Wealth-X and UBS. That’s up from $60 million the previous year, signaling that the very wealthy are keeping their money on the sidelines and waiting for an optimal investment time. “All of us could invest part of our ‘fortune,’ great or small, on something that gives back on a deeper human level, such as non-predatory loans to individuals from impoverished communities,” McCarthy says.
McCarthy diverts all of his business profits annually to his foundation, The Business of Good, which invests in socially conscious businesses and scalable nonprofit concepts.
He reviews what everyone has to gain from mindful giving.
• Money buys you happiness—up to $75,000 worth. Life satisfaction rises with income, but everyday happiness—another measure of well-being—changes little once a person earns $75,000 per year, according to a 2010 Princeton study. Another widely published survey by psychologist Roy Baumeister suggested that “happiness, or immediate fulfillment, is largely irrelevant to meaningfulness.” In other words, so many who finally achieve financial excess are unfulfilled by the rewards that come with that.
• Remember the wealth disconnection to overall fulfillment. A Gallup survey conducted in 132 countries found that people in wealthy countries rate themselves higher in happiness than those in poor countries. However, 95 percent of those surveyed in poverty-stricken countries such as Ethiopia, Kyrgyzstan, and Sierra Leone reported leading meaningful lives, while less than 60 percent reported the same in wealthier countries.
“While more investigation to wealth, happiness, and well-being is certainly in order, I think it’s clear that while money is important, it cannot buy purpose, significance, or overall satisfaction,” McCarthy says.
• Giving money reliably equals happy money. Two behavioral scientists, Elizabeth Dunn and Michael Norton, explore in their recent book, Happy Money: The Science of Smarter Spending, what makes people engage in “prosocial behavior”—including charitable contributions, buying gifts, and volunteering time. According to Dunn and Norton, recent research on happiness indicates that the most satisfying way of using money is to invest in others. In 2010, multi-billionaires Warren Buffet and Bill and Melinda Gates co-founded The Giving Pledge, a long-term charitable effort that asks the wealthiest among us to commit to giving more than half of their fortunes to philanthropy. Among the first to join, Michael R. Bloomberg wrote in his pledge letter: “If you want to do something for your children and show how much you love them, the single best thing—by far—is to support organizations that will create a better world for them and their children.” To date, 115 of our country’s 495 billionaires have pledged.
• Anhedonia, amnesia, and the fallacy of consumption. Anhedonia is the inability to enjoy activities that are typically found pleasurable. “After making my wealth, I found that I suffered from anhedonia,” McCarthy says. “Mindful giving—intelligent and conscious giving to those who need it—turned out to be my best therapy.”
Everybody has experienced the limits of consumption, the economic law of diminishing returns. One cookie is nice and so, too, is your first $1 million. But at some point, your ability to enjoy eating cookies or earning millions diminishes more with each successive one.
“Everyone learns this lesson, yet the horror is that so many of us succeed in forgetting it,” McCarthy says. “I think that, in every moment, we need to remind ourselves that continually reaching for the next ‘cookie’ is not in our best interest.”
Tim McCarthy’s first business, WorkPlace Media, reaches more than 70 million employees with incentives for clients such as Coca-Cola, Lenscrafters, and McDonalds. He sold the company in 2007 and recently bought it back. In 2003, he partnered with his son, Tim Patrick McCarthy, to open Raising Cane’s of Ohio, which had 13 stores with over $30 million in revenue in 2013. McCarthy, author of Empty Abundance, (mindfulgiving.org) earned his bachelor’s in political science and MBA from Ohio State University. In 2008, he received the Fisher Alumnae Community Service Award and was named an Ernst and Young Entrepreneur of the Year.