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2. Executive Q&A
With JW Vitalone,
Senior Vice President,
Investment Banking,
Oberon Securities
Talking with
Ross Stewart Campbell, CEO, The Oil Council
th
Date: 11 May 2010
Ross Stewart Campbell (RSC) from As to your question I think oil and gas bankers today
The Oil Council: JW, many thanks are generally optimistic but even so I think it‟s an
for joining us to share your thoughts optimism that might best be considered as „guarded‟.
on today’s markets. To cover off The banker that sees the longer-term oil and gas
introductions first can you quickly supply-demand outlook influencing a positive
introduce Oberon Securities and operating environment for oil and gas companies is
your position within it? likely to regard itself as optimistic.
JW Vitalone (JWV) from Oberon: However, that banker probably regards the post-
Oberon Securities is a New York- recovery financial markets as unsettled and
based investment bank that works recognizes that the recovery in commodity prices
with small and mid-sized companies has more or less been the result of improving oil
across a broad range of industries by prices with natural gas prices improving less so in
providing capital formation and M&A the context of increased volatility.
advisory services, and assists in
obtaining financing through privately In the current environment the banker is likely to
placed equity and debt. The entrepreneurial spirit on guard its longer-term optimism by taking a more
which Oberon was founded nearly ten years ago selective approach on a near-term basis to its deal
also serves as the basis for our approach of working participation.
closely with each individual client to partner with
them and create financial solutions that will best help RSC: Reflecting on the past twelve months JW do
achieve its unique financial or strategic objective. you think the role (and responsibility) of an energy
investment banker has changed in any way following
RSC: Looking first JW at the current state of play the crises?
with oil and gas investment banking, we endured a
torrid time in 2008-2009 followed by a record year for JWV: I‟m not sure the role of the energy banker has
many banks and financial service providers in 2009- necessarily changed over the past year. Like all
2010. What is the general sentiment of oil and gas investment bankers their role takes on a number of
bankers in the US today? It is one of optimism, different roles with their client during the course of
cautiousness, or, dare we say it bullishness? completing a transaction. However from our recent
experience I‟d say some roles are being taken on
more frequently.
“I think it‟s an optimism
that might best be The role of advisor seems to have defaulted to the
top of our list. This has resulted from a higher than
considered as „guarded‟.” usual level of constant communication with clients
revisiting deal strategies and their likely outcomes, or
involving the preparation of responses to an
JWV: As you point out Ross, 2008 – 2009 was a increasing number of additional questions posed by
torrid time for both capital seekers and providers investors/lenders to requests for more detail
characterized by a rapid decline in market liquidity concerning the information our client has provided.
and the sharp drop in commodity prices.
Broadly speaking I think the role of advisor will
And as you know that led to a good deal of continue to dominate all others until the capital
discussion concerning the possibility of a severe and markets renew their previous comfort with risk.
prolonged contraction in global economic growth and
the demand for oil and gas. Those markets On the other hand I‟m not sure that an investment
subsequently began their recovery as those bank, especially one interested in being successful,
concerns became less immediate. will regard its responsibility as something to be
www.oilcouncil.com

3. dialled up or down although I suppose some may What I‟ve found particularly interesting is while it is
feel it appropriate to expand or shrink the list of easy to get management teams all nodding in
those it regards as having a responsibility to based agreement with that premise, there‟s a good chance
on the particular circumstances at the time. there‟s no agreement on what criteria it should
consider to determine whether the desired
Let me add that here at Oberon there has been no relationship with a particular bank is possible.
change to rather high responsibility bar we set when
we fist founded the company. But because the situation, objectives and financing
goals will be unique to each company, rather than
RSC: Many analysts commented that the crises offering a list of things to look for in their banker, I
removed a number of oil and gas companies from can suggest that any company will find helpful clues
the marketplace that were not built on viable by listening carefully to information the banker gives
business models and strong management teams. about itself and the things it considers important to
being a valued partner.
Does the same hold true for energy investment
banking? Have the strongest banks/advisors
survived; those with the greatest depth of expertise, “I think the role of advisor
most diverse business offerings and strongest client
relationships?
will continue to dominate
all others until the capital
JWV: I think there‟s little doubt that to be a
successful company regardless of the industry markets renew their
requires a viable business model that a strong previous comfort with risk.”
management team executes well.
So yes both would also be characteristic of any And I can suggest with great certainty that it‟s
successful investment bank. However just as virtually impossible for any oil and gas company to
important to the investment bank‟s success is its get an appreciation for the relationship it will have
depth of expertise and strength of client relationships with its banker if the company‟s most important
because they speak to the essence of the trust and criteria are how that banker compares relative to
confidence that its clients and the markets will others and the time the bank suggests it will take to
repeatedly look to. complete the deal.
Just as the inefficiencies of certain poorly run RSC: Moving onto current market dynamics and
companies tend to be obscured by the veil that trends JW, you work internationally but with a large
periods of consistently higher oil and gas prices will focus on The Americas, what financing trends have
provide, periods of “irrational exuberance” can you seen emerging in the past 6-12 months,
provide the same cover for those poorly run financial particularly for (i) medium-large independents, and
service companies. (ii) smaller independents?
A subsequent crisis or sustained business downturn JWV: I think we‟ll need to see a few more data
will have the effect of lifting that cover exposing each points before we can be certain of any particular
industry‟s poorly managed organizations and their trend emerging.
inefficiencies. However for investment banks lifting
the curtain is likely to also reveal a misplaced trust Our target market is focused on the smaller
and confidence. independents where more often than not when
engaged to assist with a capital raise the strategy we
RSC: What should an oil and gas company look for present to our client will likely have been strongly
in their financing partners/advisors? influenced by its profitability, balance sheet and
existing cap structure.
JWV: That‟s a great question Ross but also one that
is hard to answer because when all is said and done However, considering the general nature of our more
it‟s the relationship that is established between the recent strategies we have tended to not include
oil and gas company and its investment bank that reserve-based loans as a possible source of funds
will account for much of a successfully completed because of lenders‟ present level of risk-aversion
capital raise. and the more conservative LTVs now being applied
to reserves across all categories.
“However for investment RSC: With regards to demand for capital and supply
of capital, is there enough money to go around
banks lifting the currently?
curtain is likely to
JWV: Our recent experience involving a couple of
also reveal a misplaced capital raises for small independents would suggest
trust and confidence.” there is. However it also suggested getting an
investor [or lender] to part with their money is a
www.oilcouncil.com

4. different matter as many capital providers continue that investors and lenders tell us they‟re now seeing
to approach new opportunities in the context of a –, solid pro forma projections and the promise of a
relatively lower tolerance for risk. well-executed strategy are necessary for a proposed
deal to make it onto the short list. So within this
So even though sufficient liquidity exists to fund context capital raises and asset transactions are
capital needs, an oil and gas company preparing to more likely to involve term sheets or deal valuations
tap the capital markets will need iron-clad reserve that are “competitive”.
reports and financials, a well-articulated business
strategy backed by a management team capable of
executing it, plus a fair amount of patience for the Registration is now open for
added time needed with more extensive due
diligence. our New York City (Oct) and
RSC: Looking at the companies who have
London (Nov) Assemblies.
successfully raised capital [and done so with Special discounts for oil & gas
favourable T&Cs] do they exert qualities and
characteristics that have benefited them in raising companies executives. Book
funds and completing transactions more successfully
than their competition? now at www.oilcouncil.com
JWV: Regardless of their size, those companies that
come to the market with opportunities where the
value-added benefit to the company is quickly RSC: We’ve seen a record amount of A&D and M&A
recognized along with attractive risk-adjusted in the marketplace in the past 6-12 months. Do you
economics readily apparent to the investor or lender still believe there is value to be acquired from the
are best positioned for a successful completion of a range of current assets/companies for sale? Or are
financing or acquisition. we now getting to the point where assets and plays
are not only as ‘cheap’ as they were but perhaps
Oil and gas companies approaching the market ‘more expensive’ than they should be? How inline or
having a less visible value proposition or economics skewed are current asset/company valuations?
have ultimately enjoyed a similar success because
of a constructive relationship with its banker that JWV: Certainly relevant questions but because of
enabled the company to convincingly validate its the high degree of correlation, directly and indirectly,
pursuit of that opportunity. between valuations of oil and gas transactions (or oil
and gas company shares) and oil and gas prices,
RSC: Are there any recent deals in the marketplace current and future, I think they need context to be
that in their own right are either market leading in best considered.
their innovation / deal-structuring / value creation?
For example taken from a broader perspective I am
JWV: Offhand none of recent vintage come to mind less certain of whether it‟s still possible in today‟s
which I think isn‟t surprising given the generally market to acquire value, than I might be about
conservative nature of the industry. whether that likelihood exists for the company that
has engaged us to assist with the A&D transaction it
On the other hand I think it‟s possible to consider intends to pursue.
deals like ExxonMobil‟s acquisition of XTO or
Chesapeake‟s reordering of it asset portfolio as From our initial due diligence and before bringing the
market leading – either because of their timing or for deal to market we will have identified where our
what they reveal about a company‟s perspective of client sees value resulting from that transaction, and
future commodity prices, its financial health, its with the synergies or operating efficiencies
current competitive position or its regulatory outlook. anticipated as well as the commodity price
environment assumed, how and how much value it
RSC: What can small-cap oil and gas companies do expects to realize.
better to ensure they can (i) raise capital with more
favourable T&Cs, and (ii) complete A&D and M&A RSC: If I may JW I’ll wrap up by asking your one-
transactions to receive optimal deal value? word opinion (bullish, bearish or uncertain) on the
future of the following. Bullish, Bearish or Uncertain?
JWV: We frequently remind the small independents
we work with of the importance a rock-solid pro JWV: Sure. But because Oberon Securities is a
forma cash flow and production growth projections regulated broker/dealer under provisions established
and evidence suggesting management‟s ability to by the Financial Industry Regulatory Authority, or
effectively execute its business strategy has leading FINRA, I must first preface my one-word responses
up to a successful capital raise or asset transaction. by mentioning that they are my opinions only and not
necessarily those of Oberon Securities.
However, more recently and despite the apparent
ample liquidity available to fund both development In addition none of my opinions should not be
drilling and A&D transactions, we tell those clients regarded as investment advice nor as a
that because of an apparent increase in deal flow – recommendation to buy or sell. Also I may or may
www.oilcouncil.com

5. not maintain a position in an investment related About JW Vitalone: Prior to joining Oberon Securities, JW
directly or indirectly to the general topics. spent nearly 15 years as an Energy sector equity research
analyst with Wells Fargo Bank, Wachovia Corporation and
Palladian Research covering Oil and Natural Gas
RSC: Understood JW. First up, Barack Obama
Exploration & Production, Oilfield Services & Equipment,
and Power Generation companies. JW‟s extensive
JWV: Uncertain research experience includes macro analysis of oil and gas
markets, fundamental equity analysis and institutional buy-
RSC: The US Dollar side marketing. Soon after earning a law degree, JW
interned with the European Economic Commission as a
JWV: Bearish Charles A. Dana Fellow in International and Comparative
Law, where he worked on developing alternative
approaches to financing lesser developed countries.
RSC: Oil Shale
JWV: Bullish
RSC: Domestic Natural Gas Plays
JWV: Bullish About Oberon Securities: Oberon Securities a New York
based financial advisor addressing the financial needs of
RSC: Small-cap Domestic Focussed Independents small and midsize companies across a broad range of
industries. Our company was founded by senior
JWV: Bullish professionals who have extensive experience in corporate
finance, venture capital, research and operations. Oberon
provides creative financial solutions to innovative
RSC: Small-cap International Focussed
companies that are seeking a significant market presence
Independents in their respective industries. Oberon's professionals have
an average of more than 10 years on Wall Street; that
JWV: Bullish combined experience and our market focus allow us to
bring a level of service and expertise normally available
RSC: Large-cap Domestic Focussed Independents only to large companies. For more information please visit:
www.oberonsecurities.com
JWV: Bullish
RSC: Large-cap International Focussed Join Matt Simmons, Ken Hersh,
Independents
Ed Morse, Tom Petrie, John
JWV: Bullish Schiller, John Moon, Dick
RSC: Canadian Oilsands Stoneburner and Luis Giusti in
JWV: Uncertain NYC (Oct 26-28). Book now at
RSC: JW, thanks very much for your time and your www.oilcouncil.com
sharing your thoughts.
www.oilcouncil.com