http://www.infracapmlp.com/about/management.html InfraCap MLP ETF included in “Oil Collapse Gives Buyers Chance at Top Targets

1. InfraCap MLP ETF included in “Oil Collapse Gives Buyers Chance at Top
Targets: Real M&A.”
The rapid drop in oil prices cut more than $20 billion from the price of some of the industry‟s
best assets. That may be enough to attract buyers.
Weakening global demand and a supply glut in the U.S. dragged down Brent crude oil to as low
as $82.60 this week, the cheapest since 2010. That‟s trimmed the once-high valuations that had
stymied major deal making and left last year‟s volume at the lowest level since the financial
crisis. Assets in oil-rich shale formations throughout the U.S. are becoming attainable.
Smaller companies with weaker balance sheets such as Laredo Petroleum Inc. are now
vulnerable to advances from well-capitalized players, while bigger targets like Pioneer Natural
Resources Co. are more digestible. The oil producers with the most cash -- Chevron Corp. and
ConocoPhillips -- are in a position to buy their way to more acreage.
In the past few years, “you‟ve had really no issues if you‟re an exploration and production
company in raising capital to develop your prospects,” Chad Mabry, a Houston-based analyst at
MLV & Co., said in a phone interview. “With this steep and sudden dropoff in oil prices, you‟ll
start to see potentially some distressed situations out there and some valuations that are going to
make it very attractive for potential acquirers.”
Representatives for Tulsa, Oklahoma-based Laredo and San Ramon, California-based Chevron
declined to comment. A representative for Irving, Texas-based Pioneer didn‟t respond to requests
for comment. A representative for ConocoPhillips, based in Houston, said the company isn‟t
looking to grow through acquisitions. Laredo fell 1.2 percent to $17.50, while Pioneer rose 0.4
percent to $178.68.
Shy Buyers
Global oil firms have held off for years on buying companies that specialize in the highly
complex niche of shale drilling. Chevron hasn‟t spent more than $1 billion on a takeover since
2010, while ConocoPhillips has sat out for about a decade.
One of the biggest deterrents has been the high valuations for companies with acreage in
formations such as the Permian Basin and Bakken, said Allen Good, an analyst at Morningstar
Inc.
When the Russell 1000 Energy Index reached a record in June, its price-earnings multiple was
the highest in more than three years. Since then, oil prices have declined, tumbling more than 20
percent and into bear-market territory, and pushing the index down 19 percent. In total, more
than $20 billion has been erased from the market capitalization of six oil producers that are
among likely targets. Some, like Laredo, had their values essentially cut in half.

2. Without a pickup in oil prices, “some of the larger firms could look at that as the opportunity to
go ahead and pick up some unconventional acreage,” Good said.
Cash to Spend
Chevron and ConocoPhillips may be the top buyers, according to Amy Myers Jaffe, executive
director of energy and sustainability at the University of California at Davis. Chevron‟s cash
stockpile of $14 billion is more than double that of Exxon Mobil Corp., a company that‟s twice
its size.
Chevron has probably been waiting for the right time to put that cash to use, Jaffe said.
“Everyone has been looking for that opportunity,” she said. “You can‟t just buy the acreage and
be really successful. You have to be able to understand how the technology works,” and that
comes from taking over another operator.
Buying Opportunity
Pioneer is one of the largest holders of Permian land, according to data through June. A year ago,
analysts said it could command a premium that translated to a deal value of about $40 billion.
The shares have dropped 17 percent since then, cutting billions off the potential price.
“At this level, I think you can see an offer being put on the table,” said Gabriele Sorbara, an
analyst at Topeka Capital Markets Inc. “With the pullback, there‟s a lot of opportunity here for a
company to come in.”
For other companies, weak balance sheets may force them to find a buyer. Because the
borrowing capacity of oil and gas producers is directly tied to their reserves, a drop in prices can
make it harder to get financing for drilling projects.
It creates “a bit of a death spiral,” Jay Hatfield, portfolio manager of InfraCap MLP ETF, an
exchange-traded fund focused on master-limited partnerships, said in a phone interview. “Your
banks are basically saying: „You gotta do M&A.‟”
Financial Squeeze
Laredo‟s leverage ratio is almost double the median multiple for similar-sized North American
peers. The shares have fallen 41 percent from June 19, when Brent crude began its descent from
this year‟s peak of $115.06 a barrel. Today, Brent crude traded at $86.17 a barrel.
“If cash flows fall with a prolonged stay underneath $80 a barrel, then those metrics would
continue to get worse,” James Sullivan, a New York-based analyst at Alembic Global Advisors,
said in a phone interview. That could make the company a more willing seller, he said.

3. Oasis Petroleum Inc. and SM Energy Co. are some of the other attractive targets. Oasis has more
real estate in the Bakken shale formation, relative to its enterprise value, than any similar-sized
competitor.
“There‟s a lot of guys that want to look to get into some of these plays with scale,” Sorbara of
Topeka Capital Markets said.
Thomas B. Nusz, chairman and chief executive officer of Oasis, said in September that the
company would be open to an offer at the right price, though it wasn‟t pursuing a sale.
Sweet Spots
While SM Energy hasn‟t performed as well operationally as peers, it‟s still an attractive target,
said Ed Hirs, a lecturer on energy economics at the University of Houston, who also runs a small
oil and gas production company. SM Energy is known for holding quality leases in drilling
“sweet spots,” or areas where the production potential is more prolific, he said.
A representative for Oasis, based in Houston, didn‟t respond to a request for comment, nor did a
representative for Denver-based SM Energy.
Kinder Morgan Inc. CEO Richard Kinder said on the company‟s Oct. 15 earnings call that lower
prices may be a catalyst for deals, if they last.
The sharp decline in oil prices could work in the reverse. Companies may initially choose to
focus on their own costs and drilling priorities, said Michael Freeborn, the Calgary-based head of
energy investment banking at Canadian Imperial Bank of Commerce.
Eventually they‟ll start to notice these “massive opportunities,” he said.
“What it really takes for deals to happen is confidence in the board rooms of the buyers to do
that,” Freeborn said. “It‟s a little tough to muster maybe today. But if we‟re in a world that looks
more like this, it could certainly breed more acquisitions.”