Several trends bode well for continued robust activity in the oil and gas space for the foreseeable future.

Capital markets and M&A activity in the energy industry remains robust, with all categories showing significant improvement over comparable periods in 2013. According to Thomson Financial, global oil and gas M&A was US$136 billion in the first half of 2014 based on 850 transactions, as compared to US$109.7 billion of global oil and gas M&A based on 749 transactions in the first half of 2013 (increases of 24 percent and 13 percent, respectively). Also during the first half of 2014, the energy sector saw 14 IPOs raise US$6.9 billion in gross proceeds and 47 follow-on offerings raise US$23.3 billion. There were twice as many energy IPOs in the first half of 2014 (14) as compared to the first half of 2013 (7). We believe there are several trends that bode well for continued robust activity in the oil and gas space for the foreseeable future.

Consolidation of Public Companies in the Oil and Gas Space -

E&P Companies -

The development of US shale-based hydrocarbon reserves and the relative stability of commodity prices over the past several years have resulted in a significant increase in capital allocated to exploration and production (E&P) companies. Much of that capital has come from private sources (namely, private equity) but there is still a need for the public markets — both as a means of raising additional capital and as a mechanism for monetizing investments in E&P companies. As a result, there has been an increase in the number of new publicly traded E&P companies and a significant valuation uplift for many of those E&P companies that were public prior to the latest boom. The harsh reality of running a public E&P company, however, is that it is hard, very hard — particularly as rig availability gets more limited, midstream infrastructure constraints affect take-away capacity, differentials expand, commodity prices soften and the technical complexities of horizontal drilling make success more difficult. These challenges are more pronounced for smaller E&P companies which, while perhaps more nimble, must compete against larger and more well-capitalized companies for scarce resources. There are roughly 120 E&P companies that are publicly traded on either the NYSE or the NASDAQ and 87 of those companies have an equity market capitalization of less than US$5 billion. We believe the E&P sector could see meaningful consolidation over the next several years as consolidators begin to acquire smaller rivals and as larger companies seek ways to re-enter or expand in the most prolific plays.