2004 OGIS
Private Capital Conference
April 19, 2004
Corporate Banking Overview
Current Market Dynamics and
the Effect on the Energy Sector
Corporate Banking –
Transition Overview

Significant changes to global Banking marketplace
over the last decade

Consolidation and stratification of Banks

Sophistication/specialization in product offerings

Increased outside competition -“Disintermediation”

Change in Risk/Return metrics

Result: Positive for Energy sector
Corporate Banking –
Recent History

Commercial Banking: Early-to-mid ’90s
–
–
–
–

Over capacity; ample liquidity (+international flows)
Declining returns
Higher rate environment -- expensive capital structures
Creeping credit quality issues
’97/’98 Inflection point
– Asian crisis
– Product price cyclical downturn
– Result: Retrenchment
• Increased pricing (both IGrade and non-IGrade)
• Overall improvement in bank terms/conditions
Corporate Banking –
Recent History

2000/2001 Inflection point
–
–
–
–
“Enron, etc., etc.” problem
Exposure limits issue becomes paramount
Basel – Return on “economic” v. “regulatory” capital
Result: Capital rationalization
•
•
•
•
•

Reduced hold levels – “Concentration risk” realization
Pricing is market driven – versus “competing” markets
More risk layoff – Product pricing / hedging
Reduced tenors
Better risk/return fits
2004 – “It was the best of times,…….”
– Post “recession” boom mentality
– Strong market appetite for debt
– Capital availability – “Buckets and buckets”
Corporate Banking –
Current Situation

1Q04 – General Bank market conditions
– Debt market mentality – from moderate/optimistic to
very aggressive
– Strong pressure in all layers – senior, sub/2nd lien,
mezzanine, convertibles
– Highly leveraged deals have moved from the margin to
the mainstream
– Tolerance for collateral shortfalls has increased
– Pricing has been pressured due to ample liquidity
– Institutional sector (Term B) has steadily increased
share – not yet in Energy
Corporate Banking –
Transition Overview

Evolutionary changes to Bank market
– Consolidation of players
– Composition of players – “Core” v. “Non-Core”
– Changed objectives
– “Cheap” capital v. “Scarce” capital

Stratification of Banks
– Leverage expertise/position into other services
– Corporate Bank  I-Bank
– Product specialization
Energy Corporate Banking –
Recent Trends

Slow deal flow
Domestic M&A Deal Flow
US O&G Deal Volume
$14,000
150
$13,000
140
$12,000
130
$11,000
120
$10,000
*
$9,000
110
100
$8,000
90
$7,000
80
$6,000
70
$5,000
60
$4,000
50
1996
1997
Source: John S. Herold M&A Database
1998
1999
2000
2001
2002
2003
2004
* 1Q04 annualized
No. Deals
Total $ Volume
($10-2,500MM size only)
Energy Corporate Banking –
Recent Trends
Slow deal flow
 Price decks – capacity inflation

Collateral Value Growth -Bank Average Price Deck
Theoretical Asset Value
Constant Reserve Base (80/20 Gas-Oil)
2Q01 Base Year
$14,000
$13,000
$ 1 2, 21 7
$12,000
$ 1 1 , 537
$ 1 1 , 054
$11,000
$ 1 1 , 709
$ 1 0, 651
$ 1 0, 000
$ 1 0, 006
$10,000
$ 9, 940
$ 9, 299
$9,000
$ 9, 1 22
$ 9, 422
$ 9, 661
$8,000
$7,000
2 Q 01
3 Q 01
4 Q 01
1 Q 02
2 Q 02
3 Q 02
4 Q 02
1 Q 03
2 Q 03
3 Q 03
4 Q 03
1 Q 04
Collateral Value Growth -Bank Average Price Deck
Theoretical Asset Value
Constant Reserve Base (80/20 Gas-Oil)
2Q01 Base Year
$14,000
+33%
$13,000
$ 1 2, 21 7
$12,000
$ 1 1 , 537
$ 1 1 , 054
$11,000
$ 1 1 , 709
$ 1 0, 651
$ 1 0, 000
$ 1 0, 006
$10,000
$ 9, 940
$ 9, 299
$9,000
$ 9, 1 22
$ 9, 422
$ 9, 661
$8,000
$7,000
2 Q 01
3 Q 01
4 Q 01
1 Q 02
2 Q 02
3 Q 02
4 Q 02
1 Q 03
2 Q 03
3 Q 03
4 Q 03
1 Q 04
Energy Corporate Banking –
Recent Trends
Slow deal flow
 Price decks – capacity inflation
 Borrower liquidity – low utilization
 Commodity hedging
 Low interest rate environment  competition
 B Term loans
 Bridge commitments
 Focused “Micro-cap” market players

Energy Corporate Banking –
Summary

Big evolutionary changes last decade
 Changes in players, products, credit availability
More to come with continued
consolidation and granularity of markets
 Ample supply of capital – Public/Private
 Core Energy Banks remain focused,
committed and competitive

Energy Finance Group
Dallas / Houston
Comerica
Energy Banking Profile
Comerica Bank

One of the nation’s largest bank holding
companies, with over $53 billion in assets

Headquartered in Detroit, #1 Bank in Michigan

1st in the nation in commercial and industrial
loans as a percentage of assets

Major growth markets are Texas and California
Comerica
Energy Banking Profile

Focused on the North American energy
market as a core line of business
 Long, established track record -- Dedicated to the industry
 Focus on upstream, midstream and energy services

Target market is the micro- to mid-cap
energy company, both private and public
 Creative and Flexible Approach
 Strong Technical Expertise
Comerica
Energy Banking Profile

Strong, historical growth trends
 Commitments to sector up +25% p.a. over last 7 years

Senior, Experienced Team in Place
 Added to professional staff to support growth and uptiering objectives
 Relationship Driven
 Responsive and Timely

Increasing lead and administrative agency
assignments, elevating our profile in the sector
Comerica Energy Banking Team
Mark Fuqua
Charles Hall
Mona Foch
Energy Finance
Dallas
Energy Finance
Houston
Energy Services
Houston
(214) 969-6562
(713) 220-5614
(281) 243-1442
Energy Finance Group
We Listen.
We Understand.
We Make It Work.®
Energy Finance Group
We Listen.
We Understand.
We Make It Work.®