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Energy Valuation Insights

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April 19, 2024 Eagle Ford Shale Mergers, Acquisitions, & Divestitures

Just Released | 1Q24 Exploration & Production Newsletter

REGION FOCUS: EAGLE FORD

The 1Q24 issue of Mercer Capital’s Exploration & Production newsletter focuses on the Eagle Ford. Despite significant rig-count declines, Eagle Ford production declined only modestly over the twelve months ended March 2024, aided by a significant number of DUCs going into production. Reasonably steady commodity prices helped offset the basin’s production decline, allowing the region’s comp group to post favorable price increases over the review period.

In addition to our overview of the Eagle Ford, this newsletter also contains:

– Oil and Gas Commodity Price Update
– Macro Update
– Industry M&A Activity
– Public Company Performance
– Production Update
– Rig Counts

Download the newsletter to stay up to date on the industry.

April 11, 2024 Domestic Production Special Topics

Oil & Gas Roadblocks: Prices, Production, and People Holding Sway

There are always going to be barriers to success in an industry. Barriers to entry, barriers to growth, barriers to profitability, and barriers to progress can lurk to name a few. The upstream industry has its share. For gas, its own oversupply and low prices are an issue. For oil, capital constraints are reining in investment. Both commodities also thirst for quality labor to fuel growth and longer-term underlying optimism, but that workforce does not exist right now and may take a while to develop. What does this mean for the future of the industry?

April 5, 2024 Mergers, Acquisitions, & Divestitures Special Topics

5 Reasons Upstream Sellers Need a Quality of Earnings Report

M&A deal flow was sidelined for much of 2022 and 2023, but pent-up M&A demand is expected to compel buyers and sellers to renew their efforts in 2024 and beyond. As deal activity recovers, sellers need to be prepared to present their value proposition in a compelling manner. This is when having an independent Quality of Earnings Report tailored to the seller’s needs becomes crucial. In this post, we review five reasons sellers benefit from a QofE report when responding to an acquisition offer or preparing to take their business models or assets to market.

March 29, 2024 Special Topics Valuation Issues

The Benefits of a Quality of Earnings Analysis for E&P Companies

As we’ve often highlighted on this blog, transaction activity in the O&G sector has waned in recent years. Rather than utilizing free cash flows to support expansions via acquisitions, companies have emphasized capital discipline, favoring dividend payouts and buybacks. With this thinning of the buyer market, its more important than ever for a potential seller to be able to provide potential buyers with a clear picture of the company’s capacity for generating cash flows.

In that light, we thought our readers would appreciate a recent Mercer Capital slide deck on quality of earnings (QofE) analysis. The purpose of a QofE analysis is to translate historical reported (GAAP) earnings into a relevant picture of earnings and cash flow that is useful in developing credible forward-looking estimates. The stakes are high in the transaction arena. Whether embarking on a sale process or responding to an unsolicited inquiry, sellers have precious few opportunities to set the tone. A QofE process equips sellers with the confidence of understanding their own position while engaging the buy-side with awareness and transparency that promotes a more efficient negotiating process and the best opportunity for a favorable outcome. Read more in this week’s post.

March 22, 2024 Eagle Ford Shale

Eagle Ford Production Edges Down on Sharply Reduced Drilling

In the twelve months ending March 2024, the Eagle Ford basin experienced a modest decline in oil production counterbalanced between significant drops in rig counts and the entrance of drilled but uncompleted wells (DUCs) alongside technological advancements. While commodity prices fluctuated, overall stability was seen coupled with favorable stock price increases for companies in the Eagle Ford comp group. Despite a downturn in mergers and acquisitions (M&A) activity in the region, experts anticipate a resurgence in 2024, highlighting the enduring value of the Eagle Ford shale’s core areas for operators with prime acreage.

March 15, 2024 Eagle Ford Shale Mergers, Acquisitions, & Divestitures

Eagle Ford M&A

Transaction Activity Plummets Over the Past 4 Quarters

The Eagle Ford shale has seen a significant decline in M&A activity over the past year, with only two deals closing compared to 13 in the prior year. However, recent purchases by Silverbow Resources and Crescent Energy signal a potential uptick in activity in the area. Meanwhile, Chesapeake Energy has fully divested from the Eagle Ford, focusing on natural gas-rich formations in the Marcellus and Haynesville shales. Despite the slowdown, Enverus Intelligence Research predicts an increase in M&A activity in the Eagle Ford in 2024.

March 7, 2024 Mineral and Royalty Rights

Mineral Aggregator Valuation Multiples Study Released

With Market Data as of March 4, 2024

Mercer Capital has its finger on the pulse of the minerals market.  An important trend has been the rise of mineral aggregators, which have largely supplanted the trusts as the primary method of publicly traded minerals ownership.

March 1, 2024 Domestic Production Mergers, Acquisitions, & Divestitures

Themes from Q4 2023 Earnings Calls

Upstream (E&P) and Oilfield Service (“OFS”) Companies

Our latest analysis of Q4 2023 earnings calls in the energy sector reveals a consistent focus on efficiency and the impact of global demand. Upstream companies are capitalizing on international demand for LNG and LPG, while oilfield service firms are benefiting from efforts to enhance energy security worldwide. The industry’s commitment to operational effectiveness is evident in investments in durable inventory, conversion efficiency, and the integration of advanced technologies, positioning companies for future success in a market increasingly driven by sustainable energy solutions.

February 23, 2024 Domestic Production Special Topics

Texas Statewide Rule 8 Overhaul

What's in Store for Texas Oilfield Waste Disposal Operators?

The Railroad Commission of Texas is overhauling its primary rule for water protection, Statewide Rule 8, to address environmental standards and oil and gas industry practices that have evolved significantly since the rule’s last major revision in 1984. The proposed changes aim to streamline regulations, update requirements for waste management, and enhance the Commission’s ability to track and collect data on oilfield waste transport. These modifications are expected to impact the economics of oil and gas drilling projects, particularly for smaller operators, and could lead to increased demand for oilfield waste disposal services. to understand more, read this week’s post.

February 19, 2024 Special Topics Valuation Issues

Non-Operating Working Interests in Oil & Gas

Part 2: Markets and Valuation Characteristics of Non-Op Working Interests

In the evolving landscape of the oil and gas industry, non-operating working interests are gaining attention for their unique role in upstream capital markets. These interests, characterized by smaller ownership and higher risks, offer a niche opportunity for investors looking for alternative avenues in the energy sector. With a focus on profit margins and cash flow returns, non-op companies like Northern Oil and Gas, Evolution Petroleum Corporation, and others are demonstrating varying degrees of success, presenting both challenges and opportunities for discerning investors.

February 9, 2024 Domestic Production Special Topics

Just Released | 4Q23 Exploration & Production Newsletter

REGIONAL FOCUS: HAYNESVILLE SHALE

The 4Q23 issue of Mercer Capital’s Exploration & Production newsletter focuses on the Haynesville Shale. Haynesville production held up reasonably well during the 2023 review period, particularly considering the sharp fall-off in the basin’s rig count. Despite the Henry Hub natural gas front month futures prices ending the year well below their starting point, the outlook for the Haynesville basin is favorable and anticipated to continue growing due to rising demand from LNG facilities and petrochemical plant development along the U.S. Gulf Coast.

In addition to our overview of the Haynesville, this newsletter also contains:

– Oil and Gas Commodity Price Update
– 2024 Outlook for the Industry
– Industry M&A Activity
– Public Company Performance
– Production Update
– Rig Counts

Download the newsletter to stay up to date on the industry.

February 2, 2024 Special Topics Valuation Issues

Non-Operating Working Interests in Oil & Gas

Part 1: Characteristics of Non-Op Working Interests, the Risks, and the Benefits

In the intricate world of oil and gas investments there are many ways that ownership from hydrocarbon production can be divided. One way is through non-operating working interests which is, to many, a less familiar ownership position. This post explores the nuanced distinctions between traditional operating working interests and non-operating (non-op) interests, highlighting how the latter, despite sharing cost burdens, lack decision-making power in operational matters.

With a focus on the economic implications, risks, and benefits for investors, particularly through the lens of companies like Northern Oil and Gas, we discuss the complex dynamics and strategic financial maneuvers within the industry, setting the stage for a deeper exploration of valuation and economics in next week’s post.

January 25, 2024 Domestic Production Mergers, Acquisitions, & Divestitures Special Topics

2024 Oil and Gas Outlook

A Year Of Divergence

U.S. oil seems to be headed toward a period of upward price pressure. U.S. natural gas on the other hand, appears to be back in a somewhat oversupplied position.

January 19, 2024 Mergers, Acquisitions, & Divestitures

The Chesapeake and Southwestern Merger

Reshaping U.S. Natural Gas

Chesapeake Energy Corporation and Southwestern Energy Company announced a merger to create the largest natural gas producer in the United States, with an expected output of 7.9 billion cubic feet per day. This $7.4 billion all-stock deal, expected to close in the second quarter of 2024, will see Southwestern investors receiving 0.0867 shares of Chesapeake for each of their shares. The combined company, with an estimated enterprise value of $23 billion, hopes to gain easier access to capital, achieve investment-grade status, and possibly join the S&P 500 while navigating potential antitrust concerns and a potential decrease in NGL prices.

January 12, 2024 Domestic Production

Haynesville DUCs Buoy Production Despite Rig Count Decline

The economics of oil & gas production vary by region.  Mercer Capital focuses on trends in the Eagle Ford, Permian, Haynesville, and Marcellus and Utica plays.  The cost of producing oil and gas depends on the geological makeup of the reserve, depth of reserve, and cost to transport the raw crude to market.  We can observe different costs in different regions depending on these factors.  This quarter, we take a closer look at the Haynesville shale.

January 5, 2024 Domestic Production

Initiating Coverage of the Haynesville Shale

In 2023, the Haynesville shale, a significant natural gas source in the U.S., experienced a downturn in drilling activity due to low natural gas prices (70% price drop from August 2022). This decline also affected rig counts and day rates, with a notable decrease in both. Despite the market volatility, some M&A activity occurred, including WhiteHawk Energy’s acquisition of mineral interests. Rumored activity included Chevron’s potential sale of its Haynesville assets, indicating a continued interest in this region’s natural gas potential.

December 15, 2023 Eagle Ford Shale Mergers, Acquisitions, & Divestitures Mineral and Royalty Rights Permian Basin Special Topics Valuation Issues

Top 10 Blog Posts of 2023

Year-end 2023 is quickly approaching so that means it’s time to take a look back at the year. Here are the top ten posts for the year measured by readership. Thank you to our readers for your constant support! It’s our honor to cover the oil & gas industry for you.

December 7, 2023 Special Topics

Remembering Charlie Munger

His Investment Wisdom and Legacy

In this week’s post, we honor the late Berkshire Hathaway Vice Chairman by delving into his insightful quotes. Our colleague Brooks Hamner discusses Mungerisms like the pitfalls of flashy investment strategies and the skepticism around cryptocurrency, to the critique of over-diversification and reliance on traditional financial metrics like EBITDA. When it comes to investing in any industry or business, no one had more unique ideas than Charlie Munger.

December 1, 2023 Mineral and Royalty Rights

Mineral Aggregator Valuation Multiples Study Released

With Market Data as of November 17, 2023

Mercer Capital has its finger on the pulse of the minerals market.  An important trend has been the rise of mineral aggregators, which have largely supplanted the trusts as the primary method of publicly traded minerals ownership.

November 17, 2023 Mergers, Acquisitions, & Divestitures Special Topics

Themes from Q3 Earnings Calls

Part 2: Oilfield Service (“OFS”) Companies

Key themes we saw in Q3 earnings calls for oilfield service (“OFS”) companies were a rebound in activity, increased M&A in the space, and a focus on capital returns. Operators agree on a positive outlook for 2024, driven by factors like healthy commodity prices and global demand. As the industry evolves and OFS operators continue to make strategic shifts, we’ll keep you updated on future changes.

November 10, 2023 Special Topics

Themes from Q3 Earnings Calls

Part 1: Upstream

This week, we look at earnings calls in the upstream sector for Q3 2023. The past quarter saw significant M&A activity, like Exxon Mobil’s acquisition of Pioneer Natural Resources, which emphasizes efficiency and inventory expansion. As domestic operators are increasing production to meet demand, the industry expects a favorable environment going into 2024.

November 3, 2023 Special Topics

D CEO’s 2023 Energy Awards

Mercer Capital recently attended D CEO’s 2023 Energy Awards, an event that recognizes significant contributions to the energy sector in the Dallas Fort Worth area, including both traditional and renewable energy achievements. The ceremony highlighted the importance of integrating sustainable energy practices, exemplified by Lee Graves’s award for Renewable Energy Executive of the Year, and celebrated major industry milestones like Exxon’s acquisition of Denbury. In a blend of personal and professional narratives, the prestigious Legacy Award was presented to Kelcey Warren of Energy Transfer Partners, featuring discussions of his career and philanthropic impact on the city, notably Klyde Warren Park.

October 27, 2023 Marcellus and Utica Shale

Just Released | 3Q23 Exploration & Production Newsletter

Third Quarter 2023 | Regional Focus: Appalachian Basin

In this quarter’s newsletter, we report that Appalachian production fared well over the last year, particularly considering the sharp decline in the Henry Hub price. Despite the Henry Hub decline, the Appalachian rig count decline was less than that of two of the three oil-rich basins presented, largely due to Appalachia’s higher production declines, which require a higher rig count to maintain production levels.

October 20, 2023 Special Topics Valuation Issues

Energy Values Take Hits….And Keep Moving Forward

In a time where numerous things could dampen demand, prices, profits, and valuations, the energy industry continues an upward trend.