Energy Valuation Insights

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.