When the price of oil started its descent during 2014, the majority of media attention was, and still is, focused on exploration, production, and oil field services companies. While bankruptcy courts are busy deciphering reorganization plans and perhaps liquidations of companies, one group of oil and gas participants are getting little attention: royalty owners. While the last two years have been a rough ride, opportunities do exists for forward thinking royalty owners and investors.
Energy Valuation Insights
A weekly update on issues important to the Energy industry
Last month we learned something that might not be a shock to those closely following the oil and gas markets, but might be something of a bombshell to everyone else. A report from Rystad Energy estimated that in July 2016, for the first time ever, the United States has more recoverable oil than any other country on the planet – 264 billion barrels. What was the reward for E&P firms? Ironically, it has unfortunately turned out to be a long line at bankruptcy courts.
For the last two years we have been asking when will oil prices recover? But natural gas E&P companies have been asking this question for almost seven years. Analysts have worked to predict which companies will make a comeback once prices recover, but the road to recovery has been and will continue to be long and rocky.
Deal activity, while quiet in the first quarter of the year, has picked up significantly in the last four months, especially in the Permian Basin. Pioneer has been one of the more active companies making investments in the play, but why would they in such a bleak energy climate?
In the oil and gas industry, standardized reporting and industry analysts typically use a 10% discount rate on projects’ future cash flows. In this post we explain how such a discount rate is calculated and its effects on valuation; and then discuss a model that provides the discount rates that exploration and production companies face in the current market.
- Asset Sales
- Bakken Shale
- Domestic Production
- Downstream Analysis
- Eagle Ford Shale
- Marcellus and Utica Shale
- Mergers and Acquisitions
- Permian Basin
- Royalty Trusts
- Special Topics
- Valuation Issues