Corporate Valuation, Oil & Gas

May 21, 2018

The Permian Boom Causing a Natural Gas Bust

The oil industry is cruising. Producers are flocking to many oil rich plays, most notably the Permian Basin, Bakken, and Eagle Ford. Producers in these areas are all looking to exploit multi-zone payouts and gain significant efficiencies with new deep lateral and horizontal wells.

While this strategy is working very well for oil producers, often lost in the oil excitement is the byproduct, additional dry and natural gas liquids. For producers targeting natural gas, this is not good news. The U.S. has significant natural gas. While export demand is approximately 10% to 12% of all domestically produced natural gas, high supply and demand factors have kept prices relatively flat.

The Economics of the Current Price Environment

The articles below address the economics of the current price environment:

While the low prices are favorable for consumers of natural gas, E&P companies are struggling. Producers of natural gas, specifically those operating in areas where crude oil is minimal, such as the Marcellus and Utica, are getting stretched thin, some beyond their ability to recover. Rex Energy Corporation (Rex) is the latest natural gas producer to file for a Chapter 11 orderly reorganization beginning with the sale of assets.

Rex Energy Corporation

Rex Energy Corporation is an independent E&P company that produces condensate, natural gas liquid (NGL), and natural gas in the Marcellus, Utica, and Burkett Shale. On May 18th, Rex announced that, following its previously announced strategic review, it has decided to begin an orderly sale process for its remaining assets in order to maximize their long-term value and prospects. To facilitate the sale and address its debt obligations, the Company initiated voluntary proceedings under Chapter 11 of the U.S. Bankruptcy Code with support outlined in a Restructuring Support Agreement signed by 100% of its first lien lenders and approximately 72% of its second lien noteholders.

A review of their financial performance over the previous five years indicates declining revenues from lower natural gas prices. Revenue increased from 2013 to 2014, then declined during 2015-2017. This behavior is consistent with commodity price fluctuations. Operating income followed a similar trend which put pressure on the company to use debt to fill the gap.  Debt doubled from 2013 through March 2018 and interest expense increased during all years and peaked at $62 million during the LTM March 2018 period. All of this was done hoping natural gas prices would increase to the point Rex could reach profitability. However, Rex ran out of time.

Other Marcellus and Utica Operators

Rex is not the only Marcellus and Utica operator with this trend. CNX Resources, Eclipse Resources and EV Energy Partners all have stock charts with similar trends. Diversified Gas and Oil is the only publicly traded Marcellus and Utica focused producer with a stock price trend bucking the macro environment. They are also relatively new to the publicly traded scene, having been publicly traded for less than two year.

CNX Resources, Eclipse Resources and EV Energy Partners have seen price declines on the order of 50% to 100% since mid-2014.  Eclipse Resources, for example, experienced a rapid fall in its stock price after raising $818 million in a U.S. initial public offering.  Its stock price has fallen by nearly 100% and last month Eclipse announced that they were evaluating different options to maximize company value such as engaging in accretive acquisitions or sale of the company.

The performance of all the E&P companies named above is shown below.

Descriptions of each company are included below per their respective 10Ks.
  • CNX Resources Corporation, an independent oil and natural gas company, explores for, develops, and produces natural gas in the Appalachian Basin. As of December 31, 2017, it had 7.6 trillion cubic feet equivalent of proved natural gas reserves. The company also owns, operates, and develops natural gas gathering and other midstream energy assets in the Marcellus Shale in Pennsylvania and West Virginia. The company was formerly known as CONSOL Energy Inc. and changed its name to CNX Resources Corporation in November 2017.
  • Eclipse Resources Corporation, an independent exploration and production company, acquires and develops oil and natural gas properties in the Appalachian Basin. The company holds interests in the Utica Shale and Marcellus Shale areas.
  • EV Energy Partners, L.P., through its subsidiaries, engages in the acquisition, development, and production of oil and natural gas properties in the United States. Its properties are located in the Barnett Shale; the San Juan Basin; the Appalachian Basin; Michigan; Central Texas; the Monroe Field in Northern Louisiana; the Mid–Continent areas in Oklahoma, Texas, Arkansas, Kansas, and Louisiana; and the Permian Basin.
  • Diversified Gas & Oil PLC engages in the production of natural gas and crude oil in the Appalachian Basin of the United States. It has interests in the oil and gas properties in Pennsylvania, Ohio, and West Virginia.  As shown below, it has not experienced the same declines in price as many of the other producers in the region.

Conclusion

While these macro issues have been impacting the industry for years, many investors have expected supply to fall to the point of creating higher prices. As this Wall Street Journal article points out, many investors had to adjust their investment time horizon. Investments made during 2014 and 2015 have not been exited by hedge funds like Fir Tree due to lower than expected public demand. Fir Tree’s energy investment strategy included purchasing the debt of failing companies only to flip it into a controlling equity position in the “emerged from bankruptcy” company. While they have been somewhat successful in this strategy, their holding periods are longer than originally planned. It appears investor’s are salivating for more companies like Amazon and less for companies like Sandridge Energy. While the headlines are focused on Permian Basin winners, the rest of the oil and gas market is not as cheery. The mixed bag of winners and losers makes the industry tricky to operate within.

We have assisted many clients with various valuation needs in the upstream oil and gas space in the Marcellus and Utica areas, other conventional and unconventional plays in North America and around the world.  Contact Mercer Capital to discuss your needs in confidence and learn more about how we can help you succeed.

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Mineral Aggregator Valuation Multiples Study Released-Data as of 03-10-2026
Mineral Aggregator Valuation Multiples Study Released

With Market Data as of March 10, 2026

Mercer Capital has thoughtfully analyzed the corporate and capital structures of the publicly traded mineral aggregators to derive meaningful indications of enterprise value. We have also calculated valuation multiples based on a variety of metrics, including distributions and reserves, as well as earnings and production on both a historical and forward-looking basis.
Themes from the Q4 2025 Energy Earnings Calls
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NAPE Summit 2026: Dealmaking at the Crossroads of Molecules, Electrons, and Minerals
NAPE Summit 2026: Dealmaking at the Crossroads of Molecules, Electrons, and Minerals
Mercer Capital joined industry leaders at the 2026 NAPE Summit (NAPE Expo), held February 18th to 20th, at the George R. Brown Convention Center in Houston, Texas. As with prior Expos, NAPE delivered a focused marketplace where conversations move quickly from “nice to meet you” to “what would it take to get this done?” This year, Bryce Erickson and David Smith represented Mercer Capital on the expo floor and across the conference programming, meeting with operators, minerals groups, capital providers, and advisors.If there was one defining characteristic of NAPE 2026, it was convergence. The industry’s traditional center of gravity, upstream oil and gas dealmaking, was still very much present. But the surrounding ecosystem is widening, as programming incorporated adjacent (and increasingly intertwined) sectors. The hubs for 2026, included Offshore, Data Centers, and Critical Minerals, as part of an event lineup designed to broaden the deal flow and participant mix. Below are our key takeaways from the conference, with a tour through the hub sessions and the themes that were emphasized.The Hub Sessions Told a Clear Story: Energy Is Becoming a Multi-Asset PortfolioThe 2026 NAPE hubs provided a useful lens into where capital is flowing and how industry priorities are evolving. This year’s programming demonstrated a market that still values traditional upstream opportunities, while increasingly integrating adjacent and emerging sectors into the broader deal landscape.Prospect Preview Hub: Showcasing OpportunitiesNAPE’s Prospect Preview Hub once again served as a platform for exhibitors to showcase available prospects on the expo floor, providing concise overviews of their technical merits and commercial potential. Presenters framed their investment thesis in a narrative that reflects how assets are marketed in a competitive transaction environment.Minerals & NonOp Hub: Strategies and TrendsThe Minerals & NonOp Hub discussions focused on market trends, financing strategies, and technology-driven approaches to sourcing and managing acquisition opportunities. Presentations in this hub addressed strategies, recent trends, technologies, and related developments.Offshore Hub: Long-Cycle Capital with Global ImplicationThe Offshore Hub highlighted exploration frontiers, development innovation, and the broader geopolitical context influencing offshore investment. Particular emphasis was placed on high-potential offshore regions, navigating environmental and regulatory frameworks, supply-demand trends, and the role of offshore energy in the global energy mix. Offshore projects require significant upfront investment and longer development timelines, which heighten sensitivity to regulatory stability, cost control, and commodity price outlook assumptions. In this sense, offshore dealmaking underscores how long-cycle assets must be evaluated differently from shorter-cycle onshore plays.Renewable Energy Hub: An Integrated FrameworkThe Renewable Energy Hub reflected an industry increasingly focused on integration rather than segmentation. Presentations centered on integrating renewables with traditional energy sources, hybrid project models, sustainability pathways with a focus on technology, and strategies for navigating evolving energy markets. Rather than viewing renewables as a standalone vertical, participants frequently discussed how renewable assets fit within broader portfolios that include natural gas, storage, and transmission infrastructure.Critical Minerals Hub: Supply Chain Strategy Comes to the ForefrontThe Critical Minerals Hub emphasized the strategic importance of minerals such as lithium, cobalt, rare earth elements, and graphite within evolving energy supply chains. The three sessions - Exploration/Development, Market Dynamics, and Sustainability/Innovation - featured presentations focused on resource development pathways, supply chain positioning, sourcing practices, and recycling technologies. Unlike traditional upstream projects, critical mineral investments often face unique permitting, processing, and geopolitical risks. As capital flows into the space, differentiation increasingly depends on technical credibility and downstream integration potential.Data Center Hub: Power Demand Is Now a First-Order VariableThe Data Center Hub positioned data centers as a critical component of the global economy, emphasizing the sector’s immense and growing energy needs and the resulting opportunities for collaboration between energy and technology stakeholders. Sessions addressed (i) structuring power supply, interconnection, and grid compliance, (ii) managing data center development risk, and (iii) how rising energy demands impact data center development.In practical terms, this emerged in two ways. First, site selection and power availability are increasingly central to “deal conversations.” Co-location strategies, generation capacity, transmission access, and long-term power contracting are becoming key underwriting considerations. Second, infrastructure constraints are entering valuation frameworks. Power availability, interconnection queues, permitting timelines, and fuel optionality are no longer secondary factors; they directly influence project timing, risk, and expected returns.Our Takeaways: What We Heard Repeatedly on the FloorAcross hub sessions and meetings, three themes came up again and again:Infrastructure constraints are turning into valuation drivers. Power, pipelines, processing, and permitting are not background details—they’re often the gating items that shape cash flow timing, risk, and ultimate marketability.The market is hungry for clarity. Whether the topic is policy, commodity outlook, or capital availability, counterparties are placing a premium on deals with understandable risks and executable paths.Energy dealmaking is becoming “multi-asset” by default. Even when the transaction is traditional upstream, the conversation increasingly touches power, infrastructure, data, or minerals adjacency.Final ThoughtsMercer Capital has long valued NAPE as an event where real deal conversations happen and where shifting industry priorities can be identified early on. As the lines between upstream, infrastructure, power, and emerging energy/minerals continue to blur, independent valuation and transaction advisory services become even more important, since the hardest part isn’t building a model, it’s choosing the right assumptions.We have assisted many clients with various valuation needs in the upstream oil and gas space for both conventional and unconventional plays in North America and around the world. Contact a Mercer Capital professional to discuss your needs in confidence and learn more about how we can help you succeed.

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