Energy Valuation Insights

A weekly update on issues important to the oil and gas industry

Category

Current Events


Domestic Production

Themes from Q1 Earnings Calls

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

In our prior earnings call post, Themes from Q4 2023 Earnings Calls, we touched on the global focus of both the Upstream and OFS segments and the persistent drive to optimize efficiency in well operations and services with technological advancements, durable inventory, and more. This week, we explore the Q1 2024 earnings calls of upstream and OFS companies, highlighting the appearance of this quarter’s themes across the entire sector: dividends and buybacks and a boost to the gas market.

Special Topics

Oilfield Water Industry Update, Trends, and the Future

The oilfield water industry (OFW, or midstream water) continues to grow in importance within the general upstream energy industry.  So much so that while historically considered part of the Oilfield Services Industry (OFS), midstream water is now considered its own industry within the upstream space, separate from the more general OFS.  In this week’s Energy Valuation Insights blog, we explore the current status, trends, and expectations for the future of midstream water.

Eagle Ford Shale Mergers, Acquisitions, & Divestitures

SilverBow’s Shareholder Brawl

It’s an election year, and the battle is on. SilverBow Resources, a publicly traded oil and gas company operating in South Texas’ Eagle Ford shale, is wrapped up in a big conflict with some of its own shareholders. Kimmeridge Energy Management, both a large shareholder and a rival operator in the Eagle Ford, has proposed a merger (which it, at least temporarily, withdrew last month), and now is proposing several new board members in a proxy battle. The primary question centers on the direction of SilverBow’s value enhancement strategy. However, it appears this strategy hinges, in part, on its debt position, and dividend policy. Management has one idea on how this should go; Kimmeridge clearly has another.

Domestic Production Special Topics

The Inside “SCOOP”

The SCOOP/STACK is a significant oil and gas play found in the Anadarko Basin of Oklahoma. Historically, the Anadarko Basin has been a prolific area for oil and gas extraction. It spans approximately 70,000 square miles across Western Oklahoma, the Texas Panhandle, and parts of Southwestern Kansas and Southeastern Colorado. The basin’s geology features some of the thickest and highest-quality shale reservoirs in the United States, making it an attractive site for drilling and production. Given that fact pattern, it might surprise some to learn that activity in the SCOOP/STACK has been sluggish, to say the least, in recent times.

Bankruptcy Special Topics

Solvency Opinions Explained

What a Solvency Opinion Is and What It Addresses

With the rise of corporate bankruptcies, some leveraged transactions that occurred pre-COVID are going to be scrutinized. This post considers solvency opinions conceptually including four questions every solvency opinion addresses.

Bankruptcy Special Topics

Oilfield Services in 2020

Fork in the Road: Survival or Bankruptcy?

In this post, we explore some of the many factors that play into making it more (or less) likely that an oilfield service participant will survive an industry downturn intact, or succumb to market pressures and enter into bankruptcy.

Bakken Shale Mergers, Acquisitions, & Divestitures

M&A in the Bakken

Immense Drop in Deal Activity Due to COVID Concerns

Over the past several years, the Bakken has generally had much lighter acquisition and divestiture activity than other major basins in the United States.  Given that deal activity across the energy sector has dropped an immense 42.7% over the past year, acquisition and divestiture activity has dropped even further in this basin over the past year. Observed deal activity has largely been the result of Northern Oil and Gas growing its production base in the area during the past several years.

Special Topics

Themes from Q2 2020 Earnings Calls

Part 2: E&P Operators

The oil & gas industry experienced a volatile path to price stability as COVID-19 and the Saudi-Russia price war took a toll on supply and demand.  The road to recovery was apparent late in the quarter and was driven by supply cuts from OPEC+, curtailments by U.S. producers, and an increase in demand.  In this post, we capture the key takeaways from E&P operator second quarter 2020 earnings calls. 

Bankruptcy

Oil Frackers Are Breaking Records Again – In Bankruptcy Court

This year has beaten down America’s oil producers. It started bad, with the Russian-Saudi battle for market share, then cascaded into terrible as the COVID pandemic gutted petroleum demand and sent oil prices down to an unheard of -$38 (negative!) per barrel. Those with the weakest hands have taken shelter in bankruptcy court, where it has been a busy six months.

Special Topics

Themes from Q2 2020 Earnings Calls

Part 1: Mineral Aggregators

The oil & gas industry experienced a volatile path to price stability as COVID-19 and the Saudi-Russia price war took a toll on supply and demand. The road to recovery was apparent late in the quarter and was driven by supply cuts from OPEC+, curtailments by U.S. producers, and an increase in demand. Mercer Capital has aimed to focus on the mineral aggregator space, most recently with the release of the second quarter mineral aggregator valuation multiples analysis. In this post, we capture the key takeaways from mineral aggregator second quarter 2020 earnings calls.

Bankruptcy

Valuation Considerations in Bankruptcy Proceedings

An Overview for Oil & Gas Companies

For oil & gas companies, the decision to file for bankruptcy does not necessarily signal the demise of the business.  If executed properly, Chapter 11 reorganization affords a financially distressed or insolvent company an opportunity to restructure its liabilities and emerge from the proceedings as a viable going concern. Although the Chapter 11 process can seem burdensome, a rigorous assessment of cash flows, and a company’s capital structure can help the company as it develops a plan for years of future success.  The purpose of this post is to provide an explanation of the key valuation-related steps of a Chapter 11 restructuring and help managers realize this potential.

Bankruptcy

2020 Commodity Prices Upend 2019 E&P Bankruptcies

The recent historic decline in oil prices has strained the balance sheets of E&P companies.  Whiting Petroleum Corporation, the first publicly traded U.S. E&P company to declare bankruptcy in 2020, announced its Chapter 11 reorganization process on April 1.  More are expected to follow.

Despite a much more benign commodity price environment of ~$50-$60/bbl in 2019, a number of E&P companies declared bankruptcy last year and have seen their reorganization processes derailed in 2020 as a result of low oil prices.

Valuation Issues

Uncharted Valuation Territory: What Is A Barrel Or An Acre Worth Today?

Times are tumultuous for the oil and gas industry. News earlier this month was met with no rise in West Texas Intermediate pricing at the time. It hovered around $20.00 per barrel. Last week it fell to the seemingly unconscionable negative territory. It was worse in other places. In Western Canada heavy select oil was around $4.50 per barrel and dropped to $0 last week. It went negative as well. World demand for oil has dropped somewhere between 20% and 35% by some estimations, and excess supply has been building for weeks.

Something must give, and something will. While global supply and demand imbalance has the industry scrambling in unseen territory, how does this convert to what upstream companies and reserves are worth amid the situation? Is it a 1:1 price to value change ratio? Depending on perspective, the answer is both simple and complicated.

Oil & Gas

Mercer Capital provides oil and gas companies, oil and gas servicers, and mineral & royalty owners with corporate valuation, asset valuation, litigation support, transaction advisory, and related services