Oftentimes differences are a matter of perspective. Put another way – one person’s loss can be another person’s gain. One of the thematic differences between producers and mineral owners is their perspective on “Held By Production.” It elicits very different reactions depending on what side of the term one is on, and has a leverageable impact on value. With rig counts dropping to around half of last year’s count, how much acreage will be available for re-leasing this year? In this post, we decided to spend some time exploring this concept and its impact on the energy industry.
The economics of oil and gas production vary by region. Mercer Capital focuses on trends in the Eagle Ford, Permian, Bakken, 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 Eagle Ford.
Steady Transaction Activity Restrained by Unforeseeable Circumstances
Over the last year, deal activity in the Eagle Ford Shale was relatively steady, picking up towards the end of 2019 and carrying into early 2020. This week we discuss recent transactions in the Eagle Ford.
Challenging For Valuation Title Belt
Will the Eagle Ford win the profitability fight with other basins? It may not have the scale or heft of the Permian, but its profitability punches are as strong as anyone’s.
Eagle Ford Region Overview
Nearly a quarter of the way through 2019, prices have rebounded somewhat after a tumultuous end to 2018. First quarter energy prices again moved in opposite directions, with crude prices increasing steadily over the period while natural gas prices decreased from $2.94 to $2.80 per Mcf by mid-March despite peaking at over $3.50 in mid-January.
Over the last twelve months, the Eagle Ford Shale region has experienced steady growth and healthy transaction activity. The region’s strengths, such as its low cycle times, high oil cuts and Louisiana Light Sweet crude and Brent oil pricing, has facilitated free cash flow and made the area attractive to both investors and operators.
This week’s blog post discusses several observations: There has been steady A&D activity over past 12 months, with typical valuations between $8,000 – $10,000 per acre. The formation of Magnolia Oil & Gas Corporation from the deal between a blank check company & Enervest creates a pure play South Texas producer in the Eagle Ford and Austin Chalk. Lastly, producers are still divesting positions and re-allocating resources to Permian Basin.
As oil and gas prices remained low, deal volume picked up in the beginning of 2016 as companies were forced to sell assets in order to quickly generate cash to pay off debt and avoid bankruptcy. As the year continued, M&A activity increased and total deal value at the end of 2016 doubled that of 2015.
Over the previous weeks, we have discussed specific factors in the Eagle Ford like DUCs (Drilled but Uncompleted Wells) and how certain operators behave in this resource play. Today, we take a step back and review the broad characteristics of the Eagle Ford Shale resource.
The Eagle Ford Shale is one of the largest economic developments in the state of Texas. Almost $30 billion was spent developing the play in 2013. However, that figure dropped off dramatically in 2015 and 2016. In the wake of that drop-off some of the key residuals of that investment remain and are still on the precipice of becoming more active. These residual investments exist in the form of drilled, but uncompleted horizontal wells – sometimes known as “DUCs” or “Fracklog”. Many of the big shale producers are jumping on board the fracklog bandwagon.