Energy Valuation Insights

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

Category

Mineral and Royalty Rights


Royalty MLP Is Delivering Yield Against Backdrop Of Energy Sector Struggles

While equity prices have dropped by approximately 30% for producers, six publicly-traded royalty aggregators relatively outperformed the SPDR Index. These Royalty MLP’s have tracked closer to crude oil prices, anchored by sizeable dividend payments, thus buoying sliding equity prices. If dividend yields are added back, some of them have been outperforming crude prices.

Public Royalty Trusts: More Than Meets the Eye

Yield Traps, Depressed Commodity Prices, and Stage of Decline May Decrease Utility of Public Yields

In previous posts, we have discussed the relationship between public royalty interests and their market pricing implications to royalty owners.  We have differentiated between mineral aggregators and public royalty trusts and introduced some other considerations for how to pick the appropriate comparable. In this post, we will discuss the prevailing high dividend yields of public royalty trusts. We will also offer some reasons for why these trusts may be declining not just in production but also their comparability, from a valuation perspective, to some privately held mineral interests.

Public Royalty Interests: Picking the Right Comparable

In previous posts, we have discussed the relationship between public royalty interests and their market pricing implications to royalty owners.  Here, we will define our group of royalty interests which can be used to gain valuation insights.  Specifically, we will look at mineral aggregators, natural gas focused trusts, and crude oil focused trusts and the statutory differences between them. We also consider how dividend yields and other public data can be used to imply value for private mineral interests while being judicious in our application of such metrics.

Considerations for Endowments Divesting Fossil Fuels

The purpose of an endowment is to provide a permanent source of funding that maintains the operations of colleges, universities, churches, etc.  To best serve its fiduciaries, an endowment should achieve the highest return possible.  Congruently, when divesting, the endowment must ensure it achieved a fair price for its investments. This post does not weigh in on the discussion of whether endowments should or should not liquidate fossil fuels.  Rather, we hope to educate and advise those who have decided to divest their fossil fuel assets and are unsure of how to proceed.

From Enduro to Permianville

A Closer Look at Permianville Royalty Trust

In previous posts, we have discussed the relationship between public royalty trusts and their market pricing implications to royalty owners. Many publicly traded trusts are restricted from acquiring other interests, so they have relatively fixed resources, and the value of these trusts comes from generally declining distributions. In many cases, the royalty comes from a related operator, though this is neither required nor characteristic of all trusts. There are also other MLPs such as Kimbell Royalty Partners, Viper Energy Partners, Dorchester Minerals, and Black Stone Minerals that are aggregators consistently gobbling up new acreage. In this post, we explore the subject characteristics of Permianville Royalty Trust, formerly known as Enduro Royalty Trust.

Special Topics

Risk and Return

Working Interests and Royalty Interests

When valuing mineral interests, it is important to consider the nuances of the each type of mineral interest. Given that risk and asset values are indirectly related, it is important to keep in mind the various risk factors which pertain to the mineral interest. We’ll begin by examining the various risks surrounding both types of interests.

Mineral Interest Owners: How to Know What You Own

As we’ve discussed, there are plenty of factors to consider when determining the value of mineral interests. While some mineral owners may be very well attuned to decline curves and local pricing dynamics, others may only casually monitor the price of oil and gas to get a general sense of the trend in the industry.  This post is geared towards those mineral interest owners who have less knowledge on the subject and should serve as a guide for those looking to learn more about what they own.

Before Selling Your Oil and Gas Royalty Interest, Read This

There are many reasons that you may want to sell your oil and gas royalty interest, but a lack of knowledge regarding the worth of your royalty interest could be very costly. Whether an inflow of cash would help you make ends meet or finance a large purchase; you no longer want to deal with the administrative paperwork or accounting cost of reconciling monthly revenue payments; or you would prefer to diversify your portfolio or move your investments to a less volatile industry, understanding how royalty interests are valued will ensure that you maximize the value.

How to Value an Oil and Gas Mineral Royalty Interest

This blog post summarizes our whitepaper that provides an informative overview regarding the valuation of mineral royalty interests within the oil and gas industry.  While there are a myriad of factors (mostly out of a royalty holder’s control) impacting the economics of a royalty interest, this blog post focuses on valuation methodology.

Public Royalty Trusts (Part II)

Can Revenue Interests Still Benefit from Capital Appreciation?

In a recent post, we explored the ins and outs of MV Oil Trust.  We analyzed the underlying net profit interests it holds, the underlying properties of the trust, and the rights of unitholders including their rights during termination of the trust.  This week, we will look into how these play into the composition of the MV Oil Trust’s stock price, and the balance struck between investor’s current return in the form of dividends and potential for returns from capital appreciation.

Public Royalty Trusts (Part I)

Can Revenue Interests Benefit from Capital Appreciation?

In previous posts, we have discussed the relationship between public royalty trusts and their market pricing implications to royalty owners.  Many publicly traded trusts have a fixed number of wells, so the value comes from declining distributions.  Some of the trusts have wells that have not been drilled, which represent upside potential for investors. In this post, we will explore the subject characteristics of MV Oil Trust.  This will serve as a primer for a subsequent post in which we will look further into the composition of its stock price in order to better understand investors’ ability to achieve returns through distributions and capital appreciation.

Royalty Interests and the Importance of the Operator

In previous posts, we have discussed the market pricing implications of publicly traded royalty trusts to royalty and mineral owners. We have explained the importance of understanding the specifics underlying those trusts before using them as a pricing benchmark. In this post, we will delve further into market prices of royalty and mineral interests and the important role of operators. We will look into the three publicly traded royalty trusts operated by SandRidge Energy: SandRidge Mississippian Trust I, SandRidge Mississippian Trust II, and SandRidge Permian Trust.

Considerations for Endowments Divesting Fossil Fuels

The purpose of an endowment is to provide a permanent source of funding that maintains the operations of colleges, universities, churches, etc.  To best serve its fiduciaries, an endowment should achieve the highest return possible.  Congruently, when divesting, the endowment must ensure it achieved a fair price for its investments. This post does not weigh in on the discussion of whether endowments should or should not liquidate fossil fuels.  Rather, I hope to educate and advise those who have decided to divest their fossil fuel assets and are unsure of how to proceed.

Royalty Trusts: I’m a Revenue Partner… No, Wait… That Looks Like Equity

In previous posts, we have discussed the existence of publicly traded royalty trusts & partnerships and their market pricing implications to royalty owners. Before using publicly traded royalty trusts as a pricing reference for your royalty interest, it is important to understand the economic rights and restrictions within those royalty trusts. In this post, we discuss the current market, the outperformance of the Whiting USA Trust II (WHZT), and importance of understanding the details about your royalty interest.

Before Selling Your Oil and Gas Royalty Interest Read This

There are many reasons that you may want to sell your oil and gas royalty interest, but a lack of knowledge regarding the worth of your royalty interest could be very costly. Whether an inflow of cash would help you make ends meet or finance a large purchase; you no longer want to deal with the administrative paperwork or accounting cost of reconciling monthly revenue payments; or you would prefer to diversify your portfolio or move your investments to a less volatile industry, understanding how royalty interests are valued will ensure that you maximize the value.

How to Value an Oil & Gas Mineral Royalty Interest

This blog post summarizes our whitepaper that provides an informative overview regarding the valuation of mineral royalty interests within the oil and gas industry.  While there are a myriad of factors (mostly out of a royalty holder’s control) impacting the economics of a royalty interest, this blog post focuses on valuation methodology.

How to Value Overriding Royalty Interests

When comparing a royalty interest to an ORRI, it is critical to understand the subtle nuances of the rights and restrictions between the two. Owners of royalty interests utilizing Permian Basin Royalty Trust as a valuation gauge should adjust for such differences as well as other differences between publicly traded and non-marketable securities.

How Do Post-Production Deductions Affect the Value of Your Oil and Gas Royalty Interest?

From the first Board Meeting to the last session of the conference, post-production deductions were discussed in great detail at the NARO National Convention.  Why were these deductions brought up time and time again? Because post-production deductions affect the value of a mineral owner’s interest yet the regulations surrounding them is somewhat unclear and exists mainly on a contractual basis.

3 Things to Know Before Selling Your Oil and Gas Royalty Interest

There are many reasons that you may want to sell your oil and gas royalty interest, but a lack of knowledge regarding the worth of your royalty interest could be very costly. Whether an inflow of cash would help you make ends meet or finance a large purchase; you no longer want to deal with the administrative paperwork or accounting cost of reconciling monthly revenue payments; or you would prefer to diversify your portfolio or move your investments to a less volatile industry, understanding how royalty interests are valued will ensure that you maximize the value.

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