Category

Energy Valuation Insights

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December 10, 2018 Mineral and Royalty Rights

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.

December 4, 2018 Valuation Issues

Accounting for Risk in Oil and Gas Reserve Valuations

Reserve Adjustment Factors and Risk-Adjusted Discount Rates

One of the most complex aspects of oil and gas valuation is accounting for the risk associated with PDNP reserves, PUD reserves, and the less certain probables and possibles (P2 and P3 Reserves). Generally, there are three ways to account for this additional risk: (1) Using a risk-adjusted discount rate, (2) applying a reserve adjustment factor (RAF), or (3) utilizing a modified option pricing model.

November 28, 2018 Valuation Issues

Non-Operated Working Interests: Are You Investing in the Operator, the Oilfield, or Both?

Joint Ventures in Oil and Gas

Executing a successful joint venture requires a number of items working in harmony such as solid due diligence, good location, cooperation between both firms, and a degree of luck on the bet they are making.

It seems a bit contradictory that a large amount of projects are structured as joint ventures if they have such a high failure rate. This begs the question, does the success of the JV hinge on the quality of the oilfield or the technical ability of the operator? The answer, we think, lies somewhere in the middle.

November 21, 2018 Special Topics

Haynesville’s Gigantic Gas Resurgence Could Be A Winner In LNG Export Race

Where many producers are struggling to transport their product to market, companies operating in the Haynesville Shale are uniquely positioned to take advantage of the Gulf Coast LNG export resurgence.

November 14, 2018 Special Topics

Four Themes from Q3 Earnings Calls

We Read the Q3 Earnings Calls so You Don’t Have to

Improvements in technology have driven the shale revolution. Among these improvements are both cost cutting by oilfield service providers and longer laterals from E&P companies. While capacity constraints from a lack of infrastructure has led to pricing differentials (particularly in the Permian Basin), a lack of inventory in the global oil market is expected to support higher prices, while also increasing price volatility.

As we plan to do every quarter, we take a look at some of the earnings commentary of large players in the oil and gas space to gain further insight into the challenges and opportunities developing in the industry.

November 7, 2018 Special Topics

Four Key Takeaways from NARO 2018

David Harkins recently attended the 38th Annual National Association of Royalty Owners (NARO) National Convention in Denver, Colorado. Many topics were discussed, some of which could have their own blog posts devoted to them; however, this post includes four key takeaways from the conference.

November 2, 2018 Mineral and Royalty Rights

Royalty MLPs Are Devouring Mineral Assets To Fund Growing Investor Appetites

The emerging field of royalty-focused MLPs and mineral aggregation has the potential to provide growth through acquisitions, as well as distribution payments that public investors desire. Kimbell’s acquisition of Haymaker is a good example of this.

October 22, 2018 Valuation Issues

How to Interpret Breakeven Prices

Before mid-2014, few investors took notice of efficiency-oriented metrics, instead focusing on stories of new oil discoveries and the development of new wells and new technologies.  Since the crash in oil prices, a new measure of success was brought to the forefront:  breakeven prices.

As more companies present this metric and more investors rely on it as an indication of performance, it becomes increasingly important to understand what it actually measures, and if breakeven prices can be compared consistently from company to company.

October 17, 2018 Mergers, Acquisitions, & Divestitures

BP & Diamondback Mergers Set Q3 Tone For Upstream Producers

Upstream producers’ stock performance has been volatile, infrastructure issues are lurking and the industry ended the quarter a notch above flat. However, the strategic acquisitions by BP and Diamondback Energy highlight the segment’s continued optimism.

October 8, 2018 Special Topics

U.S. Energy and Private Equity

Show Me the Money

Private equity companies in the energy sector are positioned for an interesting opportunity. These companies have seen a surge of fundraising in recent years, leaving managers with large cash reserves or “dry powder” to be appropriately deployed. Despite the large amount of cash available, these firms are having trouble finding places to invest resulting in a decline in PE activity in 2016-2018 with deal counts dropping for the second year in a row by 8%. However, investments could see a marked increase in energy in the last quarter of 2018 and into 2019 as there is a climate of high demand for return on investment and low supply of cash needed for capital expenditures in upstream oil companies.

October 3, 2018 Mineral and Royalty Rights

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.

September 26, 2018 Bakken Shale

Bakken Business

Companies that have maintained a presence in the Bakken since the downturn in oil prices are beginning to reap the rewards of their patience. Rising oil prices have begat increases in production, and efficiencies gained in recent years have led to higher margins and increased production. As noted in last week’s post about transaction activity in the region, while the Permian Basin has received much of the attention recently, the Bakken certainly appears to be back in business.

September 17, 2018 Bakken Shale Mergers, Acquisitions, & Divestitures

M&A in the Bakken

Under the Radar

Over the past year, followers of the oil and gas industry have taken note of the multitude of transactions occurring in the Permian Basin with large deal values and hefty multiples. But the price differential between WTI and other benchmarks has grown over the last few months, and some attention has moved from the Permian to other domestic shale plays. The activity in other regions such as the Bakken was at one point slow (when compared to the Permian) causing the recent increase in production and the swapping of acreage to fly under the radar while many were focused on Texas.

September 10, 2018 Mergers, Acquisitions, & Divestitures

M&A Activity in the Oilfield Service Sector

From Surviving to Thriving

The oilfield service sector has recovered significantly since the crash in oil prices in mid-2014. As capex budgets have expanded, especially in the Permian Basin, demand for oilfield services such as drilling and pumping has increased. But what does this mean for transaction activity in the sector?

September 4, 2018 Valuation Issues

Oilfield Service Valuations

Missing The Party Or Just Fashionably Late?

Higher oil prices, coupled with lower breakeven costs for producers, are making drillers, completers and a host of other servicers busier than a gopher on a golf course. Does that translate into higher valuations?

August 27, 2018 Special Topics

Bryce Erickson is a Contributor to Forbes.com

Based upon the content in this blog, representatives from Forbes.com reached out to Bryce Erickson, ASA, MRICS with an invitation to become a contributor to Forbes.com in their Energy section.

August 14, 2018 Mineral and Royalty Rights

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.

August 7, 2018 Downstream Analysis

A Review of M&A Activity in the Downstream Oil & Gas Space

Nesting Dolls of Refinery Acquisitions

On April 30, 2018, Marathon Petroleum announced its acquisition of the newly formed Andeavor making Marathon the largest refiner in the U.S. (by capacity) and one of the top five refiners in the world.  The merger is moving into its final stages, and Marathon’s CEO is positive about the combination of the two well situated companies. In this post, we analyze the recent acquisition history of Western Refining, Tesoro, and Marathon, which has started to look somewhat like nesting dolls of acquisitions.

July 30, 2018 Mineral and Royalty Rights

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.

July 18, 2018 Mergers, Acquisitions, & Divestitures Mineral and Royalty Rights

Details and Analysis of Kimbell Royalty Partners’ Acquisition of Haymaker Minerals & Royalties, LLC

In this week’s post, we provide a detailed analysis of the Kimbell Royalty Partners’ acquisition of Haymaker Minerals & Royalties, LLC. We assess some of the benefits of public mineral and royalty companies as compared to their private counterparts.

July 12, 2018 Special Topics

Out of the File Cabinet: The Ideal Time to Review Your Buy-Sell Agreement

This week we take a break from discussing the Permian Basin to feature a topic that touches most of our readers – buy-sell agreements. Almost every privately owned company with multiple shareholders has a buy-sell agreement (or other agreement that acts as a buy-sell agreement).

July 3, 2018 Permian Basin

Growing Pains Curb Valuation Gains in the Permian

2Q18 Review

The story of the Permian Basin in 2018 so far has been developing as one of the finest proverbial “fishing holes” in the world.  However, as the year has progressed, it appears many industry players have found their reputed “catch” too big to process and are scrambling to deal with it before it begins to stink.

Translation: the year began with a flurry of developmental drilling activity followed by an emerging bottleneck.  The unintended consequence of this has been that some operators have been growing oil production too fast for pipeline and infrastructure to keep up.  A pricing differential has arisen due to the supply glut and there has been concurrent stagnation in valuations.  In this post, we discuss how some of it has transpired through the timeline of the first half of 2018.

June 25, 2018 Permian Basin

Take What You Can and Get Out

When oil prices crashed in mid-2014, companies were forced to become more efficient in order to survive. It became clear that location meant more than ever and companies could no longer justify operating in regions such as the Bakken and the Eagle Ford, where break-even prices were higher than they were in the Permian.  Thus in order to stay in business, companies flocked to the Permian.  This week, we look at how the increased appeal of the Permian Basin has affected M&A activity in the oil and gas sector.

June 18, 2018 Permian Basin

Piping Hot Permian

Production in the Permian is as hot as the summers in West Texas. Despite being discovered in the 1920s, it was not until 2007 that the region’s true potential was realized when hydraulic fracturing techniques were used to access the play’s tight sand layers. Given its low-cost economics and large well potential, in recent years, the Permian has been in the limelight with operators and investors alike prioritizing the region.

In this post, we discuss the increase of rig counts and production in the region, along with valuation implications for companies operating in the Permian.