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.
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.
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).
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.
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.
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.
On May 21, Mercer Capital attended the Minerals Workshop at the DUG Permian Basin Conference in Fort Worth, Texas. The agenda included five presentations and eleven speakers, including royalty brokers, royalty aggregators, and royalty managers. We learned about changes in the royalty market, mineral investor required returns, private equity strategies and due diligence musts for buyers. In light of the information, three themes emerged that mineral owners should know about the royalty market.
On December 22, 2017, President Trump signed The Tax Cuts and Jobs Act, which resulted in sweeping changes to the U.S. tax code. The Act decreased the corporate tax rate to 21% from 35%, in addition to modifying specific provisions around interest, depreciation, carrybacks, and repatriation taxes. The change in tax rate will have the biggest impact on purchase accounting. In the energy industry, this will manifest itself in several different ways. This blog post explores some of the impacts to valuations performed under fair value accounting in ASC 805 and ASC 820.
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.
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.
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.
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.
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.
Travis W. Harms, Senior Vice President of Mercer Capital, wrote a series of whitepapers that focused on demystifying corporate finance for board members and shareholders. The purpose of this whitepaper is to equip directors and shareholders to contribute to capital structure decisions that promote the financial health and sustainability of the company.
The oil and gas market continued to show improvement in the first quarter of 2018. Positive momentum in production growth in the U.S. continued and prices increased from an average of $55 in Q4 2017 to an average of $63 in Q1 2018. Oil prices are ticking up, domestic production has increased to a 50 year high, and the U.S. is exporting more crude oil than ever before. If you are like me, then you can’t ignore the wary feeling in your gut that makes you ask, “Is it too good to be true?”
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.
The economics of the Eagle Ford Shale have been steadily improving for the past year. While the Permian has been receiving the most attention given its low-cost economics and large well potential, the Eagle Ford (particularly its oil window) has increased well production whilst dropping its costs. However, based on recent announcements, many companies will be reducing the number of wells drilled in 2018 as compared to 2017.
A thorough understanding of the role of refineries in the oil and gas industry is important in establishing a credible value for a business operating in the refining space. In addition, it is critical to understand the subject company’s position in the market, its operations, and its financial condition. In this post, we walk through industry factors, three valuation approaches, and the importance of synthesizing these factors in order glean a holistic understanding of a company’s value.
In this post, we discuss the 2018 outlook for the refining industry, including the effect of taxes, industry regulation, and oil prices.
This is the second of multiple posts discussing the most important information contained in a reserve report, the assumptions used to create it, and what factors should be changed to arrive at Fair Value or Fair Market Value.
In this post, we discuss two of the most important inputs that go into every reserve report: production and pricing and why it may be appropriate to make adjustments to these inputs for purposes of Fair Value or Fair Market Value.
Don Erickson, Managing Director of Mercer Capital, educates the public on valuation methodologies and trends impacting various industries. One such industry is Oil & Gas. In the second part of this two-part slide deck, he discusses the basics of how to value oil & gas reserves.
Don Erickson, Managing Director of Mercer Capital, educates the public on valuation methodologies and trends impacting various industries. One such industry is Oil & Gas. In this slide deck, he discusses the main drivers impacting the oil and gas pricing environment over the previous decade and the implications to valuing reserves.
Mercer Capital again attended the NAPE Expo in Houston this past week. People, information, and ideas abounded with over 11,000 participants and 800 exhibitors. We summarize a few highlights from the conference in this post.
Lately, talk of the domestic oil and gas market has been especially positive. But the oilfield services industry is still struggling to recover from the collapse of oil prices in mid-2014 and the subsequent reduction in capital spending by upstream companies. We look at how the downturn in crude prices in 2014 still affects the oilfield service industry and consider the impact on company valuations.
A reserve report is a fascinating disclosure of information. This is, in part, because the disclosures reveal the strategies and financial confidence an E&P company believes about itself in the near future. Strategies include capital budgeting decisions, future investment decisions, and cash flow expectations. This is the first of multiple posts discussing the most important information contained in a reserve report, the assumptions used to create it, and what factors should be changed to arrive at Fair Value or Fair Market Value.
