Category

Energy Valuation Insights

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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.

June 12, 2018 Special Topics

3 Things All Mineral Owners Should Know

Minerals Workshop at the DUG Permian Basin Conference

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.

June 6, 2018 Special Topics

Tax Reform and Purchase Price Allocations for Oil & Gas Companies

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.

May 21, 2018 Marcellus and Utica Shale Permian Basin

The Permian Boom Causing a Natural Gas Bust

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.

May 14, 2018 Mineral and Royalty Rights

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.

May 7, 2018 Mineral and Royalty Rights

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.

April 30, 2018 Mineral and Royalty Rights

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.

April 24, 2018 Eagle Ford Shale

Eagle Ford – 2017/2018 Acquisition & Divestiture Commentary

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.

April 17, 2018 Special Topics

Capital Structure in 30 Minutes Whitepaper

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.

April 9, 2018 Domestic Production

Was 2014 a Lesson Learned?

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?”

April 2, 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.

March 27, 2018 Valuation Issues

Eagle Ford Q1 2018

Lower Breakevens Yet Some Plan Fewer Wells

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.

March 19, 2018 Valuation Issues

How to Value an Oil and Gas Refinery

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.

March 12, 2018 Downstream Analysis Special Topics Valuation Issues

The 2018 Outlook for the Refining Industry

In this post, we discuss the 2018 outlook for the refining industry, including the effect of taxes, industry regulation, and oil prices.

March 5, 2018 Special Topics Valuation Issues

What Is a Reserve Report? (Part II)

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.

February 26, 2018 Valuation Issues

Valuing Oil & Gas Reserves (Part II)

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.

February 19, 2018 Valuation Issues

Valuing Oil & Gas Reserves (Part I)

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.

February 12, 2018 Special Topics

2018 NAPE Expo Observations & Thoughts

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.

February 5, 2018 Valuation Issues

The Oilfield Services Industry Is Still Struggling and What This Means to Valuation

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.

January 29, 2018 Special Topics Valuation Issues

What Is a Reserve Report?

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.

January 22, 2018 Marcellus and Utica Shale

M&A in Appalachia: Moving Day in the Neighborhood

This week we look back at transaction activity and trends in the Marcellus & Utica plays in 2017. When we reflect about what happened, for whatever reason, images resembling something out of an episode of Desperate Housewives come to mind whereby the prying eyes of the marketplace peer out of their windows, surveilling old competitors that pack up and leave whilst new, and sometimes mysterious, neighbors move in. Read more about it here.

January 15, 2018 Marcellus and Utica Shale

Economics of Drilling in the Marcellus & Utica

The economics of oil and gas production vary by region. 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. This post focuses on the economics in the Marcellus and Utica plays.

January 8, 2018 Domestic Production

What a Steady Oil and Gas Industry in 2017 Points to in 2018

“Steady as she goes.” At least that is what I think all captains of most vessels say…except maybe a car. For captains navigating the 2018 oil and gas industry, a repeat of 2017’s relatively calm waters is vocal wish. In this post, we review the past year for insight into what the new year may hold.