The burgeoning mineral market is leading the way for an energy sector that has lagged in returns for several years now. For this week’s post, we highlight the ascension of the estimated $400 to $600 billion onshore mineral market in the U.S, a topic discussed last month at the DUG Permian Basin Conference in Fort Worth.
In this post, we will review the continued IPOs and valuation implications for the mineral aggregators market as well as examine Brigham’s operations and placement in this sector.
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.
Over the last 12 years the oilfield waste water disposal industry has grown exponentially, both on an absolute basis, and by rank of its importance/size among the oilfield services. This growth has been largely driven by the increased volumes of waste water generated in the production of oil from shale plays. This post discusses the basics of salt water disposal that has become so important given the rise of hydraulic fracturing.
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.
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.
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.
Our whitepaper “How to Value Your Exploration and Production Company” provides an informative overview of the valuation of exploration and production companies. Because of the historical popularity of this post, we revisit it this week. This post helps you, the reader, understand how E&P companies are valued which may help you understand how to grow the value of your business and maximize returns when it comes time to sell.
Bryce Erickson recently attended the 2019 NAPE Expo in Houston, Texas. One of the repeated sentiments among several panelists was that valuations are currently attractive despite declining commodity prices and logistics constraints. If capital and resource supply are managed efficiently, it could align the strong upstream and midstream potential with cash flow reality.
Commodity prices exhibited significant volatility to end 2018 with steep declines in crude prices and a spike in natural gas prices that subsequently fell back. The general market also declined over the period, making it difficult to parse reasons for various stock price gyrations. While lower prices aren’t ideal for industry operators, earnings calls remind wary investors that there’s more to price than what trades on the NYMEX. Executives this quarter also note a shift in focus when it comes to capital outlays.
This week, 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.
Mercer Capital is pleased to announce that J. David Smith, ASA, CFA has joined the firm and leads the firm’s Houston office.
A partnership is a business owned by two or more individuals. In its most basic form, a partnership typically falls into one of three categories: a general partnership, a joint venture, or a limited partnership. While the specifics of these three types can vary depending on the goals of the business, they all share similar features. For the purposes of this post, we will be examining benefits and rights we have come across in performing valuations over various types of partnership structures and their relation to value.
There are several indicators out there that are sending mixed messages for valuations in the upstream sector. They create a visual of what is happening and what could happen going forward. This post looks at a few of these indicators to gain clarity.
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.
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.
Companies in the energy sector and the broader market experienced an interesting year showing steady and strong growth in Q1-Q3 and met volatility in Q4, which effectively erased gains on the year and even resulted in negative returns. The oilfield services (OFS) sector, in particular, was impacted heavily during last quarter’s downturn driven primarily by fears of oversupply in the market and E&P companies cutting back and looking for discounts.
Q4 2018 was truly a dramatic quarter for the industry. It marked the end of the two and a half-year oil price recovery that began in 2016, while natural gas prices reached their highest point since 2014. With ongoing oversupply concerns, stabilizing geopolitical tensions, and lower forecasts for global oil demand, it appears in 2019 oil prices have a long way to recover to its previous high in 2018.
As the calendar turns to 2019, we turn our attention to the Appalachia region, and not by coincidence. Cooler temperatures in the winter months tend to lead to increased natural gas prices and consumption, and the Appalachia region is the largest natural gas producer in the country. Fourth quarter energy prices have moved in opposite directions, with crude prices declining steadily over the period while natural gas prices increased from about $3.0 to $3.5 per Mcf, peaking at over $4.8 in mid-November.
Falling oil prices have a downward pull on operator and mineral values, but they are not the only contributor. There are a host of potential operational issues that can reign in production, cash flow, investor expectations and, ultimately, valuations.
The domestic natural gas market has benefitted from large expansion in recent years, and this can be largely attributed to the growth experienced in Appalachia. Despite the continued growth, transaction activity in the Marcellus-Utica in 2018 was slower than in 2017. Some companies have been moving in to capitalize on the increased demand for natural gas while others are restructuring their balance sheets in order to focus primarily on higher margin assets, such as oil.
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.
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.
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.
