This week, we look at earnings calls in the upstream sector for Q3 2023. The past quarter saw significant M&A activity, like Exxon Mobil’s acquisition of Pioneer Natural Resources, which emphasizes efficiency and inventory expansion. As domestic operators are increasing production to meet demand, the industry expects a favorable environment going into 2024.
Mercer Capital recently attended D CEO’s 2023 Energy Awards, an event that recognizes significant contributions to the energy sector in the Dallas Fort Worth area, including both traditional and renewable energy achievements. The ceremony highlighted the importance of integrating sustainable energy practices, exemplified by Lee Graves’s award for Renewable Energy Executive of the Year, and celebrated major industry milestones like Exxon’s acquisition of Denbury. In a blend of personal and professional narratives, the prestigious Legacy Award was presented to Kelcey Warren of Energy Transfer Partners, featuring discussions of his career and philanthropic impact on the city, notably Klyde Warren Park.
In this quarter’s newsletter, we report that Appalachian production fared well over the last year, particularly considering the sharp decline in the Henry Hub price. Despite the Henry Hub decline, the Appalachian rig count decline was less than that of two of the three oil-rich basins presented, largely due to Appalachia’s higher production declines, which require a higher rig count to maintain production levels.
In a time where numerous things could dampen demand, prices, profits, and valuations, the energy industry continues an upward trend.
Mercer Capital is pleased to announce the release of the “2023 Energy Purchase Price Allocation Study.” This study provides a detailed analysis and overview of valuation and accounting trends in different subsectors of the energy space for the 2022 calendar year. This study researches and observes publicly available purchase price allocation data for four sub-sectors of the energy industry: (i) exploration & production; (ii) oilfield services; (iii) midstream; and (iv) refiners and marketers.
This study is unlike any other in terms of energy industry specificity and depth. The study provides a detailed analysis and overview of valuation and accounting trends in each sub-sector. It also enables key users and preparers of financial statements to better understand the asset mix, valuation methods, and useful life trends in the energy space as they pertain to business combinations under ASC 805 and GAAP fair value standards under ASC 820. We utilized transactions that closed and reported their purchase allocation data in calendar year 2022.
The recent America’s Natural Gas conference shed light on crucial themes in the energy sector, highlighting an increasing demand for liquefied natural gas (LNG) amid challenges like insufficient pipeline and storage infrastructure, which poses a substantial hurdle to meeting the soaring need both domestically and internationally. Noteworthy initiatives, such as Mexico Pacific’s strategic LNG facility, aim to bridge infrastructural gaps by delivering responsibly sourced natural gas from the Permian Basin to Asian markets, while also focusing on a sustainable and strategic location to optimize shipping and pricing. The discourse at the conference also underscored the notable reduction of CO2 emissions with the rising market share of natural gas, as well as the pragmatic and logistical challenges faced by renewable energy endeavors, indicating that a balanced, multi-faceted approach to energy transition is imperative in ensuring reliability, sustainability, and affordability in global energy supply.
The economics of oil & gas production vary by region. Mercer Capital focuses on trends in the Eagle Ford, Permian, Bakken, and Marcellus and Utica plays. 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. We can observe different costs in different regions depending on these factors. This quarter, we take a closer look at the Marcellus and Utica shales.
Explore the behind-the-scenes journey of the $5.4 billion merger between Sitio Royalties Corp., a key Marcellus Shale player, and Brigham Minerals, Inc. From initial boardroom discussions to the complex interplay of exchange ratios and legal negotiations, see how two of the largest public companies in the mineral and royalty sector and their legal and financial advisors navigated challenges to achieve a strategic consolidation. Read how business strategies, market conditions, and negotiations shaped an industry leader in mineral and royalty acquisitions.
Despite initial downward trends in commodity prices in 2023, a sustained period of healthy prices, particularly for crude oil, has instilled an industry-wide sense of optimism about future growth in spending. Key industry leaders emphasize the role of technologies in boosting operational performance, echoing the sentiment that proper tech implementation is directly linked to better financial outcomes. As companies gear up for a prolonged upcycle in activities, technology and commodity prices are helping set the stage for an optimistic outlook through 2024 and beyond.
Mercer Capital has its finger on the pulse of the minerals market. An important trend has been the rise of mineral aggregators, which have largely supplanted the trusts as the primary method of publicly traded minerals ownership.
In the recent Q2 2023 earnings calls, upstream executives noted the shift in their focus from exploration to maintaining production through various strategies, such as acquiring legacy assets and implementing well workovers. Furthermore, leaders predict pressures on the global crude oil supply, with expectations of OPEC+ continuing their production cuts and minimal refinery capacity. Additionally, despite record production levels in the Haynesville Shale, there’s been a noticeable drop in drilling and completion activity, as natural gas prices continue to decline from 2022 highs. Dive deeper in this week’s blog.
Choosing an industry expert to value your oil & gas company has several distinct benefits that stem from a deep understanding of the sector’s unique dynamics, trends, and complexities. Selecting a valuation expert to assess your oil & gas company brings a distinct set of advantages rooted in their specialized training, adherence to recognized standards, and a focused approach to valuation. So, which should you choose? In this article, we make the case for choosing an industry expert and then make the case for choosing a valuation expert. Then we suggest the a solution.
In this quarter’s newsletter we focus on the Permian. Production growth over the past year continued to run well, in the Permian, ahead of growth in the Eagle Ford, Appalachian, and Bakken, as the Permian basin remains one of the most economic regions for U.S. energy production. With the decline in commodity prices over the past year, rig counts fell, with the most significant decline occurring in May. With E&P firms expecting continued cost increases through the remainder of 2023, the Permian’s existing cost advantage will contribute to its continued dominance over the major U.S. basins.
Exxon made waves in the energy M&A markets by announcing its acquisition of Denbury, Inc. In total, the headline value was around $4.9 billion. However, while Denbury is an energy company on the whole, it is made up of two main segments that have very different economics, and neither of their business segments appears to be worth the $4.9 billion price tag. So what did Exxon buy exactly, and how might one value it?
The economics of oil and gas production, particularly in the Permian basin, have seen significant shifts over the last year, with the basin outpacing others in production despite declining rig counts. A significant drop in oil and gas prices has had a direct impact on the industry, and there’s a rising expectation among executives for increased production costs by the end of 2023. Despite these challenges, the Permian’s inherent cost advantages position it to maintain its dominance in the U.S. energy sector.
Despite a flat transaction activity in the Permian Basin over the past year, the increasing scarcity of Grade-A drilling sites has led to a spike in the value of deals, with two recently closed deals valued at over $2 billion each. Amidst this landscape, companies are paying more per acre than before, with the median price per net acre increasing by 43% year-over-year, potentially suggesting a shift in focus towards undeveloped acreage. Furthermore, recent transactions, such as Civitas Resources’ $4.7 billion acquisitions of oil-producing assets in the Midland and Delaware Basins, highlight the industry’s continued attraction to the Permian Basin’s potential for high-return drilling inventory.
Mercer Capital has its finger on the pulse of the minerals market. An important trend has been the rise of mineral aggregators, which have largely supplanted the trusts as the primary method of publicly traded minerals ownership.
In this week’s post, we feature an entry from our Family Business Director blog that recaps the recent Berkshire Hathaway Shareholder Meeting. While the content is not targeted directly to energy industry participants, it is timeless for all of us. We hope you enjoy!
The Q1 2023 earnings calls from the upstream segment of the oil and gas industry have brought to light various viewpoints on shareholder returns, presenting a dichotomy between stock buybacks and dividends. Although the Eagle Ford region stands out with its high return rate and generous drilling inventory, the spotlight is gradually shifting towards the Permian Basin, where operators aspire to leverage better well economics, project scheduling flexibility, and cost savings for improved free cash flow.
Amidst the current uncertainty in the upstream world, the case of TXO Energy Partners LP’s recent IPO provides valuable insights into investor behavior. TXO’s focus on optimizing existing wells, maintaining a conservative balance sheet, and a commitment to regular cash distributions are attracting investors seeking stability amidst unpredictable market conditions. We explore TXO’s story and what this might mean for the future of the upstream sector.
Understanding the behind-the-scenes of mineral property valuation doesn’t need to be difficult. In this blog post, we explain the framework behind mineral property valuation, discussing key concepts and guidance from the Internal Revenue Service. Learn about the cost approach, market approach, and discounted cash flow analysis, as well as the essential factors in determining fair market value. Whether you’re a buyer, seller, or involved in litigation, ensure you’re up-to-date on the intricacies of mineral property valuation.
In this quarter’s newsletter, we focus on the Eagle Ford. Strong rig-count growth spurred an Eagle Ford production increase that was second only to the Permian. However, production improvement was offset by commodity price easing in the latter half of 2022 and early 2023, resulting in Eagle Ford comp group stock price declines over the last year. Despite those dynamics, interest in the Eagle Ford remains high.
In the mire of much of the chaotic goings on of the world energy markets and Ukraine over the past year, a lot of things have changed. Uncertainty has ruled the day. Commodity prices have now dropped significantly in the last six months. Yet, between the lines, there is optimism for the upstream industry as profitability and cash flows remain, and the possibility for acquisition premiums for target companies re-emerges in 2023.
Corporate finance does not need to be a mystery. In this updated whitepaper, we distill the fundamental principles of corporate finance into an accessible and non-technical primer.
