Energy Valuation Insights

A weekly update on issues important to the oil and gas industry

Category

Energy Valuation Insights


Eagle Ford Shale Permian Basin Special Topics

Oilfield Water Management

Clean Future Act Regulatory Concerns

In the midst of the COVID pandemic, the rise of the Delta-variant, and general summer distractions, not a lot of attention has been given to the 117th Congress’ H.R. 1512 – aka the “Climate Leadership and Environmental Action for our Nation’s Future Act” or the “CLEAN Future Act.”  The Act was first presented as a draft for discussion purposes in January 2020. After more than a year of hearings and stakeholder input, it was introduced as H.R. 1512 in March 2021. Of particular interest to the Oilfield Water Management sector, is Section 625 of the Act.  In that section, the Environmental Protection Agency would be ordered to determine whether certain oil and gas production byproducts, including produced water, meet the criteria to be identified as hazardous waste. The legislation in fact, mandates that the EPA must make its determination within a year after the Act becomes law. Read what Section 625 might mean for Oilfield Water Management industry participants.

Mineral and Royalty Rights

Mineral Aggregator Valuation Multiples Study Released

With Market Data as of August 24, 2021

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. Due to a variety of corporate structures (including master limited partnerships and Up-Cs) and complex capital structures (including preferred equity and non-traded common units), mineral aggregator enterprise values pulled from databases are often missing meaningful components of value, leading to skewed valuation multiples.

Mercer Capital has thoughtfully analyzed the corporate and capital structures of the publicly traded mineral aggregators to derive meaningful indications of enterprise value.  We have also calculated valuation multiples based on a variety of metrics, including distributions and reserves, as well as earnings and production on both a historical and forward-looking basis.

Mineral and Royalty Rights Special Topics

Themes from Q2 Earnings Calls

Part 2: Mineral Aggregators

Last week, we reviewed the second quarter earnings calls for a select group of E&P companies and briefly discussed the macroeconomic factors affecting the oil and gas industry.  In this post, we focus on the key takeaways from mineral aggregator second quarter 2021 earnings calls.

Special Topics

Themes from Q2 Earnings Calls

Part 1: E&P Operators

In Part I of our Themes from Q1 Earnings, there was cautious optimism in the E&P space as most of the operators we tracked reported relatively stable performance. In the Q2 E&P operator earnings calls, there was continued discussion of positive free cash flow, as well as deleveraging and a return of capital to shareholders. Notably, commentary regarding any tax implications arising from Washington was absent this time around, and previously outlined ESG initiatives, perhaps not surprisingly, were also all well on track, if not better, this quarter than in Q1. In this latest round of earnings calls, however, the primary themes were nuanced with indications of tempered growth plans, and continued growth in free cash flow stemming from increased operational efficiency in spite of projected inflation.

Mergers, Acquisitions, & Divestitures Permian Basin Special Topics

Pioneer Natural Resources Pay to Play

A Tale of Two Transactions

M&A transactions picked up in the 12-months ended mid-June relative to the 12-month period preceding it. Among all the transactions that occurred over this period, one pair jumped out involving a common buyer and for which valuation metrics were available. These related to Pioneer’s acquisition of Parsley Energy in October 2020 and DoublePoint Energy in April 2021. In this post, we take a deeper dive into each transaction.

Special Topics

How to Value Oil Companies in the Biden Era

Like a small boat navigating a big sea, oil & gas valuations are impacted by a plethora of factors that can change almost instantly. Some factors help in arriving at a shareholder’s destination, others do not.  Some factors the crew can control, others not so much (and some factors are more predictable than others). As this vessel heads for the destination shores of high returns, it must navigate through natural economic influencers such as production risk, commodity prices, supply logistics and demand changes. In addition, it also must face regulatory shifts that the Biden Administration is and could generate in the future such as tax changes, policy shifts and more. Most likely, these policies will create some volatility and headlines, but in the aggregate will not change valuations much. In this post we examine a few of these regulatory items and how they might change the course of an oil and gas company’s valuation going forward.

Mineral and Royalty Rights

Mineral Aggregator Valuation Multiples Study Released

With Market Data as of May 26, 2021

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. Due to a variety of corporate structures (including master limited partnerships and Up-Cs) and complex capital structures (including preferred equity and non-traded common units), mineral aggregator enterprise values pulled from databases are often missing meaningful components of value, leading to skewed valuation multiples.

Mercer Capital has thoughtfully analyzed the corporate and capital structures of the publicly traded mineral aggregators to derive meaningful indications of enterprise value.  We have also calculated valuation multiples based on a variety of metrics, including distributions and reserves, as well as earnings and production on both a historical and forward-looking basis.

Special Topics

Themes from Q1 2021 Earnings Calls

Part I: E&P Operators

Things appear to be on the upswing, albeit with cautious optimism, in the exploration and production space.  Most of the eight E&P operators we tracked reported that operations in the first quarter were relatively stable in spite of winter storm Uri. The ultimate trending phrase in E&P operators’ earnings calls was “positive free cash flow.” Deleveraging remains a primary goal for many operators. In addition, few E&P operators seemed overly concerned with the potential tax implications stemming from regulatory changes brought forth by the Biden Administration.

Eagle Ford Shale Mergers, Acquisitions, & Divestitures Special Topics

Recent SPAC Boom Largely Leaves Out Oil & Gas Companies

The rise of SPACs, or special purpose acquisition companies, has been the hottest trend in capital markets during the past year.

In this blog, we take a look at a few oil & gas companies that were early adopters of the SPAC structure, review the recent pivot of SPACs towards energy transition companies, and see what the future might hold for the few remaining oil & gas-focused SPACs.

Domestic Production Special Topics

Out of the Crude Abyss

It has been almost a year since crude prices went into the abyss on last April 20th. Markets are fast moving and unforgiving at times, but it appears with $60+ oil prices for 2021, that the upstream business can now start to slow down, look around, and evaluate what direction to go next.

Bankruptcy Mergers, Acquisitions, & Divestitures

Solvency Opinions: Oil & Gas Considerations

Regardless of whether a company files for Chapter 11, is party to an M&A transaction, or executes some other form of capital restructuring–such as new equity funding rounds or dividend recaps–one fundamental question takes center stage. Will the company remain solvent? This week we discuss the four tests that are used by professionals when performing a solvency opinion, and questions to consider for oil and gas companies.

Eagle Ford Shale Mergers, Acquisitions, & Divestitures

Eagle Ford Benefits From Commodity Price Increases Despite Challenges

The economics of oil and 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 Eagle Ford.

Special Topics

Mineral Aggregator Valuation Multiples Analysis

Market Data as of March 12, 2021

Mercer Capital has thoughtfully analyzed the corporate and capital structures of the publicly traded mineral aggregators to derive meaningful indications of enterprise value.  We have also calculated valuation multiples based on a variety of metrics, including distributions and reserves, as well as earnings and production on both a historical and forward-looking basis. Check out our report in this post.

Oil & Gas

Mercer Capital provides oil and gas companies, oil and gas servicers, and mineral & royalty owners with corporate valuation, asset valuation, litigation support, transaction advisory, and related services