Category

Energy Valuation Insights

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October 21, 2022 Special Topics

Now Available: Mercer Capital’s 2022 Energy Purchase Price Allocation Study

Mercer Capital is pleased to announce the release of the “2022 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 2021 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. This study 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 2021.

October 12, 2022 Special Topics

How Waves Of Reality Are Swelling Upstream Returns

Upstream and oilfield service companies have bucked investment trends most of this year. While other industries have had stagnant to negative returns, the oil patch has outperformed them all. Several realities have come to the forefront to build this wave: world, production, and capital realities.

October 7, 2022 Mineral and Royalty Rights

Mineral Interest Owners: How to Know What You Own

Because of the popularity of this post, we revisit it this week. Originally published in 2019, this post is as a guide for mineral owners who are seeking to learn more about what they own.

September 30, 2022 Bakken Shale

Bakken Regains Its Footing

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 Bakken.

September 21, 2022 Bakken Shale Mergers, Acquisitions, & Divestitures

Bakken M&A

Increased Transaction Volume Continues into 2022

M&A transaction activity in the Bakken increased through year-to-date 2022 relative to the same time period in 2021 and consisted of a handful of large deals and numerous small deals. In this post, we discuss Bakken transaction activity as a whole and also dive deeper into the two largest Bakken transactions made this year.

September 9, 2022 Special Topics

Themes from Q2 2022 Earnings Calls

Part 2: Oilfield Service Companies

This week we focus on the key takeaways from Oilfield Service Operators’ Q2 2022 earnings calls. We discuss how COVID impacted the OFS industry, a shift in strategy due to limited supply, and the industry’s outlook in the face of a potential recession. 

September 2, 2022 Special Topics

Themes from Q2 2022 Earnings Calls

Part 1: Upstream

This week, we focus on the key takeaways from the Q2 2022 Upstream earnings calls including strong balance sheets, the increasing role of share buybacks, and supply and demand in the global oil & gas commodities market.

August 26, 2022 Mineral and Royalty Rights

Mineral Aggregator Valuation Multiples Study Released

With Market Data as of August 15, 2022

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 updated Study, 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.

August 19, 2022 Permian Basin

Value Focus | Exploration & Production

Second Quarter 2022 | Region Focus: Permian

Mercer Capital’s Value Focus: Exploration & Production newsletter provides an overview of the industry through supply and demand analysis, commodity pricing, and public market performance. In addition, each issue of this quarterly newsletter focuses on a region, including, Eagle Ford, Permian, … Continued

August 12, 2022 Mergers, Acquisitions, & Divestitures Special Topics

What Is a Fairness Opinion And What Triggers the Need for One?

A fundamental question arises as mergers and acquisitions persist and company boards and management teams survey their options when a proposed transaction is put on the table: is it fair to all direct stakeholders? This post reviews the basics of fairness opinions and when you should obtain one.

August 5, 2022 Domestic Production Downstream Analysis

Talk To The Hand: Upstream Industry Eyeing Returns More Than Rigs

Producers have been holding the course towards returns and deleveraging, snubbing pressure from the Biden administration. It has been tempting for producers to ramp up production amid current oil and gas prices. However, with supply chain issues and labor shortages, the appeal has been dampened.

July 28, 2022 Special Topics

Meet the Team: J. David Smith, ASA, CFA

In each “Meet the Team” segment, we highlight a different professional on our Energy team. This week we highlight David Smith, Senior Vice President of Mercer Capital and a senior member of the Oil and Gas Industry Team. The experience and expertise of our professionals allow us to bring a full suite of valuation, transaction advisory, and litigation support services to our clients. We hope you enjoy getting to know us a bit better.

July 15, 2022 Special Topics Valuation Issues

U.S. LNG Exports

Part 2: A Closer Look at Projected U.S. LNG Export Terminal Capacity

In Part 1 of our analysis on U.S. LNG Export Terminal Facilities, we examined trends in the number of LNG export facility applications and approval rates from 2010 through 2021, and examined the projected export capacity relative to the projected export volumes of U.S. LNG from 2022 through 2031.  In Part 2 of our analysis, we take a closer look at the anticipated export capacity proposed to come online over the near and mid-term horizons to better understand the underlying factors that have spurred so many projects, seemingly far in excess of projected level of LNG exports from the U.S.

June 24, 2022 Special Topics

The Importance of a Quality of Earnings Study

Acquirers of companies can learn a valuable lesson from the same approach that pro sports teams take in evaluating players. Prior to draft night, teams have events called combines where they put prospective players through tests to more accurately assess their potential. In this scenario, the team is akin to the acquirer or investor and the player is the seller. While a player may have strong statistics in college, this may not translate to their future performance at the next level. So it’s important for the team to dig deeper and analyze thoroughly to reduce the potential for a draft bust and increase the potential for drafting a future all-star.

A similar process should take place when acquirers examine acquisition targets. Historical financial statements may provide little insight into the future growth and earnings potential for the underlying company. One way that acquirers can better assess potential targets is through a process similar to a sports combine called a Quality of Earnings Study (QoE).

June 17, 2022 Permian Basin

Permian Production Remains Strong

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 is determined by the reserve’s geological makeup, depth, and the cost of transporting raw crude to market. Depending on these factors, we can see different costs in different regions. We take a closer look at the Permian in this post.

Production growth in the Permian continued to exceed growth in the Eagle Ford, Appalachia, and Bakken over the past year as the basin remains one of the most economical regions in U.S. energy production.  With the surge in commodity prices over the past quarter, it might have been expected that producers would start bringing more rigs online, leading to more production growth than what we saw.  However, as upstream companies have signaled, it may not be realistic to expect such increased deployment of capital from public operators in the near future, though private operators may very well move to take advantage of the higher price environment.  With greater emphasis on returning cash to shareholders, continued levels of relatively low investment in growth capital may be expected.  However, its significantly large contribution to total energy production continues to make the Permian a steady source of growth for overall U.S. oil and gas production.

June 10, 2022 Mergers, Acquisitions, & Divestitures Permian Basin

M&A in the Permian: Acquisitions Slow as Valuations Grow

Transaction activity in the Permian Basin cooled off this past year, with the transaction count decreasing to 21 deals over the past 12 months, a decline of 6 transactions, or 22%, from the 27 deals that occurred over the prior 12-month period.  This level is in line with the 22 transactions that occurred in the 12-month period ended mid June 2020. Read more in this week’s post.

June 3, 2022 Mineral and Royalty Rights

Mineral Aggregator Valuation Multiples Study Released

With Market Data as of May 12, 2022

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 updated Study, 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.

May 27, 2022 Special Topics

Themes from Q1 Earnings Calls

Part 2: Oilfield Service Companies

This week we take a look at the key takeaways from the OFS Q1 2022 earnings calls. Themes from these calls include short-cycle projects to bolster near-term production, margin expansion, and the growing importance of relationships with private operators. Read more in this week’s post.

May 20, 2022 Valuation Issues

Have Reserve Reports Been Relegated To Investor Footnotes?

For decades, an oil and gas company (all else being equal) often expected to have an enterprise value somewhat close to their PV-10 calculations in their annual reserve report. That’s not the case these days. Consigned to back pages, footnotes, and appendices, the reserve report’s relevance has waned. It is not that reserve reports are obsolete, but investors are focused on other things – namely returns to shareholders, free cash flow and deleveraging

May 13, 2022 Special Topics

Themes from Q1 2022 Earnings Calls

Part 1: Upstream

This week, we take a holistic upstream perspective on the themes of both the E&P operator and mineral aggregator earnings calls for Q1 of 2022.

April 29, 2022 Special Topics Valuation Issues

U.S. LNG Exports

Part I: The Current State of U.S. LNG Export Terminal Facilities and Projected Export Capacity

Based on the eye-ball test, it’s pretty clear that projected export capacity could far outstrip demand for U.S. LNG, based on the EIA’s export projections (as of early 2021), only if all that capacity were to come online.  Free Market Economics 101 theory would indicate, rather decisively, that such excessive capacity would clearly not be worth building out given the export volumes projected as of early 2021.  Then, on February 24, 2022, Russia – the largest supplier of LNG to Europe – invaded Ukraine. For an in-depth discussion, read this week’s post.

April 22, 2022 Bakken Shale Eagle Ford Shale Marcellus and Utica Shale Permian Basin Special Topics Valuation Issues

E&P Capital Expenditures Set to Rise, but Remain Below Pre-Pandemic Levels

The upstream oil and gas sector is highly capital intensive; production requires expensive equipment and constant maintenance. Despite higher oil and gas prices, E&P operators have refrained from increasing capital investment, and instead, are delivering cash to shareholders. In this post, we explore recent capex trends in the oil & gas industry and the outlook for 2022 through 28 selected public companies.

April 15, 2022 Permian Basin Special Topics Valuation Issues

Oilfield Water Markets

Update, Trends, and the Future

The Oilfield Services industry has long been known for its cyclicality, sharp changes in “direction,” and demand-driven technological innovation. One segment of the OFS industry that is among those most subject to recent, rapid change is the Oilfield Water segment – including water supply, use, production, infrastructure, recycling, and disposal. In this week’s post, we look to key areas of the Oilfield Water segment – oilfield water disposal and oilfield water recycling – and address both recent trends and where the segment is going in the near-future.

April 8, 2022 Bakken Shale Permian Basin

Private Oil Company Values Are Readying For Take Off: While Publics Remain On Runway

As the term “energy security” comes back into the public lexicon, the values of US oil companies are rising. The current price expectations of oil make a lot of reserves economically attractive, however the market participants best positioned to seize upon this dynamic are not public oil companies. Private firms are leading the way in this area, and as such, values of private companies are positioned to grow faster than the publics.