Energy Valuation Insights

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


Energy Valuation Insights

Eagle Ford Shale Mineral and Royalty Rights Special Topics

Held by Production

Oftentimes differences are a matter of perspective. Put another way – one person’s loss can be another person’s gain.  One of the thematic differences between producers and mineral owners is their perspective on “Held By Production.”  It elicits very different reactions depending on what side of the term one is on, and has a leverageable impact on value.   With rig counts dropping to around half of last year’s count, how much acreage will be available for re-leasing this year?  In this post, we decided to spend some time exploring this concept and its impact on the energy industry.

Special Topics

Optional Insights on Valuing PUDs and Unproven Reserves

Public transactions do not disclose the value associated with PUDs and unproven reserves, but instead, they indicate an aggregate value for a bundle of assets.  The allocation of that value across the various assets acquired is up for debate.  Recent transaction sheds some light on asset pricing in the current environment.

Special Topics

Opportunity in 2020’s Devaluation of the Oilfield Services Industry

Reduced Valuations Present Possibilities for Tax-Efficient Transfers

Year-end 2020 saw a flurry of tax-purposed project activity across all of Mercer Capital’s offices, with clients’ Estate Planning Counsel having recommended numerous gifts and other estate planning related transactions before 2020 came to a close.  While we are all happy to have put 2020 in the rearview mirror, the passing of December 31st does not mean that the gifting opportunity has elapsed.  Despite some level of recovery for parts of the Oilfield Services industry during Q4-2020, valuations remain at significantly depressed levels from where they were prior to March 2020.  In addition, early indications of the Biden Administration’s intentions in regard to estate taxation indicate that the benefit of estate planning transactions will likely be greater in 2021 than in 2020.

Special Topics

2021 Is Still an Optimal Time for Gifting Interests in E&P Companies

Factors That Led to a Rush of Estate Planning Activity in 2020 Largely Remain

December was a busy month at Mercer Capital, and at business valuation firms across the country.  Clients sought to make gifts and perform other estate planning transactions ahead of year-end.  But the changing of the calendar does not mean that the window for gifting is over.  The factors that led to a rush of estate planning transaction activity during 2020 largely remain.  The combination of depressed E&P valuations, the potential for future tax changes, and the ability to utilize minority interest and marketability discounts are still present in 2021.

Special Topics

The “Best” of 2020

Energy Valuation Insights’ Top Blog Posts

As we hope for a better 2021, we look back at 2020 to see what was popular with you ­– our readers. This post includes a list of some of our top posts of 2020.

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. In this post, we provide a general overview of a reserve report, detailing why they’re important, what they contain, and how they’re prepared.

Valuation Issues

How to Use an EV/Production Multiple

Oil and gas analysts use many different metrics to explain and compare the value of an oil and gas company, specifically an exploration and production (E&P) company. The most popular metrics (at least according to our eyeballs) include (1) EV/Production; (2) EV/Reserves; (3) EV/Acreage; and (4) EV/EBITDA(X). Enterprise Value (EV) may also be termed Market Value of Invested Capital (MVIC) and is calculated by the market capitalization of a public company plus debt on the balance sheet less cash on the balance sheet. In this post, we will dive into one of these four metrics, the EV/Production metric, and explore the most popular uses of it.

Special Topics

Themes from Q3 2020 Earnings Calls

Part 2: Mineral Aggregators

Last week, we reviewed the third 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 third quarter 2020 earnings calls.

Special Topics

Mineral Aggregator Valuation Multiples Analysis

Market Data as of November 10, 2020

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.

Bakken Shale

Bakken Production Has Rebounded, But Operating Challenges Remain Acute

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. In this post, we take a closer look at the Bakken.

Bakken Shale COVID-19 Coverage Mergers, Acquisitions, & Divestitures

M&A in the Bakken

Immense Drop in Deal Activity Due to COVID Concerns

Over the past several years, the Bakken has generally had much lighter acquisition and divestiture activity than other major basins in the United States.  Given that deal activity across the energy sector has dropped an immense 42.7% over the past year, acquisition and divestiture activity has dropped even further in this basin over the past year. Observed deal activity has largely been the result of Northern Oil and Gas growing its production base in the area during the past several years.

COVID-19 Coverage Special Topics

Themes from Q2 2020 Earnings Calls

Part 2: E&P Operators

The oil & gas industry experienced a volatile path to price stability as COVID-19 and the Saudi-Russia price war took a toll on supply and demand.  The road to recovery was apparent late in the quarter and was driven by supply cuts from OPEC+, curtailments by U.S. producers, and an increase in demand.  In this post, we capture the key takeaways from E&P operator second quarter 2020 earnings calls. 

COVID-19 Coverage Special Topics

Themes from Q2 2020 Earnings Calls

Part 1: Mineral Aggregators

The oil & gas industry experienced a volatile path to price stability as COVID-19 and the Saudi-Russia price war took a toll on supply and demand. The road to recovery was apparent late in the quarter and was driven by supply cuts from OPEC+, curtailments by U.S. producers, and an increase in demand. Mercer Capital has aimed to focus on the mineral aggregator space, most recently with the release of the second quarter mineral aggregator valuation multiples analysis. In this post, we capture the key takeaways from mineral aggregator second quarter 2020 earnings calls.

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