It’s been a truly dizzying time in the rough-n-tumble world of oil production. Like they say, if you miss a day, you miss a lot. For now, it at least appears that someone may have just blinked. The Trump administration seems to be on the verge of a truly historic deal to cut worldwide oil production and bring oil prices up to a modestly workable level. And that with the U.S. not committing to forcing domestic producers to cut production levels but indicating that U.S. production would “naturally” decline without the government’s intervention. That coupled with a potential side-deal with Mexico to “cover” part of the production decrease that was being sought from that country, but that Mexico is unwilling to shoulder on its own. Will it work? Will the deal be accomplished? Although an agreement was reached to reduce oil production in light of demand destruction caused by the coronavirus pandemic, oil markets appear to remain oversupplied. Will OPEC+ and other nations agree to another deal to further reduce production? Will U.S. production decline faster than anticipated due to low oil prices? Will the Texas Railroad Commission implement proration orders for Texas producers? All we can say is, stay tuned – and expect the unexpected.
In this post we examine the macroeconomic factors that have affected prices in this first quarter.
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.
Steady Transaction Activity Restrained by Unforeseeable Circumstances
Over the last year, deal activity in the Eagle Ford Shale was relatively steady, picking up towards the end of 2019 and carrying into early 2020. This week we discuss recent transactions in the Eagle Ford.
Energy valuations are taking an epic pummeling. Considering declining demand amid COVID-19 concerns, the initial fallout to the Saudi-Russia feud was predictable. Can Banks Hold On? Can Values Recover?
This week we discuss how commodity prices and recent events have impacted the Oil Field Services Industry, and what to expect going forward.
In this post, we examine some of the most discussed items and trends from the Q4 earnings calls, specifically E&P companies and those in the mineral aggregator space.
Have you downloaded Mercer Capital’s 2019 Energy Purchase Price Allocation Study yet? The study provides a detailed analysis and overview of valuation and accounting trends in these subsectors of the energy space. It enables key users and preparers of financial … Continued
Part 3 | Valuation Considerations
Our previous posts on salt water disposal provided an overview of the sector and detailed the economics of the industry. In this post, we take a deeper dive into specific considerations that are critical to understanding the value of salt water disposal companies.
Understanding the value of an oilfield services (OFS) company is by its very nature a complex matter. In this post we discuss our latest whitepaper, Understanding Oilfield Services Companies & How to Value Them.
In this post, we focus on mineral aggregators. We also offer insights on the investment landscape at large and particularly as it relates to the minerals subspace by providing an update on the most recent IPO, Brigham Minerals (MNRL).
A Review of E&P Transactions Analyzed in Mercer Capital’s 2019 Energy Purchase Price Allocation Study
Last week, Mercer Capital released its 2019 Energy Purchase Price Allocation Study. In this post, we’ll be taking a deeper dive into the Exploration & Production transactions reviewed in the analysis.
We at Mercer Capital love movies. One fun aspect of a movie is the anticipation for new releases that comes from watching movie trailers, which inform and tease simultaneously. If done well, they can build anticipation for the show to come. While not quite a movie trailer, we wanted to introduce you to a new study from our energy team that we are excited about: Mercer Capital’s Energy Purchase Price Allocation Study.
U.S. Production Hits Milestones Amid Continued Global Political Tensions
Brent crude prices began the quarter around $59 per barrel and have steadily risen to around $68 to close out 2019. WTI pricing has risen at a similar pace although it continues to trail Brent pricing by about $7 per barrel. Natural gas, however, has been trending in the opposite direction as prices have steadily declined since the end of October. In this post, we will examine the macroeconomic factors that have affected prices in the fourth quarter.
U.S. dry gas consumption will finish at an all-time high in 2019 and will continue to grow in early 2020. When one observes valuations for gas producers in Appalachia, they can quickly become dispirited. How can economics get this jilted in arguably the largest gas field in the world?
Energy Valuation Insights' Top Blog Posts
As we plan for a new year and a new decade, we look back at 2019 to see what was popular with you – our readers. This week’s post includes a list of the top posts of 2019 grouped by topic (Transactions, Saltwater Disposal, Oilfield Services Companies, Royalty and Mineral Markets, and Basin-Specific posts). If you missed one or two posts during the year, now is the time to catch up on your reading.
Rangebound Gas Prices and Preoccupied Management Teams Cause Slowdown in Activity
It was a quiet year for M&A in Appalachia as only a handful of transactions occurred. Surging associated gas production in places like the Permian and Bakken have kept a lid on gas prices, which have largely remained between $2 and $3/mmbtu for the year. Near term expectations aren’t much better, with futures prices below $3 through 2029. Management teams were likely preoccupied with various corporate and capital structure issues instead of changes to the underlying reserve base. However, a bright spot is the easing of takeaway constraints that previously plagued the region.
The energy sector in the third quarter has experienced a general decline as crude prices have exhibited volatility and have remained depressed relative to last year. U.S. producers continue to cut rigs and capital expenditures due to continued excess supply and concerns of declining demand. In this post, we examine some of the most discussed items and trends from the Q3 earnings calls, specifically E&P companies and those in the mineral aggregator space.
While equity prices have dropped by approximately 30% for producers, six publicly-traded royalty aggregators relatively outperformed the SPDR Index. These Royalty MLP’s have tracked closer to crude oil prices, anchored by sizeable dividend payments, thus buoying sliding equity prices. If dividend yields are added back, some of them have been outperforming crude prices.
On October 14, 2019, Parsley (PE) announced that it was acquiring Jagged Peak (JAG) in an all-stock transaction valued at $2.27 billion. The market’s reaction to the announcement was generally negative, as Parsley closed down more than 10% on the date of the announcement. This appears to be driven, at least in part, by investors’ desire for Parsley to be acquired rather than be the acquirer. Despite the negative market reaction, we believe this transaction is emblematic of key trends we expect to see during the next wave of consolidation.
Yield Traps, Depressed Commodity Prices, and Stage of Decline May Decrease Utility of Public Yields
In previous posts, we have discussed the relationship between public royalty interests and their market pricing implications to royalty owners. We have differentiated between mineral aggregators and public royalty trusts and introduced some other considerations for how to pick the appropriate comparable. In this post, we will discuss the prevailing high dividend yields of public royalty trusts. We will also offer some reasons for why these trusts may be declining not just in production but also their comparability, from a valuation perspective, to some privately held mineral interests.
Oil and gas production in the U.S. continues to grow. Last year the U.S. unseated Russia and Saudi Arabia as the world’s leading oil producer on a daily production basis. Side effects currently include choke points in pipeline capacity and a drop in prices for undeveloped oil and gas acreage.
When performing a purchase price allocation for an oilfield services company, careful attention must be given to both the relevant accounting rules and the specific nuances of the oil and gas industry. Oilfield services companies can entail many unique characteristics that are not present in non-oilfield related businesses such as manufacturing, wholesale, non-energy related services, or retail. We will explore the unique factors in future entries. In this blog post, we discuss the guidelines for purchase price allocations that all companies must adhere.
Deals May Be Slow, But Production Remains Steady
Acquisition and divestiture activity in the Bakken for last twelve months has been minimal. The lack of deals, however, does not mean that activity or production hasn’t been meaningful. In fact, production has grown approximately 10% year-over-year through September with new well production per rig increasing over 29%. Also, while other major basins have been decreasing rig counts, the Bakken has remained steady year-over-year as of the end of September.