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.
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.
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.
As our readers are well aware, Mercer Capital tracks and reviews themes from the quarterly earnings calls of E&P operators and mineral aggregators, providing key insights into the upstream perspective on U.S. oil and gas.
In this post, we look at oilfield service (OFS) company earnings calls for the first three quarters of 2021.
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.
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.
The economics of Oil & Gas production vary by region. 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 Permian.
Pocketbooks Open for More Deals and Larger Positions
Transaction activity in the Permian Basin picked up in earnest this past year, indicating greater optimism in extracting value from the West Texas and Southeast New Mexico basin.
Region Focus: Permian Basin
This week on the blog we feature our quarterly newsletter, which focuses on the Permian Basin. Notable items include an unprecedented decline in oil prices, the Texas Railroad Commission’s proration discussions, and Pure Acquisition Corporation’s announced acquisition of HighPeak Energy.
While commodity prices have recovered from recent lows, they remain below levels at which certain E&P companies can operate sustainably. Two Permian operators have filed for bankruptcy, and more are likely coming. However, the Permian’s economics remain superior relative to most basins.
The Road Ahead: Deal Count and Deal Motives Changing in Challenging Times
Transaction activity in the Permian Basin is in a unique and potentially critical situation as companies are facing unpredictable consequences and uncertain futures. Only four deals have been announced post-March and while the sample is small, they could be the best indication of what is to come, assuming prices remain depressed.
Gearing Up For The Long Haul Or Running In Place?
When it comes to the oil patch, the word “growth” can be a vague term. It’s a word that can be masqueraded around to suit the perspective of whomever utters it. What does it mean in an industry whose principle resources are constantly in a state of decline? When it comes to the Permian Basin these days, growth applies to resources, drilling locations and production. Unfortunately, the same can’t be said for profits, free cash flow or new IPOs. Don’t misunderstand, the Permian is the king of U.S. oil plays and by some measures could be taking the crown as the biggest oil field in the world. However, various economic forces are keeping profits and valuations in check.
Big Deals and Bigger Opportunities
Operators in the Permian Basin have had to pay a premium to access the black gold mine, and companies are still lining up for a chance to get in on the action. While the industry as a whole has been moving into a period of rapid consolidation, a substantial portion of this acquisitive activity has been in the Permian.
Targets with highly contiguous holdings and acreage have been of particular note to acquirers in the Permian. While acreage continuity has not always been the most important aspect of a potential deal, it has certainly become more of a focal point recently.
The story of the Permian Basin in 2018 so far has been developing as one of the finest proverbial “fishing holes” in the world. However, as the year has progressed, it appears many industry players have found their reputed “catch” too big to process and are scrambling to deal with it before it begins to stink.
Translation: the year began with a flurry of developmental drilling activity followed by an emerging bottleneck. The unintended consequence of this has been that some operators have been growing oil production too fast for pipeline and infrastructure to keep up. A pricing differential has arisen due to the supply glut and there has been concurrent stagnation in valuations. In this post, we discuss how some of it has transpired through the timeline of the first half of 2018.
When oil prices crashed in mid-2014, companies were forced to become more efficient in order to survive. It became clear that location meant more than ever and companies could no longer justify operating in regions such as the Bakken and the Eagle Ford, where break-even prices were higher than they were in the Permian. Thus in order to stay in business, companies flocked to the Permian. This week, we look at how the increased appeal of the Permian Basin has affected M&A activity in the oil and gas sector.
Production in the Permian is as hot as the summers in West Texas. Despite being discovered in the 1920s, it was not until 2007 that the region’s true potential was realized when hydraulic fracturing techniques were used to access the play’s tight sand layers. Given its low-cost economics and large well potential, in recent years, the Permian has been in the limelight with operators and investors alike prioritizing the region.
In this post, we discuss the increase of rig counts and production in the region, along with valuation implications for companies operating in the Permian.
The oil industry is cruising. Producers are flocking to many oil rich plays, most notably the Permian Basin, Bakken, and Eagle Ford. Producers in these areas are all looking to exploit multi-zone payouts and gain significant efficiencies with new deep lateral and horizontal wells. While this strategy is working very well for oil producers, often lost in the oil excitement is the byproduct, additional dry and natural gas liquids. For producers targeting natural gas, this is not good news.
Mercer Capital attended the Summer NAPE Expo in Houston this month. We discuss highlights of the expo in this week’s blog post.
As oil and gas prices remained low, deal volume picked up in the beginning of 2016 as companies were forced to sell assets in order to quickly generate cash to pay off debt and avoid bankruptcy. As the year continued, M&A activity increased and total deal value at the end of 2016 doubled that of 2015.
2016 was a year to remember and a year to forget for many in the oil and gas industry. On the positive side, energy commodity prices curbed their downward, volatile nature by finishing the year at higher prices than where they started. In this post, we survey how the industry ended the year from production and supply to bankruptcies and transactions as we look to 2017.
One of the most commonly taught Bible stories is the miracle of Jesus feeding five thousand people with only five loaves of bread and two fish. Last week we learned of a new miracle story of never ending sustenance. The Permian Basin, which has been drilled since the 1920s and produced billions of barrels of oil, was discovered to hold the largest unconventional crude accumulation in the US.
Over the past few weeks, we have discussed the increase in M&A activity in the Permian and looked at specific characteristics that make the Permian attractive in a low price environment. Today, we take a step back and review the broad characteristics of the Permian Basin.
M&A activity reinforces that E&P companies are moving to the Permian. In this post, we focus on two transactions: Resolute Energy’s acquisition of Delaware Basin Acreage and Apollo and Post Oak Energy’s merger to form Double Eagle Energy Permian.
M&A activity in the exploration and production industry has recovered from the standstill experienced one year ago as oil and gas companies waited to see what the market would throw at them next. Companies, who cut drilling activity when prices collapsed, are now looking to replace their reserves through acquisitions, the majority of which are occurring in the Permian.