Energy Valuation Insights

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


Permian Basin

Value Focus | Exploration & Production

Second Quarter 2023 | Region Focus: Permian

In this quarter’s newsletter we focus on the Permian. Production growth over the past year continued to run well, in the Permian, ahead of growth in the Eagle Ford, Appalachian, and Bakken, as the Permian basin remains one of the most economic regions for U.S. energy production. With the decline in commodity prices over the past year, rig counts fell, with the most significant decline occurring in May. With E&P firms expecting continued cost increases through the remainder of 2023, the Permian’s existing cost advantage will contribute to its continued dominance over the major U.S. basins.

Permian Production Growth Holds

The economics of oil and gas production, particularly in the Permian basin, have seen significant shifts over the last year, with the basin outpacing others in production despite declining rig counts. A significant drop in oil and gas prices has had a direct impact on the industry, and there’s a rising expectation among executives for increased production costs by the end of 2023. Despite these challenges, the Permian’s inherent cost advantages position it to maintain its dominance in the U.S. energy sector.

Mergers, Acquisitions, & Divestitures

M&A in the Permian

Acquisition Growth Flat Ahead of Expected Surge

Despite a flat transaction activity in the Permian Basin over the past year, the increasing scarcity of Grade-A drilling sites has led to a spike in the value of deals, with two recently closed deals valued at over $2 billion each. Amidst this landscape, companies are paying more per acre than before, with the median price per net acre increasing by 43% year-over-year, potentially suggesting a shift in focus towards undeveloped acreage. Furthermore, recent transactions, such as Civitas Resources’ $4.7 billion acquisitions of oil-producing assets in the Midland and Delaware Basins, highlight the industry’s continued attraction to the Permian Basin’s potential for high-return drilling inventory.

Eagle Ford Shale Special Topics

Themes from Q1 2023 Earnings Calls

Part 1: Upstream

The Q1 2023 earnings calls from the upstream segment of the oil and gas industry have brought to light various viewpoints on shareholder returns, presenting a dichotomy between stock buybacks and dividends. Although the Eagle Ford region stands out with its high return rate and generous drilling inventory, the spotlight is gradually shifting towards the Permian Basin, where operators aspire to leverage better well economics, project scheduling flexibility, and cost savings for improved free cash flow.

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

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.

Mergers, Acquisitions, & Divestitures

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.

Bakken Shale Eagle Ford Shale Marcellus and Utica Shale 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.

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.

Bakken Shale

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.

Eagle Ford Shale 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.

Mergers, Acquisitions, & Divestitures 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.

Bakken Shale Eagle Ford Shale Special Topics

Permian Production Pushes Higher

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.

Q2 2020 Exploration & Production Newsletter Release

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.

Current Environment Challenges America’s Most Prolific Basin

Permian Basin Update

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.

Mergers, Acquisitions, & Divestitures

M&A in the Permian Basin

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.

Valuations In The Permian

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.

Mergers, Acquisitions, & Divestitures

M&A in the Permian

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.

Growing Pains Curb Valuation Gains in the Permian

2Q18 Review

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.

Take What You Can and Get Out

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.

Piping Hot Permian

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.

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