Energy Valuation Insights

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

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Themes from Q1 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.

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.

Bakken Shale Eagle Ford Shale Marcellus and Utica Shale Permian Basin 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.

Permian Basin 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.

Eagle Ford Shale

Modest Production Growth for Eagle Ford

With More on the Way

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. In this post, we take a closer look at the Eagle Ford. Specifically, we take a look at production and activity levels, the rise of commodity prices amid geopolitical tension, the financial performance of our Eagle Ford public comp group, and the economic advantage of wells in the Eagle Ford.

Mineral and Royalty Rights Valuation Issues

Themes from Q4 Earnings Calls

Part 3: Oilfield Service Operators

After summarizing the key topics from Q4 earnings calls from public E&P operators and Mineral Aggregators, this week, we turn our attention to the Q4 earnings calls from Oil Field Service Operators. Key themes include 1) macroeconomic headwinds, such as labor shortages and supply chain constraints; 2) the anticipation of greater M&A activity and industry consolidation in 2022; and 3) ESG, including recognition of OFS operator initiatives from outside the industry, the mitigation of environmental impacts on local communities at present, and projections of continued demand for ESG-focused services.

Mineral and Royalty Rights Valuation Issues

Themes from Q4 Earnings Calls

Part 2: Mineral Aggregators

In Part 1: Themes from Q4 E&P Operator Earnings Calls last week, we noted themes of cost inflation, a shift in production focus from natural gas to liquids, and macro policy headwinds.  This week, we focus on the key takeaways from the mineral aggregator Q4 2021 earnings calls – specifically discipline in an elevated pricing environment, stagnant production, and strength in position amid inflationary environment.

Valuation Issues

Themes From Q4 Earnings Calls

Part 1: E&P Operators

In the last round of earnings calls for 2021, cost inflation was discussed with a bit more granularity than in recent quarterly calls, strengthening oil prices sparked a shift in focus towards the liquid hydrocarbon streams, and commentary regarding macro policies targeting hydrocarbons were prevalent in E&P management discussions.

Valuation Issues

Oilfield Services 2022

The Rise of the OFS Bulls

In our Energy Valuation Insights from last week, Bryce Erickson focused on Oilfield Services (OFS) company valuations. This week we follow the same OFS theme, but with a focus on OFS “expectations” and the question: “Has the OFS industry turned the corner to a more prosperous outlook?” 

Valuation Issues

Oilfield Service Valuations: Dawn Is Coming

“The dawn is coming!” This phrase comes to mind as we observe valuations and prospects for oilfield service companies. It has been tough sledding for OFS companies during COVID. At the end of 2020, rig counts were around 350 and DUC counts were high.

However, as we’ve been talking about for the past several weeks, things have changed for the positive as far as the industry is concerned, and it’s going to get better according to presenters at the recent NAPE Global Business Conference in Houston.  The current U.S. rig count is now at 613 and may be heading to 800 this year if OFS companies can fill a real labor shortage gap.

However, when it comes to valuations, assuming oilfield service companies will join the recovery has not always been true in the shale era.  That said – this time may be different.

In this week’s post, we note the past and current performance of oilfield service companies and discuss the valuation trends for the industry.

Meet The Team

Bryce Erickson, ASA, MRICS

In each “Meet the Team” segment, we highlight a different professional on our Energy team. This week we highlight Bryce Erickson, Senior Vice President of Mercer Capital and the leader 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.

Mergers, Acquisitions, & Divestitures

Desert Peak to Go Public via Merger With Falcon After IPO Attempt

Desert Peak Minerals and Falcon Minerals Corporation recently announced an all-stock merger, forming a pro form a ~$1.9 billion mineral aggregator company.  This comes in the wake of Desert Peak’s attempted IPO in late 2021.  In this post, we look at the transaction terms and rationale, the implied valuation for Desert Peak, and implications for the mineral/royalties space.

Valuation Issues

What a Difference a Year Makes: Part II

Analyst Projections

We continue the “what a difference a year makes” theme, but now with a focus on analyst projections, then-and-now (then being as of year-end 2020, and now being as of year-end 2021) and energy stock valuation multiples. For the purpose of our analysis, we identified publicly traded energy companies trading on the NYSE and NASDAQ exchanges and operating in three broad areas – exploration and production (E&P), oilfield services (OFS), and midstream. So, what are the analysts expecting? Find out in this week’s post.

Marcellus and Utica Shale Valuation Issues

What a Difference a Year Makes: Part I

Key Aspects of the Energy Industry in 2021

The close of 2021 marked the end of a long upward march for the energy sector.  With oil closing up the year at $75 and gas at nearly $4 per mmbtu, the commodity markets driving the energy sector were much more economically attractive to producers. Stock indices such as the XLE was up over 50% for 2021 and was by far the best performing sector. Rig counts rose along with prices. Crude production also rose to 11.7 million bbls/day with room to grow. In addition, OPEC+ has signaled it will continue its scheduled output growth. All of this growth is coming alongside the ascent of wind and solar. Even though the Omicron variant affected prices in December, most analysts believe that COVID won’t stop the growth. In this post, we review the industry at the end of 2021 and look forward to 2022.

The Best of 2021

Energy Valuation Insights’ Top Blog Posts

After an extraordinarily challenging 2020, 2021 gave Oil & Gas companies some respite and (perhaps most importantly) some optimism going into 2022.  As we enter the new year, we look back at to see what was popular with you ­– our readers.  Here is a list of some of our top posts of 2021.

Mercer Capital’s 2021 Energy Purchase Price Allocation Study

In Case You Missed It

Did you miss Mercer Capital’s 2021 Energy Purchase Price Allocation Study? If you did, before we move into 2022, take a look at the 2021 Study. This study researches and observes publicly available purchase price allocation data for three sub-sectors of the energy industry: (i) exploration & production; (ii) oilfield services; and (iii) midstream and downstream. 

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 2020.

Marcellus and Utica Shale Mergers, Acquisitions, & Divestitures

M&A in Marcellus & Utica Basins

Activity in 2021 Was Muted Relative to 2020

M&A transaction activity in the Marcellus & Utica shrank in number in 2021 relative to 2020. However, the relatively greater magnitude of production density represented by the transactions in 2021 could prove to be a bellwether of more “transformational” transactions to come in 2022 as companies stake their claim in the gas and gas liquids-rich basins of Appalachia. In this week’s post we review M&A activity in 2021 including the EQT/Alta Resources and Northern Oil and Gas/Reliance transactions.

Mineral and Royalty Rights

Themes from Q3 Earnings Calls

Part 2: Mineral Aggregators

Themes in our Q2 mineral aggregator earnings calls digest included capital discipline by operators, expectations of a very favorable price environment, and increases in distributions to shareholders, resulting in an overall optimistic outlook for the sector.  This week we focus on the key takeaways from the mineral aggregator Q3 2021 earnings calls which addressed anticipated acquisition activity, production expectations, and whether or not the sector remains optimistic about the future.

Themes from Q3 Earnings Calls

Part 1: E&P Operators

The Q3 earnings calls for E&P operators continued the theme from Q2 – an oil and gas industry reaching a relatively steady operational state, with efficiencies offsetting cost inflation and helping lead to growth in free cash flow despite the tumultuous past 18 to 24 months. In the Q3 earnings calls, maintaining capital discipline with flat or low growth in production volumes was a point of focus as was E&P operators’ possible approaches to fortify their value proposition to shareholders. Check out this week’s post for details.

Sharing Growth & Spotlight

Natural Gas & Renewables Join the D-CEO Awards Stage in Dallas

Mercer Capital’s energy team sponsored and attended the D-CEO 2021 Energy Awards in Dallas earlier this week.  It was a great event and a good opportunity to connect with clients, peers, and industry leaders in the energy space.   Awards ranged from honoring top executives, including Scott Sheffield of Pioneer Energy, to private equity firm innovators like Pearl Energy Investments.

Thematically, the focus of this award dinner was the interdisciplinary threads between oil, natural gas, and renewables. 

Mergers, Acquisitions, & Divestitures

Chesapeake Finds Vine Ripe for the Picking

In August, Chesapeake Energy Corporation announced that it would acquire Vine Energy Inc. in a stock-and-cash transaction valued at approximately $2.2 billion. We previously discussed Vine’s IPO, which was the first upstream (non-minerals, non-SPAC) initial public offering since Berry Petroleum’s debut in mid-2017. 

Vine’s decision to be acquired in a ~0% premium transaction less than five months after its IPO speaks to the difficulty for E&P companies to manage public market dynamics even in a much-improved commodity price environment. 

In this post, we dig into the transaction rationale, look at relative value measures, and analyze how this transaction seems to indicate a shift in Chesapeake’s strategy.

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