Energy Valuation Insights

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

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Downstream Analysis Valuation Issues

How to Value an Oilfield Services Company

As the volatility continues with oil field service companies (the OSX has nearly doubled since November 2020), valuation and techniques associated therewith are important to consider right now.  Therefore, this week we are reposting our blog post and whitepaper as it pertains to how to understand and value oil field service companies.

Mergers, Acquisitions, & Divestitures Permian Basin

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.

Does Vine Debut Portend Ripe Market for More E&P IPOs?

It’s been tough out there for equity capital markets bankers covering the upstream sector. Since 2016, there have only been five U.S. E&P company IPOs. The dearth of activity is driven by a number of factors which we discuss further in this week’s blog post.

Bakken Shale Eagle Ford Shale Permian Basin

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.

How to Value Oil Companies in the Biden Era

Like a small boat navigating a big sea, oil & gas valuations are impacted by a plethora of factors that can change almost instantly. Some factors help in arriving at a shareholder’s destination, others do not.  Some factors the crew can control, others not so much (and some factors are more predictable than others). As this vessel heads for the destination shores of high returns, it must navigate through natural economic influencers such as production risk, commodity prices, supply logistics and demand changes. In addition, it also must face regulatory shifts that the Biden Administration is and could generate in the future such as tax changes, policy shifts and more. Most likely, these policies will create some volatility and headlines, but in the aggregate will not change valuations much. In this post we examine a few of these regulatory items and how they might change the course of an oil and gas company’s valuation going forward.

Mineral and Royalty Rights

Themes from Q1 2021 Earnings Calls

Part 2: Mineral Aggregators

Last week, we reviewed the first 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 first quarter 2021 earnings calls.

Themes from Q1 2021 Earnings Calls

Part I: E&P Operators

Things appear to be on the upswing, albeit with cautious optimism, in the exploration and production space.  Most of the eight E&P operators we tracked reported that operations in the first quarter were relatively stable in spite of winter storm Uri. The ultimate trending phrase in E&P operators’ earnings calls was “positive free cash flow.” Deleveraging remains a primary goal for many operators. In addition, few E&P operators seemed overly concerned with the potential tax implications stemming from regulatory changes brought forth by the Biden Administration.

Eagle Ford Shale Mergers, Acquisitions, & Divestitures

Recent SPAC Boom Largely Leaves Out Oil & Gas Companies

The rise of SPACs, or special purpose acquisition companies, has been the hottest trend in capital markets during the past year.

In this blog, we take a look at a few oil & gas companies that were early adopters of the SPAC structure, review the recent pivot of SPACs towards energy transition companies, and see what the future might hold for the few remaining oil & gas-focused SPACs.

Domestic Production

Out of the Crude Abyss

It has been almost a year since crude prices went into the abyss on last April 20th. Markets are fast moving and unforgiving at times, but it appears with $60+ oil prices for 2021, that the upstream business can now start to slow down, look around, and evaluate what direction to go next.

Eagle Ford Shale Mergers, Acquisitions, & Divestitures

Eagle Ford M&A

Transaction Activity Slows Amid Challenges of 2020

M&A transaction activity in the Eagle Ford was fairly quiet throughout 2020 before Chevron’s $13 billion deal with Noble Energy.  The Chevron-Noble Energy transaction and the Ovintiv-Validus deal could be foreshadowing a busier M&A market in 2021.

Mineral Aggregator Valuation Multiples Analysis

Market Data as of March 12, 2021

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.

Mineral and Royalty Rights

Themes from Q4 2020 Earnings Calls

Mineral Aggregators

Last week, we reviewed the fourth-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 aggregators’ fourth-quarter 2020 earnings calls.

Eagle Ford Shale Mineral and Royalty Rights

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.

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.

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.

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.

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.

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.

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.

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