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February 26, 2019

Four Themes from Q4 2018 Earnings Calls

We Read the Earnings Calls so You Don’t Have to

Commodity prices exhibited significant volatility to end 2018 with steep declines in crude prices and a spike in natural gas prices that subsequently fell back.  The general market also declined over the period, making it difficult to parse reasons for various stock price gyrations.  While lower prices aren’t ideal for industry operators, earnings calls remind wary investors that there’s more to price than what trades on the NYMEX. Executives this quarter also note a shift in focus when it comes to capital outlays.

This week, we take a look at some of the earnings commentary of large players in the oil and gas space to gain further insight into the challenges and opportunities developing in the industry.

February 18, 2019

David Smith Joins Mercer Capital and Opens Houston Office

Mercer Capital is pleased to announce that J. David Smith, ASA, CFA has joined the firm and leads the firm’s Houston office.

February 15, 2019

Limited Partners, What Are Your Rights?

Legal Rights and Valuation Considerations For Your Limited Partner Interest

A partnership is a business owned by two or more individuals. In its most basic form, a partnership typically falls into one of three categories: a general partnership, a joint venture, or a limited partnership. While the specifics of these three types can vary depending on the goals of the business, they all share similar features. For the purposes of this post, we will be examining benefits and rights we have come across in performing valuations over various types of partnership structures and their relation to value.

January 28, 2019 Mineral and Royalty Rights

Risk and Return

Working Interests and Royalty Interests

When valuing mineral interests, it is important to consider the nuances of the each type of mineral interest. Given that risk and asset values are indirectly related, it is important to keep in mind the various risk factors which pertain to the mineral interest. We’ll begin by examining the various risks surrounding both types of interests.

January 11, 2019

Q4 2018 Review and Outlook for 2019

Q4 2018 was truly a dramatic quarter for the industry. It marked the end of the two and a half-year oil price recovery that began in 2016, while natural gas prices reached their highest point since 2014. With ongoing oversupply concerns, stabilizing geopolitical tensions, and lower forecasts for global oil demand, it appears in 2019 oil prices have a long way to recover to its previous high in 2018.

November 21, 2018

Haynesville’s Gigantic Gas Resurgence Could Be A Winner In LNG Export Race

Where many producers are struggling to transport their product to market, companies operating in the Haynesville Shale are uniquely positioned to take advantage of the Gulf Coast LNG export resurgence.

November 14, 2018

Four Themes from Q3 Earnings Calls

We Read the Q3 Earnings Calls so You Don’t Have to

Improvements in technology have driven the shale revolution. Among these improvements are both cost cutting by oilfield service providers and longer laterals from E&P companies. While capacity constraints from a lack of infrastructure has led to pricing differentials (particularly in the Permian Basin), a lack of inventory in the global oil market is expected to support higher prices, while also increasing price volatility.

As we plan to do every quarter, we take a look at some of the earnings commentary of large players in the oil and gas space to gain further insight into the challenges and opportunities developing in the industry.

November 7, 2018

Four Key Takeaways from NARO 2018

David Harkins recently attended the 38th Annual National Association of Royalty Owners (NARO) National Convention in Denver, Colorado. Many topics were discussed, some of which could have their own blog posts devoted to them; however, this post includes four key takeaways from the conference.

October 8, 2018

U.S. Energy and Private Equity

Show Me the Money

Private equity companies in the energy sector are positioned for an interesting opportunity. These companies have seen a surge of fundraising in recent years, leaving managers with large cash reserves or “dry powder” to be appropriately deployed. Despite the large amount of cash available, these firms are having trouble finding places to invest resulting in a decline in PE activity in 2016-2018 with deal counts dropping for the second year in a row by 8%. However, investments could see a marked increase in energy in the last quarter of 2018 and into 2019 as there is a climate of high demand for return on investment and low supply of cash needed for capital expenditures in upstream oil companies.

August 27, 2018

Bryce Erickson is a Contributor to Forbes.com

Based upon the content in this blog, representatives from Forbes.com reached out to Bryce Erickson, ASA, MRICS with an invitation to become a contributor to Forbes.com in their Energy section.

July 12, 2018

Out of the File Cabinet: The Ideal Time to Review Your Buy-Sell Agreement

This week we take a break from discussing the Permian Basin to feature a topic that touches most of our readers – buy-sell agreements. Almost every privately owned company with multiple shareholders has a buy-sell agreement (or other agreement that acts as a buy-sell agreement).

June 12, 2018

3 Things All Mineral Owners Should Know

Minerals Workshop at the DUG Permian Basin Conference

On May 21, Mercer Capital attended the Minerals Workshop at the DUG Permian Basin Conference in Fort Worth, Texas. The agenda included five presentations and eleven speakers, including royalty brokers, royalty aggregators, and royalty managers. We learned about changes in the royalty market, mineral investor required returns, private equity strategies and due diligence musts for buyers. In light of the information, three themes emerged that mineral owners should know about the royalty market.

June 6, 2018

Tax Reform and Purchase Price Allocations for Oil & Gas Companies

On December 22, 2017, President Trump signed The Tax Cuts and Jobs Act, which resulted in sweeping changes to the U.S. tax code.  The Act decreased the corporate tax rate to 21% from 35%, in addition to modifying specific provisions around interest, depreciation, carrybacks, and repatriation taxes.  The change in tax rate will have the biggest impact on purchase accounting. In the energy industry, this will manifest itself in several different ways.  This blog post explores some of the impacts to valuations performed under fair value accounting in ASC 805 and ASC 820.

April 17, 2018

Capital Structure in 30 Minutes Whitepaper

Travis W. Harms, Senior Vice President of Mercer Capital, wrote a series of whitepapers that focused on demystifying corporate finance for board members and shareholders. The purpose of this whitepaper is to equip directors and shareholders to contribute to capital structure decisions that promote the financial health and sustainability of the company.

March 12, 2018 Downstream Analysis Valuation Issues

The 2018 Outlook for the Refining Industry

In this post, we discuss the 2018 outlook for the refining industry, including the effect of taxes, industry regulation, and oil prices.

March 5, 2018 Valuation Issues

What Is a Reserve Report? (Part II)

This is the second of multiple posts discussing the most important information contained in a reserve report, the assumptions used to create it, and what factors should be changed to arrive at Fair Value or Fair Market Value.

In this post, we discuss two of the most important inputs that go into every reserve report: production and pricing and why it may be appropriate to make adjustments to these inputs for purposes of Fair Value or Fair Market Value.

February 12, 2018

2018 NAPE Expo Observations & Thoughts

Mercer Capital again attended the NAPE Expo in Houston this past week.  People, information, and ideas abounded with over 11,000 participants and 800 exhibitors. We summarize a few highlights from the conference in this post.

January 29, 2018 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. This is the first of multiple posts discussing the most important information contained in a reserve report, the assumptions used to create it, and what factors should be changed to arrive at Fair Value or Fair Market Value.

December 11, 2017 Valuation Issues

WTI Futures and Inventories

In this post we address why the shift in oil futures from contango pricing to backwardation is a bearish sign for those in crude oil storage.

December 4, 2017

Current Regulatory Environment Affecting the Oil and Gas Industry

As business valuation experts, we have to consider the outlook for the economy, industry, and business in every valuation; therefore, we pay attention to the oil and gas regulatory environment to assess what it means for our clients.  Given the new administration, there is much to consider.

November 21, 2017 Mineral and Royalty Rights

Underpayments, Overpayments, Lost Opportunities and Bankruptcies: Trends and Happenings in Energy Litigation

Royalty underpayment cases are anticipated to remain steady in the current pricing environment.  There is an understandable tension between mineral owners’ concern over shrinking payments and operators’ concern over profitability and favorable drilling economics.

November 14, 2017

5 Takeaways from NARO Appalachia’s Annual Conference

Taryn Burgess recently attended the National Association of Royalty Owners (NARO) Appalachia Chapter Annual Conference in White Sulfur Springs, West Virginia.  Over the two day conference, speakers addressed many topics including certain aspects of lease agreements, current legislation affecting mineral owners, clean water solutions, clean energy programs, legal issues affecting mineral owners, midstream and storage development, and more. Here is an overview of five key takeaways from the conference.

October 16, 2017 Valuation Issues

Held (or Held Up?) by Production

Depending on which side of an oil and gas negotiation one is on, Held By Production (HBP) provisions can be a favorable, or unfavorable, value contributor. We discuss the concept and provide helpful information for mineral owners to consider.

September 25, 2017

Impact and Perspective on Hurricane Harvey’s Aftermath: Transforming

In this post, we consider both the human and industry impact of Hurricane Harvey.