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Special Topics

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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.

September 11, 2017 Valuation Issues

How to Use Reserve Reports When Determining Fair Market Value

Last week, we analyzed the SEC’s $6.2 million settlement with a Big 4 audit firm relating to auditing failures associated with Miller Energy Resources, an oil and gas company with activities in the Appalachian region of Tennessee and in Alaska. The SEC order determines that the Big 4 audit firm did not properly use the reserve reports conclusion of PV-10 (present value at 10%).  This post considers the proper use of reserve reports and risk adjustment factors when determining fair market value.

September 5, 2017 Valuation Issues

$475 Million Bargain Purchase Leads to a SEC Settlement

Originally published on Mercer Capital’s Financial Reporting Blog, Lucas Parris analyzed the SEC’s $6.2 million settlement with a Big 4 audit firm relating to auditing failures associated with Miller Energy Resources, an oil and gas company with activities in the Appalachian region of Tennessee and in Alaska.

August 28, 2017 Permian Basin

Summer NAPE Expo: Observations & Thoughts

Mercer Capital attended the Summer NAPE Expo in Houston this month. We discuss highlights of the expo in this week’s blog post.

August 14, 2017

Oil and Gas Investors Note Move Away From Contango

The movement in the future spread away from a contango environment and toward backwardation is positive from a supply and demand perspective. Expectations are a backwardation environment will move crude oil prices higher. However, the exact cause of this change is unknown. While this shift is good news for the industry, company specific risk and investor’s fickle attitudes create volatile equity markets.

July 31, 2017

Corporate Finance 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. In this whitepaper, he has distilled the fundamental principles of corporate finance into an accessible and non-technical primer. Structured around the three key decisions of capital structure, capital budgeting, and dividend policy, this whitepaper is designed to assist directors and shareholders without a finance background to make relevant and meaningful contributions to the most consequential financial decisions all companies must make. Mercer Capital’s goal with this whitepaper is to give directors and shareholders a vocabulary and conceptual framework for thinking about strategic corporate finance decisions, allowing them to bring their perspectives and expertise to the discussion.

July 18, 2017 Valuation Issues

The Fair Market Value of Oil and Gas Reserves

In case you missed it, this week are rerunning a consistently popular post.

Oil and gas assets represent the majority of value of an E&P company. The Oil and Gas Financial Journal describes reserves as “a measurable value of a company’s worth and a basic measure of its life span.” Thus, understanding the fair market value of a company’s PDP, PDNP, and PUDs is key to understanding the fair market value of the Company.

June 19, 2017 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.

May 15, 2017 Valuation Issues

E&P: What We Learned from 1st Quarter Earnings

The first quarter of 2017 was productive and active for upstream E&P but the change in market capitalizations of many oil and gas companies does not match the reported increase in earnings and production estimates. Looking at our universe of energy companies in the E&P space, over 70% beat earnings estimates. This statistic held true no matter if the energy company was a global integrated operator or a pure upstream producer. To provide a flavor of the attitude, we selected the two largest publicly traded energy companies involved in E&P (STO and XOM) as well as six companies with primary operations in the Permian Basin (PXD, CXO, NBL, XEC, FANG, and RSPP) and reviewed the highlights of their latest earnings releases. As summarized in this post, each of these companies exceeded analyst expectations.