Higher oil prices, coupled with lower breakeven costs for producers, are making drillers, completers and a host of other servicers busier than a gopher on a golf course. Does that translate into higher valuations?
Higher oil prices, coupled with lower breakeven costs for producers, are making drillers, completers and a host of other servicers busier than a gopher on a golf course. Does that translate into higher valuations?
The economics of the Eagle Ford Shale have been steadily improving for the past year. While the Permian has been receiving the most attention given its low-cost economics and large well potential, the Eagle Ford (particularly its oil window) has increased well production whilst dropping its costs. However, based on recent announcements, many companies will be reducing the number of wells drilled in 2018 as compared to 2017.
A thorough understanding of the role of refineries in the oil and gas industry is important in establishing a credible value for a business operating in the refining space. In addition, it is critical to understand the subject company’s position in the market, its operations, and its financial condition. In this post, we walk through industry factors, three valuation approaches, and the importance of synthesizing these factors in order glean a holistic understanding of a company’s value.
In this post, we discuss the 2018 outlook for the refining industry, including the effect of taxes, industry regulation, and oil prices.
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.
Don Erickson, Managing Director of Mercer Capital, educates the public on valuation methodologies and trends impacting various industries. One such industry is Oil & Gas. In the second part of this two-part slide deck, he discusses the basics of how to value oil & gas reserves.
Don Erickson, Managing Director of Mercer Capital, educates the public on valuation methodologies and trends impacting various industries. One such industry is Oil & Gas. In this slide deck, he discusses the main drivers impacting the oil and gas pricing environment over the previous decade and the implications to valuing reserves.
Lately, talk of the domestic oil and gas market has been especially positive. But the oilfield services industry is still struggling to recover from the collapse of oil prices in mid-2014 and the subsequent reduction in capital spending by upstream companies. We look at how the downturn in crude prices in 2014 still affects the oilfield service industry and consider the impact on company valuations.
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.
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.
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.
We recently published a white paper explaining how to value an E&P company. The purpose of the paper is to provide an informative overview regarding the valuation of exploration and production (E&P) companies operating in the oil and gas industry.
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.
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.
One of the primary challenges for industry participants when valuing and pricing oil and gas reserves is addressing proven undeveloped reserves (PUDs) and unproven reserves. While the market approach can sometimes be used to understand the value of PUDs and unproven reserves, every transaction is unique. Additionally, many transactions that we see today are still a result of the crash in oil prices in 2014; and in some sales of non-core assets, PUDs and unproven reserves have been deemed worthless. Why then, and under what circumstances, might the PUDs and unproven reserves have significant value?
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.
A thorough understanding of the role of refineries in the oil and gas industry is important in establishing a credible value for a business operating in the refining space. In addition, it is critical to understand the subject company’s position in the market, its operations, and its financial condition. In this post, we walk through industry factors, three valuation approaches, and the importance of synthesizing these factors in order glean a holistic understanding of a company’s value.
Oil and gas analysts use many different metrics to explain and compare the value of an oil and gas company, specifically an exploration and production (E&P) company. The most popular metrics (at least according to our eyeballs) include (1) EV/Production; (2) EV/Reserves; (3) EV/Acreage; and (4) EV/EBITDA(X). Enterprise Value (EV) may also be termed Market Value of Invested Capital (MVIC) and is calculated by the market capitalization of a public company plus debt on the balance sheet less cash on the balance sheet. In this post, we will dive into one of these four metrics, the EV/Production metric, and explore the most popular uses of it.
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.
When performing a purchase price allocation for an Exploration and Production (E&P) company, careful attention must be paid to both the accounting rules and the specialty nuances of the oil and gas industry. In this blog post, we discuss the guidelines for purchase price allocations that all companies must adhere.
A few days ago the Wall Street Journal published an article discussing what the author described as “crazy” stock valuations, and in particular the inflated valuations of oil and gas stocks from the perspective of operating earnings ratios. While we certainly are believers that value is driven by future operating earnings, and that earnings in the energy sector have fallen precipitously since 2014, is this all that determines the market’s pricing of the S&P 500 energy sector? As we reflect on this for a moment, a few additional considerations came to mind that may explain these “crazy” valuations more fully.
Each quarter, Mercer Capital’s Exploration & Production Industry newsletter provides an overview of the E&P sector, including world demand and supply, public market performance, valuation multiples for public companies, and a region focus. This quarter we focus on the Bakken Shale.
A couple of weeks ago we looked at Exon Mobil Corp.’s lack of asset write-downs to understand different values placed on oil and gas reserves in a GAAP, Non-GAAP, and IFRS context. This week we explain how to find the fair market value of oil and gas reserves.
This is the first of two posts in which we will investigate the different values placed on oil and gas reserves in a GAAP, Non-GAAP, IFRS, and fair market value context. As an example we will consider Exxon Mobil Corp., the nation’s largest energy company, which is under investigation for its lack of asset write-downs amid falling oil and gas prices.
