Energy Valuation Insights

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

Special Topics

Coming Soon: Mercer Capital’s 2019 Energy Purchase Price Allocation Study

We at Mercer Capital love movies.  One fun aspect of a movie is the anticipation for new releases that comes from watching movie trailers, which inform and tease simultaneously.  If done well, they can build anticipation for the show to come.  While not quite a movie trailer, we wanted to introduce you to a new study from our energy team that we are excited about: Mercer Capital’s Energy Purchase Price Allocation Study. 

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Q4 2019 Global Macro Review

U.S. Production Hits Milestones Amid Continued Global Political Tensions

Brent crude prices began the quarter around $59 per barrel and have steadily risen to around $68 to close out 2019. WTI pricing has risen at a similar pace although it continues to trail Brent pricing by about $7 per barrel. Natural gas, however, has been trending in the opposite direction as prices have steadily declined since the end of October. In this post, we will examine the macroeconomic factors that have affected prices in the fourth quarter.

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The Best of 2019

Energy Valuation Insights' Top Blog Posts

As we plan for a new year and a new decade, we look back at 2019 to see what was popular with you ­– our readers. This week’s post includes a list of the top posts of 2019 grouped by topic (Transactions, Saltwater Disposal, Oilfield Services Companies, Royalty and Mineral Markets, and Basin-Specific posts). If you missed one or two posts during the year, now is the time to catch up on your reading.

Mergers, Acquisitions, & Divestitures

Appalachia M&A

Rangebound Gas Prices and Preoccupied Management Teams Cause Slowdown in Activity

It was a quiet year for M&A in Appalachia as only a handful of transactions occurred.  Surging associated gas production in places like the Permian and Bakken have kept a lid on gas prices, which have largely remained between $2 and $3/mmbtu for the year.  Near term expectations aren’t much better, with futures prices below $3 through 2029.  Management teams were likely preoccupied with various corporate and capital structure issues instead of changes to the underlying reserve base.  However, a bright spot is the easing of takeaway constraints that previously plagued the region.

Special Topics

Themes from Q3 2019 Earnings Calls

The energy sector in the third quarter has experienced a general decline as crude prices have exhibited volatility and have remained depressed relative to last year. U.S. producers continue to cut rigs and capital expenditures due to continued excess supply and concerns of declining demand. In this post, we examine some of the most discussed items and trends from the Q3 earnings calls, specifically E&P companies and those in the mineral aggregator space.

Mergers, Acquisitions, & Divestitures

Parsley’s Acquisition of Jagged Peak Highlights Key Consolidation Trends

On October 14, 2019, Parsley (PE) announced that it was acquiring Jagged Peak (JAG) in an all-stock transaction valued at $2.27 billion.  The market’s reaction to the announcement was generally negative, as Parsley closed down more than 10% on the date of the announcement.  This appears to be driven, at least in part, by investors’ desire for Parsley to be acquired rather than be the acquirer. Despite the negative market reaction, we believe this transaction is emblematic of key trends we expect to see during the next wave of consolidation.

Mineral and Royalty Rights

Public Royalty Trusts: More Than Meets the Eye

Yield Traps, Depressed Commodity Prices, and Stage of Decline May Decrease Utility of Public Yields

In previous posts, we have discussed the relationship between public royalty interests and their market pricing implications to royalty owners.  We have differentiated between mineral aggregators and public royalty trusts and introduced some other considerations for how to pick the appropriate comparable. In this post, we will discuss the prevailing high dividend yields of public royalty trusts. We will also offer some reasons for why these trusts may be declining not just in production but also their comparability, from a valuation perspective, to some privately held mineral interests.

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