A weekly update on issues important to the oil and gas industry
In the last year, M&A activity in the upstream area of the oil and gas industry has increasingly become top-heavy, characterized by several headline deals. While the broader North American E&P deal count has been shrinking since 2022, a handful of major acquisitions in the last year have led to a spike in upstream M&A spending. With fewer yet higher-dollar deals and producers eyeing to expand their portfolios of core acreage, the energy industry’s M&A market has greatly shifted in 2024.
The Denver-Julesburg (“DJ”) Basin is a vast and geologically complex basin marked by sedimentary layering, tectonic shifts, and hydrocarbon generation. Encompassing an area of approximately 20,000 square miles, it stretches across regions of Colorado, Wyoming, Nebraska, and Kansas. From an economic standpoint, the DJ Basin has long contributed significantly to the U.S. energy sector. Data from the U.S. Energy Information Administration (“EIA”) reveals the DJ Basin was among the top five oil producers in 2023. In this week’s post we explore important production and players in the DJ Basin.
The 2Q24 issue of Mercer Capital’s Exploration & Production newsletter focuses on the Permian. Permian production growth over the past year was a positive outlier among the four basins covered in our analysis, with Eagle Ford, Appalachia, and Haynesville all posting production declines (albeit Appalachia’s decline being insignificant at 0.3%). While showing typical reactions to global and national energy economic forces, commodity prices ended the period modestly improved. Rig count declines were greater than production declines, partly due to the continuation of the recent trend in DUC count declines.
In addition to our overview of the Permian, this newsletter also contains:
– Oil and Gas Commodity Price Update
– Macro Update
– Industry M&A Activity
– Public Company Performance
– Production Update
– Rig Counts
Download the newsletter to stay up to date on the industry.
The shale industry is showing signs of maturity. Some acquisition trends appear to be burgeoning, such as acquisition premiums, more debt, and looser hedging requirements. These portend higher values and perhaps more of an emphasis on longer-term drilling inventory as opposed to nearer-term production metrics.
The economics of Oil & Gas production vary by region. Mercer Capital focuses on trends in the Permian, Eagle Ford, Haynesville, and Marcellus and Utica plays. The cost of producing oil and gas depends on the geological makeup of the reserve, the depth of the reserve, and the cost of transporting 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.
Transaction activity in the Permian Basin declined over the past 12 months, with the transaction count decreasing 53% to nine deals, a decline from the 19 deals that occurred over the prior 12-month period. This level is also well below the 21 deals that occurred in the 12-month period ended mid-June 2022 and the 27 transactions that closed during the same time period in 2021. While the pace of M&A activity in the Permian has waned relative to prior years, deal size is making up for lower deal volume. But despite fewer “big game” targets remaining, the Permian Basin still offers resources to companies seeking to maintain high-quality reserve inventory.
Mercer Capital has its finger on the pulse of the minerals market. The most recent Mineral Aggregator Valuation Multiples Study is now available.
In our prior earnings call post, Themes from Q4 2023 Earnings Calls, we touched on the global focus of both the Upstream and OFS segments and the persistent drive to optimize efficiency in well operations and services with technological advancements, durable inventory, and more. This week, we explore the Q1 2024 earnings calls of upstream and OFS companies, highlighting the appearance of this quarter’s themes across the entire sector: dividends and buybacks and a boost to the gas market.
The oilfield water industry (OFW, or midstream water) continues to grow in importance within the general upstream energy industry. So much so that while historically considered part of the Oilfield Services Industry (OFS), midstream water is now considered its own industry within the upstream space, separate from the more general OFS. In this week’s Energy Valuation Insights blog, we explore the current status, trends, and expectations for the future of midstream water.
It’s an election year, and the battle is on. SilverBow Resources, a publicly traded oil and gas company operating in South Texas’ Eagle Ford shale, is wrapped up in a big conflict with some of its own shareholders. Kimmeridge Energy Management, both a large shareholder and a rival operator in the Eagle Ford, has proposed a merger (which it, at least temporarily, withdrew last month), and now is proposing several new board members in a proxy battle. The primary question centers on the direction of SilverBow’s value enhancement strategy. However, it appears this strategy hinges, in part, on its debt position, and dividend policy. Management has one idea on how this should go; Kimmeridge clearly has another.
