Energy Valuation Insights

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

Permian Basin

Current Environment Challenges America’s Most Prolific Basin

Permian Basin Update

While commodity prices have recovered from recent lows, they remain below levels at which certain E&P companies can operate sustainably.  Two Permian operators have filed for bankruptcy, and more are likely coming.  However, the Permian’s economics remain superior relative to most basins.

Mergers, Acquisitions, & Divestitures Permian Basin

M&A in the Permian Basin

The Road Ahead: Deal Count and Deal Motives Changing in Challenging Times

Transaction activity in the Permian Basin is in a unique and potentially critical situation as companies are facing unpredictable consequences and uncertain futures. Only four deals have been announced post-March and while the sample is small, they could be the best indication of what is to come, assuming prices remain depressed.

Special Topics Valuation Issues

Impairment Testing of Oil & Gas Reserves

2020 Global Events Causing Significant Reserve Write-Downs

The oil & gas market and the energy sector as a whole have taken a beating and experienced unprecedented events due to the global impacts from the pandemic and international price wars. While the scale of the full economic effects from these events has yet to be seen, companies are having to question and consider the need for interim impairment testing on reserves. The purpose of this post is to help oil & gas companies discern whether they may need to make interim impairment assessments and to discuss the impairment testing process.

Special Topics

Mercer Capital’s Mineral Aggregator Valuation Multiples Analysis

Mercer Capital has its finger on the pulse of the minerals market. We have thoughtfully analyzed the corporate and capital structures of the publicly traded mineral aggregators to derive meaningful indications of enterprise value.  We have also calculated valuation multiples based on a variety of metrics, including distributions and reserves, as well as earnings and production on both a historical and forward-looking basis. Download our analysis here.

Bankruptcy COVID-19 Coverage

2020 Commodity Prices Upend 2019 E&P Bankruptcies

The recent historic decline in oil prices has strained the balance sheets of E&P companies.  Whiting Petroleum Corporation, the first publicly traded U.S. E&P company to declare bankruptcy in 2020, announced its Chapter 11 reorganization process on April 1.  More are expected to follow.

Despite a much more benign commodity price environment of ~$50-$60/bbl in 2019, a number of E&P companies declared bankruptcy last year and have seen their reorganization processes derailed in 2020 as a result of low oil prices.

COVID-19 Coverage Valuation Issues

Uncharted Valuation Territory: What Is A Barrel Or An Acre Worth Today?

Times are tumultuous for the oil and gas industry. News earlier this month was met with no rise in West Texas Intermediate pricing at the time. It hovered around $20.00 per barrel. Last week it fell to the seemingly unconscionable negative territory. It was worse in other places. In Western Canada heavy select oil was around $4.50 per barrel and dropped to $0 last week. It went negative as well. World demand for oil has dropped somewhere between 20% and 35% by some estimations, and excess supply has been building for weeks.

Something must give, and something will. While global supply and demand imbalance has the industry scrambling in unseen territory, how does this convert to what upstream companies and reserves are worth amid the situation? Is it a 1:1 price to value change ratio? Depending on perspective, the answer is both simple and complicated.

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