A weekly update on issues important to the oil and gas industry
For decades, an oil and gas company (all else being equal) often expected to have an enterprise value somewhat close to their PV-10 calculations in their annual reserve report. That’s not the case these days. Consigned to back pages, footnotes, and appendices, the reserve report’s relevance has waned. It is not that reserve reports are obsolete, but investors are focused on other things – namely returns to shareholders, free cash flow and deleveraging
This week, we take a holistic upstream perspective on the themes of both the E&P operator and mineral aggregator earnings calls for Q1 of 2022.
Based on the eye-ball test, it’s pretty clear that projected export capacity could far outstrip demand for U.S. LNG, based on the EIA’s export projections (as of early 2021), only if all that capacity were to come online. Free Market Economics 101 theory would indicate, rather decisively, that such excessive capacity would clearly not be worth building out given the export volumes projected as of early 2021. Then, on February 24, 2022, Russia – the largest supplier of LNG to Europe – invaded Ukraine. For an in-depth discussion, read this week’s post.
The upstream oil and gas sector is highly capital intensive; production requires expensive equipment and constant maintenance. Despite higher oil and gas prices, E&P operators have refrained from increasing capital investment, and instead, are delivering cash to shareholders. In this post, we explore recent capex trends in the oil & gas industry and the outlook for 2022 through 28 selected public companies.
The Oilfield Services industry has long been known for its cyclicality, sharp changes in “direction,” and demand-driven technological innovation. One segment of the OFS industry that is among those most subject to recent, rapid change is the Oilfield Water segment – including water supply, use, production, infrastructure, recycling, and disposal. In this week’s post, we look to key areas of the Oilfield Water segment – oilfield water disposal and oilfield water recycling – and address both recent trends and where the segment is going in the near-future.
As the term “energy security” comes back into the public lexicon, the values of US oil companies are rising. The current price expectations of oil make a lot of reserves economically attractive, however the market participants best positioned to seize upon this dynamic are not public oil companies. Private firms are leading the way in this area, and as such, values of private companies are positioned to grow faster than the publics.
The economics of Oil & Gas production vary by region. Mercer Capital focuses on trends in the Eagle Ford, Permian, Bakken, and Marcellus and Utica plays. In this post, we take a closer look at the Eagle Ford. Specifically, we take a look at production and activity levels, the rise of commodity prices amid geopolitical tension, the financial performance of our Eagle Ford public comp group, and the economic advantage of wells in the Eagle Ford.
M&A activity in the Eagle Ford has picked up over the past year in terms of both deal count and the amount of acreage involved. The 10 deals noted over the past year were split evenly between property/asset acquisitions and corporate transactions, such as the Desert Peak Minerals-Falcon Minerals Corporation merger announced in mid-January of this year. This signals a notable increase in corporate-level activity as only one of the eight transactions in the prior year involved a corporate transaction, possibly foreshadowing greater industry consolidation in the Eagle Ford moving forward. Read more in this week’s post.
Mercer Capital has its finger on the pulse of the minerals market. An important trend has been the rise of mineral aggregators, which have largely supplanted the trusts as the primary method of publicly traded minerals ownership.
In this updated Study, Mercer Capital has 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.
After summarizing the key topics from Q4 earnings calls from public E&P operators and Mineral Aggregators, this week, we turn our attention to the Q4 earnings calls from Oil Field Service companies. Key themes include 1) macroeconomic headwinds, such as labor shortages and supply chain constraints; 2) the anticipation of greater M&A activity and industry consolidation in 2022; and 3) ESG, including recognition of OFS operator initiatives from outside the industry, the mitigation of environmental impacts on local communities at present, and projections of continued demand for ESG-focused services.
