Energy Valuation Insights

August 13, 2021 Special Topics

Themes from Q2 Earnings Calls

Part 1: E&P Operators

In Part I of our Themes from Q1 Earnings, there was cautious optimism in the E&P space as most of the operators we tracked reported relatively stable performance. In the Q2 E&P operator earnings calls, there was continued discussion of positive free cash flow, as well as deleveraging and a return of capital to shareholders. Notably, commentary regarding any tax implications arising from Washington was absent this time around, and previously outlined ESG initiatives, perhaps not surprisingly, were also all well on track, if not better, this quarter than in Q1. In this latest round of earnings calls, however, the primary themes were nuanced with indications of tempered growth plans, and continued growth in free cash flow stemming from increased operational efficiency in spite of projected inflation.

August 5, 2021 Domestic Production Special Topics

DUC Clock Ticks On Cheap Production: Low-Cost Cash Flow Won’t Last

As we await second quarter earnings for publicly traded upstream producers, there are several markers and trends that suggest cash flows and profits will swell. Investment austerity and the recently resulting profits will almost certainly be bandied about on management calls. However, what might not be touted as loudly will be how much longer this can last?

July 30, 2021 Downstream Analysis Special Topics Valuation Issues

How to Value an Oilfield Services Company

As the volatility continues with oil field service companies (the OSX has nearly doubled since November 2020), valuation and techniques associated therewith are important to consider right now.  Therefore, this week we are reposting our blog post and whitepaper as it pertains to how to understand and value oil field service companies.

July 23, 2021 Mergers, Acquisitions, & Divestitures Permian Basin Special Topics

Pioneer Natural Resources Pay to Play

A Tale of Two Transactions

M&A transactions picked up in the 12-months ended mid-June relative to the 12-month period preceding it. Among all the transactions that occurred over this period, one pair jumped out involving a common buyer and for which valuation metrics were available. These related to Pioneer’s acquisition of Parsley Energy in October 2020 and DoublePoint Energy in April 2021. In this post, we take a deeper dive into each transaction.

July 16, 2021 Special Topics

Does Vine Debut Portend Ripe Market for More E&P IPOs?

It’s been tough out there for equity capital markets bankers covering the upstream sector. Since 2016, there have only been five U.S. E&P company IPOs. The dearth of activity is driven by a number of factors which we discuss further in this week’s blog post.

June 24, 2021 Bakken Shale Eagle Ford Shale Permian Basin Special Topics

Permian Production Pushes Higher

The economics of Oil & Gas production vary by region. The cost of producing oil and gas depends on the geological makeup of the reserve, depth of reserve, and cost to transport 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.

June 18, 2021 Mergers, Acquisitions, & Divestitures Permian Basin Special Topics

Permian M&A Update: A Buyer’s Market

Pocketbooks Open for More Deals and Larger Positions

Transaction activity in the Permian Basin picked up in earnest this past year, indicating greater optimism in extracting value from the West Texas and Southeast New Mexico basin.

June 11, 2021 Special Topics

How to Value Oil Companies in the Biden Era

Like a small boat navigating a big sea, oil & gas valuations are impacted by a plethora of factors that can change almost instantly. Some factors help in arriving at a shareholder’s destination, others do not.  Some factors the crew can control, others not so much (and some factors are more predictable than others). As this vessel heads for the destination shores of high returns, it must navigate through natural economic influencers such as production risk, commodity prices, supply logistics and demand changes. In addition, it also must face regulatory shifts that the Biden Administration is and could generate in the future such as tax changes, policy shifts and more. Most likely, these policies will create some volatility and headlines, but in the aggregate will not change valuations much. In this post we examine a few of these regulatory items and how they might change the course of an oil and gas company’s valuation going forward.

May 27, 2021 Mineral and Royalty Rights

Mineral Aggregator Valuation Multiples Study Released

With Market Data as of May 26, 2021

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. Due to a variety of corporate structures (including master limited partnerships and Up-Cs) and complex capital structures (including preferred equity and non-traded common units), mineral aggregator enterprise values pulled from databases are often missing meaningful components of value, leading to skewed valuation multiples.

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.

May 20, 2021 Mineral and Royalty Rights Special Topics

Themes from Q1 2021 Earnings Calls

Part 2: Mineral Aggregators

Last week, we reviewed the first quarter earnings calls for a select group of E&P companies and briefly discussed the macroeconomic factors affecting the oil and gas industry.  In this post, we focus on the key takeaways from mineral aggregator first quarter 2021 earnings calls.