A weekly update on issues important to the oil and gas industry
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.
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.
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.
While equity prices have dropped by approximately 30% for producers, six publicly-traded royalty aggregators relatively outperformed the SPDR Index. These Royalty MLP’s have tracked closer to crude oil prices, anchored by sizeable dividend payments, thus buoying sliding equity prices. If dividend yields are added back, some of them have been outperforming crude prices.
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.
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 and gas production in the U.S. continues to grow. Last year the U.S. unseated Russia and Saudi Arabia as the world’s leading oil producer on a daily production basis. Side effects currently include choke points in pipeline capacity and a drop in prices for undeveloped oil and gas acreage.
When performing a purchase price allocation for an oilfield services company, careful attention must be given to both the relevant accounting rules and the specific nuances of the oil and gas industry. Oilfield services companies can entail many unique characteristics that are not present in non-oilfield related businesses such as manufacturing, wholesale, non-energy related services, or retail. We will explore the unique factors in future entries. In this blog post, we discuss the guidelines for purchase price allocations that all companies must adhere.
Acquisition and divestiture activity in the Bakken for last twelve months has been minimal. The lack of deals, however, does not mean that activity or production hasn’t been meaningful. In fact, production has grown approximately 10% year-over-year through September with new well production per rig increasing over 29%. Also, while other major basins have been decreasing rig counts, the Bakken has remained steady year-over-year as of the end of September.
The economics of oil and 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 Bakken Shale.
