Energy Valuation Insights

November 21, 2019 Mergers, Acquisitions, & Divestitures

Parsley’s Acquisition of Jagged Peak Highlights Key Consolidation Trends

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.

November 6, 2019 Mineral and Royalty Rights

Public Royalty Trusts: More Than Meets the Eye

Yield Traps, Depressed Commodity Prices, and Stage of Decline May Decrease Utility of Public Yields

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.

October 31, 2019 Bakken Shale Valuation Issues

Pipeline Bottlenecks And Worthless Acreage: The Downsides Of World-Leading Oil Production

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.

October 25, 2019 Special Topics Valuation Issues

How to Perform a Purchase Price Allocation for an Oilfield Services Company

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.

October 18, 2019 Bakken Shale

M&A in the Bakken

Deals May Be Slow, But Production Remains Steady

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.

October 9, 2019 Bakken Shale

Bakken May Lack Flash, But Has Fundamentals

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.

October 1, 2019 Special Topics Valuation Issues

The Fair Market Value of Oil & Gas Reserves

Oil and gas assets represent the majority of value of an E&P company. The Oil and Gas Financial Journal describes reserves as “a measurable value of a company’s worth and a basic measure of its life span.” Thus, understanding the fair market value of a company’s PDP, PDNP, and PUDs is key to understanding the fair market value of the Company.

September 19, 2019 Domestic Production Mergers, Acquisitions, & Divestitures

Do Oil And Water Mix? The Biggest Energy IPO Of 2019 Might Answer That Question

Saltwater disposal and integrated water logistics companies have attracted a higher proportion of the sparsely available capital flowing into the sector, highlighted by the largest energy IPO of this year: Rattler Midstream LP.

September 12, 2019 Valuation Issues

How to Perform a Purchase Price Allocation for an E&P Company

When performing a purchase price allocation for an Exploration and Production (E&P) company, careful attention must be paid to both the accounting rules and the specialty nuances of the oil and gas industry. In this blog post, we discuss the guidelines for purchase price allocations that all companies must adhere.

August 26, 2019 Special Topics

Themes from Q2 2019 Earnings Calls

Will “Capital Efficiency” Prevent Bankruptcy and Maintain Production as E&P’s Reduce CapEx?

While large, rapid commodity price declines are certainly harmful for near-term profits and long-term planning, persistently low prices may be more ominous for industry operators and investors. Prices rebounded from a low of $45/bbl, but crude has been below $60 for nearly 3 months. Natural gas prices have similarly languished, remaining below $2.50/mmbtu in that time. Two Houston-based E&P companies (Halcon & Sanchez) recently filed for Chapter 11 bankruptcy within days of each other, raising questions about the state of the industry. Size and operational efficiency may enable some players to stave off issues, while others may be forced into difficult decisions between preserving capital and investing over budget to produce enough debt-servicing cash flow.