Energy Valuation Insights

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.

August 19, 2019 Domestic Production Special Topics

An Overview of Saltwater Disposal

Part 2 | Economics of the Industry

In a prior blog post, we provided an overview of the saltwater disposal (SWD) industry, detailing the source of demand for SWD services, the impact of the shale boom, geographic distribution, site selection, construction, and regulation.  We now take a look at the economics of the SWD industry and the trends that impact the economics.

August 9, 2019 Mineral and Royalty Rights

Public Royalty Interests: Picking the Right Comparable

In previous posts, we have discussed the relationship between public royalty interests and their market pricing implications to royalty owners.  Here, we will define our group of royalty interests which can be used to gain valuation insights.  Specifically, we will look at mineral aggregators, natural gas focused trusts, and crude oil focused trusts and the statutory differences between them. We also consider how dividend yields and other public data can be used to imply value for private mineral interests while being judicious in our application of such metrics.

August 2, 2019 Mergers, Acquisitions, & Divestitures

Comstock’s Acquisition of Covey Park

A Valuation Analysis of the Multibillion-Dollar Haynesville Deal

On July 16, 2019, Comstock Resources, Inc (NYSE: CRK) finalized its acquisition of Haynesville operator Covey Park Energy LLC. Announced on June 10, 2019, the companies entered into an agreement under which Comstock would acquire Covey Park in a cash and stock transaction valued at approximately $2.2 billion, including assumption of Covey Park’s outstanding debt and retirement of Covey Park’s existing preferred units (totaling approximately $1.1 billion).

For the purposes of this post, we will be examining this deal from a few different vantage points and reviewing the fair value of the various components that make up total deal value. We’ll also look at how this transaction compares to industry valuation metrics and what kind of strategic advantages Comstock may have a result of the deal.

July 26, 2019 Valuation Issues

Challenges in Appraising Refinery Businesses

The appraisal of businesses involved in the refining of crude oil entails a number of challenges.  Some are unique to the industry, and others are more common.  The challenges arise primarily in two areas – assessing the level of uncertainty inherent in the entity’s future cash flows and forecasting the entity’s future operating results.

July 15, 2019 Special Topics

Natural Gas Takeaway Constraints

A Tale of Two Basins

Appalachia and the Permian are responsible for much of the United States’ surging natural gas production, resulting in relatively low benchmark prices. However, difficulties capturing, storing, and transporting natural gas mean that large regional price differentials can occur.

While Appalachia price differentials have narrowed significantly, Permian pricing differentials have widened, often resulting in $0 or sometimes negative realized prices. Going forward, futures prices imply a modest widening of the Appalachia basis over time, while the Permian basis will not stabilize until 2021.

July 12, 2019 Permian Basin

Valuations In The Permian

Gearing Up For The Long Haul Or Running In Place?

When it comes to the oil patch, the word “growth” can be a vague term. It’s a word that can be masqueraded around to suit the perspective of whomever utters it. What does it mean in an industry whose principle resources are constantly in a state of decline? When it comes to the Permian Basin these days, growth applies to resources, drilling locations and production. Unfortunately, the same can’t be said for profits, free cash flow or new IPOs. Don’t misunderstand, the Permian is the king of U.S. oil plays and by some measures could be taking the crown as the biggest oil field in the world. However, various economic forces are keeping profits and valuations in check.

June 26, 2019 Special Topics

Q2 2019 Macro Overview

Uncertainties Engulf Global Oil Amid Political Tensions

Brent crude prices began the quarter around $69 per barrel and peaked at nearly $75 in late-April before declining to just below $60 on June 12th, 2019. Prices have since increased to $65, with WTI continuing to trail by about $8 per barrel. In this post, we will assess global supply and demand factors that have caused these price fluctuations.

June 18, 2019 Mergers, Acquisitions, & Divestitures Permian Basin

M&A in the Permian

Big Deals and Bigger Opportunities

Operators in the Permian Basin have had to pay a premium to access the black gold mine, and companies are still lining up for a chance to get in on the action. While the industry as a whole has been moving into a period of rapid consolidation, a substantial portion of this acquisitive activity has been in the Permian.

Targets with highly contiguous holdings and acreage have been of particular note to acquirers in the Permian. While acreage continuity has not always been the most important aspect of a potential deal, it has certainly become more of a focal point recently.

June 10, 2019 Special Topics

Forecasting Future Operating Results for an Oilfield Services Company

In our prior two blog posts, we detailed the specifics of “what is” and “what are the characteristics of” an oilfield equipment/services company (“OFS”), and detailed the typical approaches and methodologies utilized in valuing OFS companies.  This week, we’ll address some of the special considerations that must be given attention in the appraisal of OFS companies.  Specifically, the challenges in forecasting the future operating results for an OFS company.