Energy Valuation Insights

August 7, 2018 Downstream Analysis

A Review of M&A Activity in the Downstream Oil & Gas Space

Nesting Dolls of Refinery Acquisitions

On April 30, 2018, Marathon Petroleum announced its acquisition of the newly formed Andeavor making Marathon the largest refiner in the U.S. (by capacity) and one of the top five refiners in the world.  The merger is moving into its final stages, and Marathon’s CEO is positive about the combination of the two well situated companies. In this post, we analyze the recent acquisition history of Western Refining, Tesoro, and Marathon, which has started to look somewhat like nesting dolls of acquisitions.

July 30, 2018 Mineral and Royalty Rights

Public Royalty Trusts (Part I)

Can Revenue Interests Benefit from Capital Appreciation?

In previous posts, we have discussed the relationship between public royalty trusts and their market pricing implications to royalty owners.  Many publicly traded trusts have a fixed number of wells, so the value comes from declining distributions.  Some of the trusts have wells that have not been drilled, which represent upside potential for investors. In this post, we will explore the subject characteristics of MV Oil Trust.  This will serve as a primer for a subsequent post in which we will look further into the composition of its stock price in order to better understand investors’ ability to achieve returns through distributions and capital appreciation.

July 18, 2018 Mergers, Acquisitions, & Divestitures Mineral and Royalty Rights

Details and Analysis of Kimbell Royalty Partners’ Acquisition of Haymaker Minerals & Royalties, LLC

In this week’s post, we provide a detailed analysis of the Kimbell Royalty Partners’ acquisition of Haymaker Minerals & Royalties, LLC. We assess some of the benefits of public mineral and royalty companies as compared to their private counterparts.

July 12, 2018 Special Topics

Out of the File Cabinet: The Ideal Time to Review Your Buy-Sell Agreement

This week we take a break from discussing the Permian Basin to feature a topic that touches most of our readers – buy-sell agreements. Almost every privately owned company with multiple shareholders has a buy-sell agreement (or other agreement that acts as a buy-sell agreement).

July 3, 2018 Permian Basin

Growing Pains Curb Valuation Gains in the Permian

2Q18 Review

The story of the Permian Basin in 2018 so far has been developing as one of the finest proverbial “fishing holes” in the world.  However, as the year has progressed, it appears many industry players have found their reputed “catch” too big to process and are scrambling to deal with it before it begins to stink.

Translation: the year began with a flurry of developmental drilling activity followed by an emerging bottleneck.  The unintended consequence of this has been that some operators have been growing oil production too fast for pipeline and infrastructure to keep up.  A pricing differential has arisen due to the supply glut and there has been concurrent stagnation in valuations.  In this post, we discuss how some of it has transpired through the timeline of the first half of 2018.

June 25, 2018 Permian Basin

Take What You Can and Get Out

When oil prices crashed in mid-2014, companies were forced to become more efficient in order to survive. It became clear that location meant more than ever and companies could no longer justify operating in regions such as the Bakken and the Eagle Ford, where break-even prices were higher than they were in the Permian.  Thus in order to stay in business, companies flocked to the Permian.  This week, we look at how the increased appeal of the Permian Basin has affected M&A activity in the oil and gas sector.

June 18, 2018 Permian Basin

Piping Hot Permian

Production in the Permian is as hot as the summers in West Texas. Despite being discovered in the 1920s, it was not until 2007 that the region’s true potential was realized when hydraulic fracturing techniques were used to access the play’s tight sand layers. Given its low-cost economics and large well potential, in recent years, the Permian has been in the limelight with operators and investors alike prioritizing the region.

In this post, we discuss the increase of rig counts and production in the region, along with valuation implications for companies operating in the Permian.

June 12, 2018 Special Topics

3 Things All Mineral Owners Should Know

Minerals Workshop at the DUG Permian Basin Conference

On May 21, Mercer Capital attended the Minerals Workshop at the DUG Permian Basin Conference in Fort Worth, Texas. The agenda included five presentations and eleven speakers, including royalty brokers, royalty aggregators, and royalty managers. We learned about changes in the royalty market, mineral investor required returns, private equity strategies and due diligence musts for buyers. In light of the information, three themes emerged that mineral owners should know about the royalty market.

June 6, 2018 Special Topics

Tax Reform and Purchase Price Allocations for Oil & Gas Companies

On December 22, 2017, President Trump signed The Tax Cuts and Jobs Act, which resulted in sweeping changes to the U.S. tax code.  The Act decreased the corporate tax rate to 21% from 35%, in addition to modifying specific provisions around interest, depreciation, carrybacks, and repatriation taxes.  The change in tax rate will have the biggest impact on purchase accounting. In the energy industry, this will manifest itself in several different ways.  This blog post explores some of the impacts to valuations performed under fair value accounting in ASC 805 and ASC 820.

May 21, 2018 Marcellus and Utica Shale Permian Basin

The Permian Boom Causing a Natural Gas Bust

The oil industry is cruising. Producers are flocking to many oil rich plays, most notably the Permian Basin, Bakken, and Eagle Ford. Producers in these areas are all looking to exploit multi-zone payouts and gain significant efficiencies with new deep lateral and horizontal wells. While this strategy is working very well for oil producers, often lost in the oil excitement is the byproduct, additional dry and natural gas liquids. For producers targeting natural gas, this is not good news.