A weekly update on issues important to the oil and gas industry
It caught investors’ attention when Warren Buffet further increased his stake in Phillips 66 from 78.782 million shares as of June 30, 2016 to 79.6 million as of August 30, 2016. He now has invested over $6 billion in Phillips 66 and owns almost 15% of Phillips’ available shares. His recent move has sparked a lot of questions regarding what Warren Buffet was thinking.
When the price of oil started its descent during 2014, the majority of media attention was, and still is, focused on exploration, production, and oil field services companies. While bankruptcy courts are busy deciphering reorganization plans and perhaps liquidations of companies, one group of oil and gas participants are getting little attention: royalty owners. While the last two years have been a rough ride, opportunities do exists for forward thinking royalty owners and investors.
Last month we learned something that might not be a shock to those closely following the oil and gas markets, but might be something of a bombshell to everyone else. A report from Rystad Energy estimated that in July 2016, for the first time ever, the United States has more recoverable oil than any other country on the planet – 264 billion barrels. What was the reward for E&P firms? Ironically, it has unfortunately turned out to be a long line at bankruptcy courts.
For the last two years we have been asking when will oil prices recover? But natural gas E&P companies have been asking this question for almost seven years. Analysts have worked to predict which companies will make a comeback once prices recover, but the road to recovery has been and will continue to be long and rocky.
Deal activity, while quiet in the first quarter of the year, has picked up significantly in the last four months, especially in the Permian Basin. Pioneer has been one of the more active companies making investments in the play, but why would they in such a bleak energy climate?
In the oil and gas industry, standardized reporting and industry analysts typically use a 10% discount rate on projects’ future cash flows. In this post we explain how such a discount rate is calculated and its effects on valuation; and then discuss a model that provides the discount rates that exploration and production companies face in the current market.
In May 2016, we attended a panel event discussing investment opportunities in the financially distressed oil and gas sector. The panel included a “who’s who” of oil and gas experts located in Texas. Two industry participants, two consultants, one analyst and one economist discussed the economic outlook for energy prices and then corporate strategy and investment opportunities given the economic outlook. This post, the second and last summarizing this panel discussion, will report opinions given on corporate strategy and investment opportunities.
Upon confirmation by the bankruptcy court, a bankruptcy plan must not be likely to result in liquidation or further reorganization. To satisfy the court, a cash-flow test is used to analyze whether the restructured company would generate enough cash to consistently pay its debts. This post walks through the three steps of a cash-flow test.
In May 2016, we attended a panel event discussing investment opportunities in the financially distressed oil and gas sector. The panel included a “who’s who” of oil and gas experts located in Texas. Two industry participants, two consultants, one analyst and one economist discussed the economic outlook for energy prices; and then corporate strategy and investment opportunities given the economic outlook. This post, the first of two summarizing this panel discussion, will report on the economic discussion.
From January through May of this year, 39 E&P companies and 31 oilfield services companies had to file for bankruptcy. This post is the second of three aimed at helping those companies and any others who may face bankruptcy in the future to understand the valuation-related aspects of Chapter 11 restructuring. In the first post, we highlighted two reorganization requirements tied to valuation. Here we will explore the consequences of the first of those requirements: The plan should demonstrate that the economic outcomes for the consenting stakeholders (creditors or equity holders) are superior under the Chapter 11 proceeding compared to a Chapter 7 proceeding, which provides for a liquidation of the business.
