Part 2: Mineral Aggregators
Themes in our Q2 mineral aggregator earnings calls digest included capital discipline by operators, expectations of a very favorable price environment, and increases in distributions to shareholders, resulting in an overall optimistic outlook for the sector. This week we focus on the key takeaways from the mineral aggregator Q3 2021 earnings calls which addressed anticipated acquisition activity, production expectations, and whether or not the sector remains optimistic about the future.
The Q3 earnings calls for E&P operators continued the theme from Q2 – an oil and gas industry reaching a relatively steady operational state, with efficiencies offsetting cost inflation and helping lead to growth in free cash flow despite the tumultuous past 18 to 24 months. In the Q3 earnings calls, maintaining capital discipline with flat or low growth in production volumes was a point of focus as was E&P operators’ possible approaches to fortify their value proposition to shareholders. Check out this week’s post for details.
Natural Gas & Renewables Join the D-CEO Awards Stage in Dallas
Mercer Capital’s energy team sponsored and attended the D-CEO 2021 Energy Awards in Dallas earlier this week. It was a great event and a good opportunity to connect with clients, peers, and industry leaders in the energy space. Awards ranged from honoring top executives, including Scott Sheffield of Pioneer Energy, to private equity firm innovators like Pearl Energy Investments.
Thematically, the focus of this award dinner was the interdisciplinary threads between oil, natural gas, and renewables.
Natural gas prices are rising. So why is production not ramping up to meet heightened demand? Is the demand mostly coming from the U.S.? What are the ripple effects of higher natural gas prices? We tackle all this and more in this week’s post.
In August, Chesapeake Energy Corporation announced that it would acquire Vine Energy Inc. in a stock-and-cash transaction valued at approximately $2.2 billion. We previously discussed Vine’s IPO, which was the first upstream (non-minerals, non-SPAC) initial public offering since Berry Petroleum’s debut in mid-2017.
Vine’s decision to be acquired in a ~0% premium transaction less than five months after its IPO speaks to the difficulty for E&P companies to manage public market dynamics even in a much-improved commodity price environment.
In this post, we dig into the transaction rationale, look at relative value measures, and analyze how this transaction seems to indicate a shift in Chesapeake’s strategy.
In this post we take a brief look at several ESG criteria among E&P operators to see what trends may be present among the operators with the highest and lowest ESG scores, as provided by Global Market Intelligence.
In this post we discuss the most important information contained in a reserve report, the assumptions used to create it, and what factors should be changed to arrive at Fair Value or Fair Market Value.
The economics of Oil & Gas production vary by region. Mercer Capital focuses on trends in the Eagle Ford, Permian, Bakken, and Marcellus and Utica plays. 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.
Transaction Volume and Deal Size Rebound in 2021
Over the last year, deal activity in the Bakken has been steadily increasing after a challenging 2020. Eight of the nine deals, in the last twelve months, occurred in the last eight months as the price environment has turned more favorable. As the industry seems optimistic that the worst of COVID-19 is behind us, deal activity may continue to increase into next year, but there is always hesitation, especially with the Delta variant on the rise.
Clean Future Act Regulatory Concerns
In the midst of the COVID pandemic, the rise of the Delta-variant, and general summer distractions, not a lot of attention has been given to the 117th Congress’ H.R. 1512 – aka the “Climate Leadership and Environmental Action for our Nation’s Future Act” or the “CLEAN Future Act.” The Act was first presented as a draft for discussion purposes in January 2020. After more than a year of hearings and stakeholder input, it was introduced as H.R. 1512 in March 2021. Of particular interest to the Oilfield Water Management sector, is Section 625 of the Act. In that section, the Environmental Protection Agency would be ordered to determine whether certain oil and gas production byproducts, including produced water, meet the criteria to be identified as hazardous waste. The legislation in fact, mandates that the EPA must make its determination within a year after the Act becomes law. Read what Section 625 might mean for Oilfield Water Management industry participants.