Corporate Valuation, Oil & Gas

August 19, 2021

Themes from Q2 Earnings Calls

Part 2: Mineral Aggregators

Last week, we reviewed the second quarter earnings calls for a select group of E&P companies and briefly discussed the macroeconomic factors affecting the oil and gas industry. In this post, we focus on the key takeaways from mineral aggregator second quarter 2021 earnings calls.

Operators Maintaining Drill Bit Discipline

Aggregators keep a close eye on E&P companies as they often reap the benefits of the drill bit, but also fall victim to capital discipline initiatives.  In the second quarter, many aggregators made note of operators’ disciplined approach as prices and rig counts continued to rise.

  • “Our portfolio has benefited as bigger and better capitalized operators have taken over operatorship of our minerals to enable more consistent and disciplined development. Our focus on the highest rate of return undeveloped locations throughout our history ensures that our mineral position migrates to the top of any operator's drilling inventory.” – Ben Brigham, Executive Chairman & Director, Brigham Minerals
  • “Despite the increase in rig count through the second quarter, we do anticipate that trend to flatten through the remainder of the year, as operators maintain their capital discipline.” – Jeff Wood, President & CFO, Black Stone Minerals
  • “Operators in the U.S. continue to practice discipline with their drilling activity even in the face of significantly higher commodity prices.” – Bob Ravnaas, Chairman & CEO, Kimbell Royalty Partners

Capitalizing on Favorable Price Environment

Industry participants remain optimistic as prices have increased significantly over the last year.  Some aggregators were heavily hedged, and others, like Brigham Minerals, are reaping the benefits of their unhedged position.

  • “In fact, this is the best macro setup I've seen in my career, and I've lived through numerous cycles. Benefiting from our diversified portfolio of high-quality mineral assets, our shareholders are positioned to benefit from what I believe is very likely a long ramp of elevated pricing for oil, NGL and natural gas prices. This is particularly true given that unlike some of our peers, we are unhedged.” – Bud Brigham, Founder & Executive Chairman, Brigham Minerals
  • “Oil prices are now well above pre-COVID levels, but the U.S. land rig count is 39% below year end 2019 levels. Furthermore, natural gas prices are trading at multiyear highs, driven primarily by increased power demand in the U.S. and surging exports of LNG to Europe and Asia. Given that a significant portion of our daily production is natural gas, we expect this improved pricing to benefit our cash available for distribution in Q3 2021 and into the winter months based on the current strip pricing.” – Bob Ravnaas, Chairman & CEO, Kimbell Royalty Partners
  • “The increase in royalty volumes was mainly due to the Midland and Delaware properties but we also saw nice increases outside of our major shale plays as well, but seen a remarkable rebound in commodity prices since the middle of last year and are currently well above pre-pandemic price levels.” – Tom Carter, Chairman & CEO, Black Stone Minerals

Distributions Ramping Up

Aggregators have built a reputation of acting as a yield vehicle with the ability to reinvest, unlike traditional royalty trusts.  Their popularity increased as they maintained healthy distributions over the years, however the challenging environment in 2020 put most payouts in jeopardy.  With the uptick in prices and a more optimistic outlook, aggregators seem confident to return to historical payout levels.

  • “The $0.31 per common unit distribution this quarter reflects a 75% payout of cash available for distribution. We will use the retained amount, 25%, to pay down a portion of the outstanding borrowings under Kimbell’s credit facility.” – Davis Ravnaas, President, CFO & Chairman, Kimbell Royalty Partners
  • “This allowed us to maintain a 100% distribution in the second quarter of 2020 and importantly enter 2021 unhedged with our investors fully exposed to the run-up in commodity prices as the economic reopening took hold toward the end of last year and more fully during the first quarter of this year associated with the vaccine rollout.” – Robert Roosa, CEO & Director, Brigham Minerals
  • “We generated $72.1 million of distributable cash flow for the second quarter or $0.35 per unit. That gave us a lot of flexibility to increase our distribution while still holding some cash and reserve for further debt repayment.” – Jeff Wood, President & CFO, Black Stone Minerals Conclusion
Aggregators seemed optimistic across the board in the second quarter of 2021.  Prices have rebounded, and distribution policies are returning to normal, which in their minds creates good shareholder sentiment.  However, the continued capital discipline of E&P operators may affect aggregators in the short to intermediate term.

Conclusion

Mercer Capital has its finger on the pulse of the minerals market.  An important trend has been the rise of mineral aggregators, which have largely supplanted the trusts as the primary method of publicly traded minerals ownership.  Contact a Mercer Capital professional to discuss your needs in confidence.

Continue Reading

EP Second Quarter 2026 Permian Basin
E&P Second Quarter 2026

Region Focus: Permian Basin

The Permian Basin continued to demonstrate its resilience in the twelve-month period through June 30, 2026 (the review period). Despite a modest decline in rig counts, production reached new highs as operators continued to emphasize capital discipline, drilling efficiencies, and productivity improvements. Heightened geopolitical tensions introduced considerably greater volatility into commodity markets during the latter portion of the review period, yet oil prices ended above year-earlier levels and Permian public companies posted strong stock price appreciation. While basin operators continue to balance disciplined capital allocation with long-term production growth, the Permian remains the nation’s premier oil-producing basin and continues to demonstrate its ability to adapt to changing market conditions.
Just Released: Q2 2026 Oil & Gas Industry Newsletter
Just Released: Q2 2026 Oil & Gas Industry Newsletter
Regional Focus: The Permian BasinThe Permian continued to demonstrate its resilience in the twelve-month period through June 30, 2026 (the review period). Despite a modest decline in rig counts, production reached new highs as operators continued to emphasize capital discipline, drilling efficiencies, and productivity improvements. Heightened geopolitical tensions introduced considerably greater volatility into commodity markets during the latter portion of the review period, yet oil prices ended above year-earlier levels and Permian public companies posted strong stock price appreciation. While basin operators continue to balance disciplined capital allocation with long-term production growth, the Permian remains the nation’s premier oil-producing basin and continues to demonstrate its ability to adapt to changing market conditions.
Bryce Erickson Discusses the Changing Economics of Upstream Asset Valuations with Hart Energy
Bryce Erickson Discusses the Changing Economics of Upstream Asset Valuations with Hart Energy
Mercer Capital’s Energy Industry Team Leader, Bryce Erickson, ASA, MRICS, recently shared his perspective on upstream asset valuations in two features published by Hart Energy.Bryce joined other industry professionals at Hart Energy’s 2026 Energy Capital Conference, where he participated in the panel, “Asset Valuations in a High-Price World: Separating Signal from Noise.” The discussion examined how investors, lenders, and operators are assessing energy assets amid elevated commodity prices, increasingly scarce drilling inventory, and continued consolidation across the upstream sector.Markets Turn Their Attention to Tier 2 and Tier 3 AcreageIn a video interview with Hart Energy’s Chris Mathews, Bryce discusses how the scarcity of available Tier 1 acreage is directing greater attention toward Tier 2 and Tier 3 opportunities.As the inventory of premium drilling locations becomes increasingly concentrated, buyers are looking more closely at assets that may previously have received less attention. Higher commodity prices and continued improvements in drilling and completion techniques can make some of these locations more economically attractive. However, broad acreage classifications tell only part of the story. Investors must still examine the specific geology, operating costs, development plans, decline expectations, and risks associated with each asset. Bryce’s comments underscore the importance of disciplined, asset-specific underwriting as competition expands beyond traditionally defined core acreage.How the “Last Cheap Barrels” May Influence BidsHart Energy’s Lisa El-Amin further explores the relationship between inventory scarcity and upstream deal values in “How the Last Cheap Barrels May Be Shaping Today’s Bids” (subscription required).The article considers how competition is shifting toward a diminishing pool of drilling locations capable of generating attractive returns at approximately $50 oil, with much of that inventory concentrated in the Permian Basin. As low-breakeven locations become harder to acquire or replace, buyers may be willing to place greater value on assets offering durable inventory, favorable cost structures, and a long development runway. The result is an M&A market in which bids are increasingly influenced by the quality and scarcity of future drilling opportunities—not simply current production or near-term commodity prices.Valuation ImplicationsTogether, the two Hart Energy features highlight that asset quality and inventory durability are becoming more visible, and potentially more valuable, as the shale sector matures.Determining how these factors affect a particular company or asset requires careful analysis of its reserves, development inventory, cost structure, operating assumptions, and expected cash flows. Mercer Capital has assisted clients with a wide range of valuation needs in the upstream oil and gas industry across both conventional and unconventional plays in North America and around the world. Contact a Mercer Capital professional to discuss your valuation needs in confidence.

Cart

Your cart is empty