Oil & Gas

January 22, 2020

Coming Soon: Mercer Capital’s 2019 Energy Purchase Price Allocation Study

We at Mercer Capital love movies.  One fun aspect of a movie is the anticipation for new releases that comes from watching movie trailers, which inform and tease simultaneously.  If done well, they can build anticipation for the show to come.  While not quite a movie trailer, we wanted to introduce you to a new study from our energy team that we are excited about: Mercer Capital’s 2019 Energy Purchase Price Allocation Study.

This study is unlike any other in terms of energy industry specificity and depth.

Valuation, by nature, is an inherently forward-looking exercise.  However, as we are still unable to see the future, history remains the window through which we look to gauge it.  As we plunge forward into a new year and a new decade, we take this opportunity to look back at the energy sector through the lens of transactions and GAAP financial reporting.  This study researches and observes publicly available purchase price allocation data for four sub-sectors of the energy industry: (i) exploration and production; (ii) midstream; (iii) oilfield services; and (iv) refining.  We are excited about this study because we think you’ll find it useful, informative, and helpful.  We are also excited because our study is unlike any other in terms of energy industry specificity and depth.

Mercer Capital’s upcoming 2019 Energy Purchase Price Allocation Study provides a detailed analysis and overview of valuation and accounting trends in these subsectors of the energy space.  This study enables key users and preparers of financial statements to better understand the asset mix, valuation methods, and useful life trends in the energy space as they pertain to business combinations under ASC 805 and GAAP fair value standards under ASC 820.  We utilized transactions that closed and reported their purchase allocation data in calendar year 2018.

This study is a useful tool for management teams, investors, auditors, and even insurance underwriters as market participants grapple with ever-increasing market complexity.  This study provides data and analytics for readers seeking to understand undergirding economics and deal rationale for individual transactions.  The study also assists in risk assessment and underwriting of assets involved in these sectors. Further, it helps readers to better comprehend financial statement impacts of business combinations.  Intangible assets comprised approximately 84% of the S&P 500s market value in 2018, according to a Ponemon Institute study.  Other studies suggest that the energy sector’s concentration of intangible assets approximates less than half of that.  Averages from year’s study across a total sample of 33 transactions bracket those estimates and they vary by sub-sector:

When we prepared this analysis, we came across a few noteworthy items:
  • Exploration and production transactions were primarily allocated to reserves, and particularly more proved reserves than unproved reserves. Only one transaction recorded goodwill.
  • Oilfield services transactions had the most diverse set of allocations to intangibles.
  • Midstream transactions (gathering/disposal, processing, compression and terminals) had the highest concentration within the sector groups of customer-related intangible assets as a percentage of purchase consideration.
  • Useful life reporting varied, but oilfield services transactions tended to have longer remaining lives (10 years or longer) ascribed to them.
There is a lot to learn from this study as it illuminates some key industry aspects which we will be discussing and referencing in future posts.  In the meantime, we hope the upcoming study will come to serve as a valuable reference.  Get your popcorn ready, you won’t want to miss the premiere.
Author
Bryce Erickson
Managing Director
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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.

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