As we plan for a new year and a new decade, we look back at 2019 to see what was popular with you – our readers. Below is a list of the top posts of 2019. Instead of a standard top 10 list, we’ve grouped the posts by topic (Transactions, Saltwater Disposal, Oilfield Services Companies, Royalty and Mineral Markets, and Basin-Specific posts). If you missed one or two posts during the year, now is the time to catch up on your reading.
We look forward to 2020 and appreciate your interest in this blog. May you and your family enjoy a happy and prosperous year.
Transactions
Comstock's Acquisition of Covey Park: A Valuation Analysis of the Multibillion-Dollar Haynesville Deal (Posted 08/02): On July 16, 2019, Comstock Resources, Inc (NYSE: CRK) finalized its acquisition of Haynesville operator Covey Park Energy LLC. Announced on June 10, 2019, the companies entered into an agreement under which Comstock would acquire Covey Park in a cash and stock transaction valued at approximately $2.2 billion, including assumption of Covey Park’s outstanding debt and retirement of Covey Park’s existing preferred units (totaling approximately $1.1 billion). For the purposes of this post, we examine this deal from a few different vantage points and review the fair value of the various components that make up total deal value. We also look at how this transaction compares to industry valuation metrics and what kind of strategic advantages Comstock may have a result of the deal.
Parsley's Acquisition of Jagged Peak Highlights Key Consolidation Trends (Posted 11/21): On October 14, 2019, Parsley (PE) announced that it was acquiring Jagged Peak (JAG) in an all-stock transaction valued at $2.27 billion. The market’s reaction to the announcement was generally negative, as Parsley closed down more than 10% on the date of the announcement. This appears to be driven, at least in part, by investors’ desire for Parsley to be acquired rather than be the acquirer.
Brigham Minerals IPO Brings Spotlight to Oil & Gas Market (Posted 05/06):Mineral aggregators are leading the forefront in an underwhelming energy sector. Brigham Minerals (MNRL) is the latest mineral acquisition company to go public following a trend of other large mineral rights and royalty companies to IPO in recent years.
Saltwater Disposal
An Overview of Salt Water Disposal (Posted 04/19):Over the last 12 years the oilfield waste water disposal industry has grown exponentially, both on an absolute basis, and by rank of its importance/size among the oilfield services. This growth has been largely driven by the increased volumes of waste water generated in the production of oil from shale plays. This post discusses the basics of salt water disposal which has become so important given the rise of hydraulic fracturing.
An Overview of Saltwater Disposal | Part 2: Economics of the Industry (Posted 08/19): In this post, we look at the economics of the saltwater disposal industry and the trends that impact its economics. The outlook for the industry is quite favorable although the economics are, and will continue to be, in a state of flux as the industry grows and matures. Despite some potential detrimental market dynamics along the way, the overall direction points to strong benefits to investors as the business of saltwater disposal continues to evolve away from being a cost center for operators, to a cash flow generating third-party service provider to operators.
Do Oil and Water Mix? The Biggest Energy IPO Of 2019 Might Answer That Question (Posted 09/19):The capital markets in the upstream sector are leaving companies and investors in the lurch right now. Saltwater disposal and integrated water logistics companies have attracted a higher proportion of the sparsely available capital flowing into the sector, highlighted by the largest energy IPO of this year: Rattler Midstream LP. The continuing austerity trend toward cash flow sustainability for shale oil companies has provided limited attractive options for investors. In the meantime, drilling activity (particularly in West Texas) continues to grow, and therefore efficiency and scale grow ever more important across the board for upstream companies to remain competitive. One of the challenges producers face is handling the enormous amounts of water that have become part and parcel to the Delaware and Midland Basins. This is where saltwater disposal enters the picture. (Originally appeared on Forbes.com)
Oilfield Services Companies
What Is an Oilfield Service Company? (Posted 05/24):In this post, we describe what an oilfield services company does and who its customers are, how oilfield services companies fit in the broader oil and gas industry and identify the key drivers of the oilfield services industry.
How to Value an Oilfield Service Company (Posted 06/03):When valuing a business, it is critical to understand the subject company’s position in the market, its operations, and its financial condition. A thorough understanding of the oil and gas industry and the role of oilfield service companies is important in establishing a credible value for a business operating in the space. Our blog strives to strike a balance between current happenings in the oil and gas industry and the valuation impacts these events have on companies operating in the industry. After setting the scene for what an oilfield service company does and their role in the energy sector, this post gives a peek under the hood at considerations used in valuing an oilfield service company.
How to Perform a Purchase Price Allocation for an Oilfield Services Company (Posted 10/25):When performing a purchase price allocation for an oilfield services company, careful attention must be given to both the relevant accounting rules and the specific nuances of the oil and gas industry. We address both in this post.
Forecasting Future Operating Results for an Oilfield Services Company (Posted 06/10):In this post, we address the special considerations that must be given attention in the appraisal of oilfield services companies. The unpredictable cyclicality of the oilfield services industry requires careful consideration of many industry-wide and company-specific factors in developing a reasonable forecast of future operating results.
Royalty & Mineral Markets
Royalty MLP Is Delivering Yield Against Backdrop of Energy Sector Struggles (Posted 11/25):Right now, exploration and production companies and oilfield service providers are grappling with austerity measures that investors are demanding. Most other upstream areas are struggling too; however, publicly-traded royalty and mineral aggregators are performing relatively better than their operating counterparts. While equity prices have dropped by approximately 30% for producers (according to SPDR Oil and Gas ETF), six publicly-traded royalty aggregators outperformed the SPDR Index.
Royalty and Mineral Value Proposition Highlights Otherwise Underperforming Energy Sector (05/17):The burgeoning mineral market is leading the way for an energy sector that has lagged in returns for several years now. The interest in the segment has been undergirded by the attractive cash returns coupled with fewer liability risks, operating risks, and expense burdens. In addition, royalty owners retain ownership rights to perpetuity. These characteristics of royalty and mineral plays have drawn investors in as compared to the market’s negative response to upstream management teams merely seeking to beef up the size of their reserve reports.
Basin-Specific
Pipeline Bottlenecks and Worthless Acreage: The Downsides Of World-Leading Oil Production (Posted 10/31):In this post, we discuss pipeline capacity and flagging prices for undeveloped acreage, specifically in the Bakken. (Originally appeared on Forbes.com)
Valuations in The Permian: Gearing Up for the Long Haul or Running in Place? (Posted 07/12):When it comes to the oil patch, the word “growth” can be a vague term. It’s a word that can be masqueraded around to suit the perspective of whomever utters it. What does it mean in an industry whose principle resources are constantly in a state of decline? When it comes to the Permian Basin these days, growth applies to resources, drilling locations, and production. Unfortunately, the same can’t be said for profits, free cash flow or new IPOs. Don’t misunderstand, the Permian is the king of U.S. oil plays and by some measures could be taking the crown as the biggest oil field in the world. However, various economic forces are keeping profits and valuations in check. (Originally appeared on Forbes.com)
2019 Eagle Ford Shale Economics: Challenging for Valuation Title Belt (Posted 04/30):Investors and boxing fans have some things in common. First, they both prefer champions. Second, there tends to be attention on heavyweights, when the best fighters may be in a different class. In the oil patch’s proverbial basin battle of economics and relative value, the Eagle Ford Shale is coming on strong. Granted, the Eagle Ford Shale may not reside in the same heavyweight class as the Permian Basin; however, from a pound for pound well economics standpoint, the Eagle Ford Shale is currently a formidable challenger to the Permian due to several advantages in key areas: breakeven prices, well costs, certain productivity metrics and proximity. These attributes put it among the most profitable shale basins in the U.S. Some well-known operators such as BP and Chesapeake have noticed and are putting big money behind this play. (Originally appeared on Forbes.com)
Bryce Erickson Writing for Forbes.com
In case you’ve missed it, Bryce Erickson, leader of Mercer Capital’s Oil & Gas industry group, is a regular contributor to Forbes.com. He addresses industry developments, economic trends, and the impact on valuation for companies operating in the Permian, Eagle Ford, Bakken, and Marcellus & Utica regions, among others. Additionally, he covers these issues as they pertain to mineral rights and royalty interest owners.
