Corporate Valuation, Oil & Gas

November 12, 2021

Themes from Q3 Earnings Calls

Part 1: E&P Operators

In Part I of our Themes from Q2 Earnings, an overarching narrative was 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.  These factors allowed most E&P operators to deleverage, and in some cases, also resume or increase their return of capital (either via dividends or share buybacks) to shareholders.  In the latest earnings calls, these themes continue as the primary focus as we head towards year-end 2021.  Some of the talking points in the Q3 earnings calls continue on the same trajectory as in Q2, such as maintaining capital discipline with flat or low growth in production volumes.  However, there was more variance in the latest round of calls regarding E&P operators' possible approaches to fortify their value proposition to shareholders.

Natural Gas Exports

As noted in our recent blog post regarding natural gas prices and production levels, demand for U.S. LNG exports from European and Asian (primarily China) markets have resulted in elevated prices for natural gas despite the relatively high level of gas production coming from U.S. basins.  This particular topic came up in several of the Q3 calls.

  • "We've talked in the past about the nearly 550,000 barrel a day increase in petchem demand in China from 2021 to 2023 and over 110,000 barrels a day of European and North American PDH growth during that same time period.  What many did not anticipate was the global pressure for hydrocarbons this fall and winter that resulted in elevated LNG prices in Europe and Asia.  This is driving additional demand for LPG in these markets through its use in industrial heating and power applications in lieu of today's high cost of natural gas.  On a BTU equivalent basis, LPG is nearly half the price of LNG delivered in the Far East markets.  The impact from this incremental demand for LPG is a widening export arb." – David Cannelongo, Vice President of Liquids Marketing & Transportation, Antero Resources
  • "We're going to continue to look at new opportunities from an LNG standpoint and are very well-positioned.  Again, it gets back to our transport, our export capacities, and just having that ability to transact, we can definitely be very nimble as we think about new opportunities." – Lance Terveen, Senior Vice President – Marketing, EOG Resources

Many Paths to the Value Proposition

Perhaps the most significant divergence in the Q3 E&P operator calls compared to the Q2 calls stemmed from how the management teams viewed their value proposition to shareholders.  Global energy prices were shaken in early 2020 with the onset of the COVID-19 pandemic, with prices retreating further when the discussions regarding renewal of the OPEC+ production/price cooperation pact, a 3-year plan that was set to expire at the end of Q1 2021, fell apart as Moscow refused to support Riyadh's demand for additional production cuts.  As energy prices recovered amid a background of heightened uncertainty in the global economic and financial markets, E&P operators tightened their belts and took this opportunity to enact highly disciplined capital programs in order to extract greater free cash flow from flat production levels.

For some companies, the value proposition to shareholders remains focused on either increasing the intrinsic value per share via share repurchases or returns to shareholders through dividend programs.

  • "As we continue to trade at a material discount to our intrinsic per share value as we see it, we steadily increased our attention on share count reduction.  And Q3 was a good example of this.  Approximately 60% of free cash flow was returned to shareholders in the form of buybacks.  We continue to see a significant opportunity to retire additional shares in what we believe to be currently attractive prices.  And as a result, on October 25, earlier this week, the Board has increased our share repurchase authorization by $1 billion, now having a sizable share repurchase authorization at our disposal." – Nicholas Deluliis, President & CEO, CNX Resources
  • "I don't want to get ahead of my Board, but I would say at Murphy, we're more tuned to dividend and getting our dividend back. We're a dividend payer for 60 years.  And that would be best for us.  And, of course, a variable dividend, I suppose, can come into that mix. And I would say at this share count, that would be the basis today." – David Looney, CFO, Murphy Oil
For other E&P operators, the name of the game moving forward is flexibility to deliver returns to shareholders through share repurchases and dividend programs.
  • "In mid-September, our Board approved a $2 billion share repurchase program.  After that announcement, we repurchased over 268,000 shares at an average share price of $82 for a total cost of $22 million in the third quarter.  If we do not repurchase enough shares in the quarter to equal at least 50% of free cash flow for that particular quarter, then we will make our investors whole by distributing the rest of that free cash flow via a variable dividend.  This strategy gives us the ability to be flexible and opportunistic when distributing capital above and beyond our base dividend, but importantly, at least 50% of free cash flow will be returned." – Travis Stice, CEO, Diamondback Energy
Perhaps most interestingly, a handful of companies cited additional sources of future shareholder value, setting their sights on opportunities to be had out in the field, be it through acquisition activity or plans to enhance their exploration program.
  • [Regarding the November 3rd announcement of Continental Resources's agreement to purchase Delaware basin assets from Pioneer Natural Resources] "We focus every day on maximizing both shareholder and corporate returns. The Permian Basin acquisition will be an integral contributor to these shareholder return plans.  Possibly most importantly, this Permian transaction is projected to add up to 2% to our return on capital employed annually over the next five years.  The acquisition of these assets strongly supports the tenants of Continental's shareholder return on investment and return of investment, dividends and share repurchases." – William Berry, CEO, Continental Resources
  • "After weathering two downturns during which we did not cut nor suspend the dividend, the new annual rate of $3 per share reflects the significant improvement in EOG's capital efficiency since the transition to premium drilling.  Going forward, we are confident in our ability to continue adding to our double-premium inventory without any need for expensive M&A by improving our existing assets and adding new plays from our deep pipeline of organic exploration prospects, developing high-return, low-cost reserves that meet our stringent double premium hurdle rate, expands our future free cash flow potential and supports EOG's commitment to sustainably growing our regular dividend." – Ezra Yacob, CEO, EOG Resources

Conclusion

Mercer Capital has its finger on the pulse of the E&P operator space.  As the oil and gas industry evolves through these pivotal times, we take a holistic perspective to bring you thoughtful analysis and commentary regarding the full hydrocarbon stream.  For more targeted energy sector analysis to meet your valuation needs, please contact the Mercer Capital Oil & Gas Team for further assistance.

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Defying the Cycle: Haynesville Production Strength in a Shifting Gas Market
Defying the Cycle: Haynesville Production Strength in a Shifting Gas Market
Haynesville shale production defied broader market softness in 2025, leading major U.S. basins with double-digit year-over-year growth despite heightened volatility and sub-cycle drilling activity. Efficiency gains, DUC drawdowns, and Gulf Coast demand dynamics allowed operators to sustain output even as natural gas prices fluctuated sharply.
Haynesville Shale M&A Update: 2025 in Review
Haynesville Shale M&A Update: 2025 in Review
Key TakeawaysHaynesville remains a strategic LNG-linked basin. 2025 transactions emphasized long-duration natural gas exposure and proximity to Gulf Coast export infrastructure, reinforcing the basin’s importance in meeting global LNG demand.International utilities drove much of the activity. Japanese power and gas companies pursued direct upstream ownership, signaling a shift from traditional offtake agreements toward greater control over U.S. gas supply.M&A was selective but meaningful in scale and intent. While overall deal volume was limited, announced transactions and reported negotiations reflected deliberate, long-term positioning rather than opportunistic shale consolidation.OverviewM&A activity in the Haynesville Shale during 2025 was marked by strategic, LNG-linked transactions and renewed international investor interest in U.S. natural gas assets. While investors remained selective relative to prior shale upcycles, transactions that did occur reflected a clear pattern: buyers focused on long-duration gas exposure, scale, and proximity to Gulf Coast export markets rather than short-term development upside.Producers and capital providers increasingly refocused efforts on the Haynesville basin during the year, including raising capital to acquire both operating assets and mineral positions. This renewed attention followed a period of subdued transaction activity and underscored the basin’s continued relevance within global natural gas portfolios.Although the Haynesville did not experience the breadth of consolidation seen in some oil-weighted plays, the size, counterparties, and strategic motivations behind 2025 transactions reinforced the basin’s role as a long-term supply source for LNG-linked demand.Announced Upstream TransactionsTokyo Gas (TG Natural Resources) / ChevronIn April 2025, Tokyo Gas Co., through its U.S. joint venture TG Natural Resources, entered into an agreement to acquire a 70% interest in Chevron’s East Texas natural gas assets for $525 million. The assets include significant Haynesville exposure and were acquired through a combination of cash consideration and capital commitments.The transaction was characterized as part of Tokyo Gas’s broader strategy to secure long-term U.S. natural gas supply and expand its upstream footprint. The deal reflects a growing trend among international utilities to obtain direct exposure to U.S. shale gas through ownership interests rather than relying solely on long-term offtake contracts or third-party supply arrangements.From an M&A perspective, the transaction highlights continued willingness among major operators to monetize non-core or minority positions while retaining operational involvement, and it underscores the Haynesville’s attractiveness to buyers with a long-term, strategic view of gas demand.JERA / Williams & GEP Haynesville IIIn October 2025, JERA Co., Japan’s largest power generator, announced an agreement to acquire Haynesville shale gas production assets from Williams Companies and GEP Haynesville II, a joint venture between GeoSouthern Energy and Blackstone. The transaction was valued at approximately $1.5 billion.This acquisition marked JERA’s first direct investment in U.S. shale gas production, representing a notable expansion of the company’s upstream exposure and reinforcing JERA’s interest in securing supply from regions with strong connectivity to U.S. LNG export infrastructure.This transaction further illustrates the appeal of the Haynesville to international buyers seeking stable, scalable gas assets and highlights the role of upstream M&A as a tool for portfolio diversification among global utilities and energy companies.Reported Negotiations (Not Announced)Mitsubishi / Aethon Energy ManagementIn June 2025, Reuters reported that Mitsubishi Corp. was in discussions to acquire Aethon Energy Management, a privately held operator with substantial Haynesville production and midstream assets. The potential transaction was reported to be valued at approximately $8 billion, though Reuters emphasized that talks were ongoing and that no deal had been finalized at the time.While the transaction was not announced during 2025, the reported discussions were notable for both their scale and the identity of the potential buyer. Aethon has long been viewed as one of the largest private platforms in the Haynesville, and any transaction involving the company would represent a significant consolidation event within the basin.The reported talks underscored the depth of international interest in Haynesville-oriented platforms and highlighted the potential for large-scale transactions even in an otherwise measured M&A environment.ConclusionWhile overall deal volume remained selective, the transactions and reported negotiations in 2025 reflected sustained global interest in U.S. natural gas assets with long-term relevance. Collectively, the transactions and negotiations discussed above point to a Haynesville M&A landscape driven less by opportunistic consolidation and more by deliberate, long-term positioning. As global energy portfolios continue to evolve, the Haynesville basin remains a focal point for strategic investment, particularly for buyers seeking exposure tied to U.S. natural gas supply and LNG export linkages.
Mineral Aggregator Valuation Multiples Study Released-Data as of 06-11-2025
Mineral Aggregator Valuation Multiples Study Released

With Market Data as of June 11, 2025

Mercer Capital has thoughtfully analyzed the corporate and capital structures of the publicly traded mineral aggregators to derive meaningful indications of enterprise value. We have also calculated valuation multiples based on a variety of metrics, including distributions and reserves, as well as earnings and production on both a historical and forward-looking basis.

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