Even as Oil & Gas Prices Increase, MLP Values Decline When the Federal Energy Regulatory Commission (“FERC”) evaluates tariff rates on regulated pipelines, they target a “just and reasonable” return on equity (“ROE”) to compensate pipeline operators.  To determine these rates, operators calculate their expenses associated with running their pipelines and are allowed to charge…

International Energy Agency’s Report is Bullish on U.S. Oil Production According to the U.S. Energy Information Administration (“EIA”), U.S. crude oil production has grown to 10.4 million BPD (“Barrels per Day”) as of March 2018. 1 This production level surpassed the previous peak of 9.6 million BPD dating back to 1970. 2 The International Energy…

Business owners and shareholders cannot adequately plan for a sale or merger unless they understand the price that the business will bring in a fair transaction.  In order to know this price, an appropriate valuation is required. The right valuation will: Clearly indicate the value and value drivers of the business, arming sellers with the…

Can Leveraged Debt Retest Low Premiums? This article continues the discussion started in Article #1, “Is It Time to Invest in Leveraged Debt?” and  Article #2, “Leveraged Debt Investment Alternatives.”  Article #3 addresses the question of whether or not the leveraged debt market has reached its cyclical peak and if credit risk premiums can narrow…

Leveraged Debt Investment Alternatives This article continues the discussion started in Article #1, “Is It Time to Invest in Leveraged Debt?” and  describes the primary debt types that trade in the leveraged debt markets What is leveraged debt? Leveraged debt is the financial obligations of large businesses and certain governments whose credit ratings do not…

  Backward Days Are Here Again After Q4-2017’s run up in oil prices, the futures market pricing is now in a state of “backwardation.”  Beginning around November 2017, the WTI calendar spread for the next six months moved from “contango” into “backwardation.”  According to Reuters’ data, oil prices have not been shown “backwardation” since November…

Is it Time to Invest in Leveraged Debt? In the week ended January 11, 2018, retail investors poured $2.65 billion into the high yield bond market.  Was this a good idea? The chart below describes the historical yield experience investors have enjoyed (sometimes endured)  through their investments in leveraged debt. Leveraged debt includes all below…

  Banks are Increasing Price Decks Given the last month’s increased hydrocarbon prices (approximately +18% for gas and +11% for oil), banks are increasing their price decks for evaluating loans to E&P companies.  In a recent Wells Fargo Securities Equity Research Report1, the table below shows their current oil price decks for both WTI and…

WTI and Brent Crude Oil’s Prices Continue to Diverge Over the last week, WTI oil prices have increased between $2.00 and $3.00 per barrel and Brent Crude prices have increased by $3.00 to $4.00 per barrel.  The increase in the Brent (North Sea) oil prices was in part due to a supply disruption in the…

Lower Crude Futures Driving S&P 500 Declines Stocks around the world extended losses Wednesday, affected by lower commodity prices and a weaker dollar.  A key factor in this week’s 3% fall in crude prices was the American Petroleum Institute’s “surprise” report that U.S. inventories had increased in crude oil and gasoline. The IEA also cut…

Electric Cars Impact on Oil? The electrification of powertrains continues as automakers roll out everything from subcompact compliance cars to electrified supercars to improve efficiency and optimize power. Tesla’s Model 3 is just the prong on the charge cord of available plug-in vehicles. BMW, Mercedes-Benz, Ford, Volkswagen, Volvo, and Hyundai have all announced electrification plans…

A New Way to Method for Determining Value of Shale Acreage and Value of Operating Companies1 Credit Suisse recently developed an algorithm nicknamed “SAM” to analyze large amounts of data from shale production. This tool assesses the value of the shale mineral acreage and of operating companies for those fields.  Credit Suisse claims their SAM…

Drilling Rigs’ Day Rates Pricing According to a recent Bank of America Merrill Lynch research report,1 “High-spec” day rates have remained flat for two months.  The term “High-spec” refers to rigs with powerful top drives, hoisting systems and pumps.  According to industry sources, rigs with larger (+1,000) horsepower ratings account for an estimated 60 percent…

Congratulations to Ben Westcott and David Pryde for passing the CFA Level III examination! For more information, contact: If you liked this blog you may enjoy reading some of our other blogs here.

One of the Reasons That Oil’s Price Recovery Has Stalled Over the long-term, US active drilling rig counts and oil prices have moved reasonably in sync.  As shown below, over the last ten years, there has been a high degree of correlation, as basic economics would suggest. Recently, however, this relationship has reversed, at least…

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