Natural Gas Producers Woes Continue Two natural gas-focused E&P companies are now down approximately 95% over the last five years. Driven by the over-supply from Permian Basin development (focused on oil, where natural gas is merely a byproduct). 5-Year Stock Performance: CHK (Dark Blue) and RRC (Light Blue) More recently, over the last 3 months,…

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Family Therapy: Parent-Child Issues in Shale Basins A recent Society of Petroleum Engineers’ article1 focuses on the disparities in production between parent and child wells in US shale basins, and its impact on the ability of operators to maintain high levels of output over the next few years. However, Doug Suttles, Encana President and Chief…

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In this month, we take a look at market multiples as compared to the size of each company for a group of E&P companies (but excluding the majors like Exxon Mobil, Chevron, and others).  As shown in the table below, this group of companies had enterprise values in the range of $3.4 billion to $55.3…

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Executive Summary Average Valuations are Slightly Down The aggregate EV/EBITDA multiple of 7.3x for Q3 2018 is in line with the multiples observed over the last few quarters, but valuations have tapered off compared to the 7.5-8.0x seen in the latter half of 2017. Leaning Towards Conservatism It appears that private equity firms are preferring…

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The “Expected Range Cone” for a stock’s expected prices in the future represents a theoretical price range that is calculated from options’ implied volatilities.  A selection of large Texas oil & gas companies is shown below.   If the implied volatility is relatively high, then the market is expecting a larger potential price range for…

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Increased Demand / Decreased Supply Drive Oil Higher The April 15, 2019 Oil Price Dynamics Report, published by the Federal Reserve Bank of New York, tracks supply and demand-related changes to oil price (given their national focus, Brent Crude prices are tracked instead of West Texas Intermediate).  Year to date, changes in the nation’s oil…

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ValueScope’s Oil and Gas Price Outlook: March 15, 2019 Don’t trust Wall Street soothsayers—if you want to predict the future of oil and gas prices, rely on probabilities and not a crystal ball.  Wall Street analysts can run large macroeconomic models to predict future prices, but they are all predicated on numerous assumptions, both macro…

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A Tale of Two Permian’s While much of the press is focused on “the Permian,” current activity in the Permian is focused on two different sub basins: the Delaware Basin to the West and the Midland Basin to the East.  While there is a Central Basin Platform in between, most of the current activity is…

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Maximizing Value Throughout the Business Life Cycle Most business owners think about valuing their business and how to get the best deal when it’s time to sell.   While some owners consider their company’s value from inception, too frequently owners give no consideration to value creation until much later, often when it’s too late to affect…

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U.S. Economic Report – December 31, 2018 During the third quarter of 2018, the U.S. economy grew at 3.4% over the prior quarter.  Despite recent turmoil in equities markets, economic indicators point toward continued economic growth. Overview of the U.S. Economy According to the third estimate released by the Bureau of Economic Analysis (BEA), the…

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Satellite Imagery in the Permian The December 2018 issue of the Journal of Petroleum Technology (the Society of Petroleum Engineers’ monthly magazine) had a very interesting piece on the use of satellites to track activity in the Permian basin.1 Companies such as Sourcewater, Planet, and Westwood Global Energy Group are stepping up to monitor the…

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Is it Time to Change the Name of the Most Valuable Player Award? Is the Most Valuable Player really that?  Or, is he the Best Player?  Or, is that the same thing?  The answer might not be as obvious as you think. Consider the NFL as one of the better proxies for analysis, in part…

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Decomposing Oil Prices The Federal Reserve Bank of New York’s Research & Statistics Group publishes a weekly Oil Price Dynamics Report1 which provides some interesting insights into global oil price movements. The chart below shows the relationship between supply and demand on a cumulative basis for the last half of 2018.  Given this analysis considers…

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Lions, Bears and Ducks, Oh My!1 Well there are no lions, but Bear Markets and Drilled Uncompleted wells (“DUC wells” pronounced “Ducks”) in the Permian are moving oil prices this month. Bear Markets for Oil Prices: WTI and Brent Oil prices are in Bear Market territory this month, having had a 2 standard deviation downward…

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The Relationship Between S&P 500 Returns, Earnings Growth, P/E Expansion, and Interest Rates The S&P 500 increased from 2,789.80 on January 1, 2018 to 2,924.59 on October 1, 2018, a year-to-date return of 4.83%. As shown in the graph below, this return was fueled by a solid increase in earnings of 9.20% but was partially…

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