Investors and operators are now required to consider a portfolio of aging wells that have been drilled, but uncompleted (“DUCs”).  Delaying a completion of a previously drilled well, by as many as four years, has “little effect” on the initial production level, according to a new study by US Energy Information Administration (EIA). The study…

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During the second quarter of 2019, the U.S. economy grew at an annual rate of 2.0% over the prior quarter.  Household spending has been a primary driver of growth, and the economy continues to perform strongly despite slowing global growth and headwinds from trade disputes. Overview of the U.S. Economy According to the third estimate…

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The Tax Cuts and Jobs Act of 2017 (the “TCJA”) was a complicated piece of tax legislation that mostly decreased taxes for individuals and corporations.  However, the net effect on an individual (or corporation) is dependent upon the unique circumstances of that individual. With respect to individual taxpayers, marginal rates were lowered somewhat from 39.6%…

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Remember that Little Bombing Incident in Saudi Arabia? Last month, two of Saudi Aramco’s oil production plants were attacked with a combination of twenty-five drones and missiles.  The sites hit, the Abqaiq and Khurais oil facilities, impacted Saudi production by 5.7 million barrels per day of crude [1]. This disruption in supply caused Brent Crude…

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Was Natural Gas the Fuel for Jerry Jones’ $90 Million Bet on Zeke?   This last month, Jerry Jones, owner of Comstock Resources and the Dallas Cowboys, entered into a six-year, $90 million contract with running back Ezekiel Elliott, financed in part by natural gas.1  Jerry Jones was quoted as saying that, “the way you…

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A Review of the Risk Premium Method for Regulated Electric Utility ROEs Energy ROE In utility financial economics, the cost of capital, or rate of return, is the cost of an electric utility’s invested funds, both debt and equity. The cost of equity capital is the rate of return that common shareholders require on their…

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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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