Justin Pettit

IHS Markit · Oil & Gas

The estimation of corporate capital costs is complicated by many practical issues that create numerous degrees of freedom and lead to wide-ranging results. We provide pragmatic solutions including: * A global market risk premium (MRP) of about 5%, based on historical data, market expectations, and a review of the literature * Several methods to der...

JVs were once the domain of international market entry – a “necessary evil” to comply with restrictions on foreign ownership. In so doing, they also afforded access to local expertise and enabled companies to effectively “trial” a foreign market entry with a smaller commitment of resources – and with a natural exit option in the event that the tria...

Even with very aggressive growth assumptions for renewables, the role for oil and gas will grow, both in absolute terms and as a share of China’s total energy mix. And yet China’s domestic production of oil and gas continues to fall short and China’s need for expensive, foreign imports will only get worse. Meanwhile, the United States – once the wo...

Optimal capital structure continues to be a topic of research and debate. However, although the trade-offs between debt and equity are well documented, the over-riding needs of a company and intangibility of many costs and benefits relegate much of the debate to academic quarters, while practitioners make decisions based on credit rating targets, f...

With oil and gas prices again cycling down, finding new lows, trillions of dollars of real-time decisions must be made in the E&P industry – operating decisions, shut-ins, development and other major capital projects, acquisitions and divestitures, and strategic choices. In order to support such decisions with economic analysis [e.g., net present v...

As US oil and gas share prices languish, there is some nagging concern about the financial health of the industry. Despite turning the world’s largest importer of crude oil into a global exporter, questions linger about profitability and financial leverage – some skeptics have gone so far as to ask if the industry is a “Ponzi Scheme.” Moreover, as...

An application of Capabilities-Driven Strategy to upstream E&P. As the industry evolves, so too must E&P strategies, portfolios, organizational capabilities, and operating models – capabilities must be enhanced, workflows streamlined, and productivity optimized, through broad operating model redesign. Enterprise operating models require a stronger...

Deputy Crown Prince Muhammad bin Salman’s remarks about an initial public offering (IPO) for a stake in Saudi Aramco is a shot across the bow for many – the world’s major international oil companies (IOCs), other nations and their state-owned national oil companies (NOCs), and all those within the Kingdom of Saudi Arabia whose fate is tied to a suc...

The E&P sector faces the seemingly conflicting imperatives, to cut costs in response to the supply glut and low natural gas and liquids prices, but also, to invest to meet the world's longer term needs for roughly 40 MMb/d of new liquids production by 2030. Moreover, some of this growth must come from higher-cost resources, such as deep-water proje...

Western countries abandoned the National Oil Company (NOC) model many years ago, but the rise of NOCs has shifted the balance of control over the world’s hydrocarbon resources. In the 1970s, NOCs controlled less than 10% of the world’s energy resources, but now they control more than 90% of reserves and 75% of production. This shift comes in concer...

The energy sector has been one of the few bright spots in the global economy over the past five years, and it has grown so large that it is impossible to ignore – by many measures, we are on the dawn of a North American (N.A.) energy renaissance with implications that will carry through the energy supply chain into manufacturing.We acknowledge the...

The energy sector has been one of the few bright spots in the global economy over the past five years and the unconventionals revolution is creating waves that will carry through the economy, including infrastructure and manufacturing. We acknowledge the many challenges for energy investing – beyond the traditional sub-surface risks that always pre...

While we may not have a better crystal ball than anyone else, in our advisory work, we do have good visibility on what folks are looking at and "where the money is going." Without betraying any confidences, we have assembled a high-level perspective on some of the activity, trends, and outlook that we are seeing in our advisory work along the energ...

Conventional wisdom would have us believe that it is always beneficial to be first – first in, first to market, first in class. The popular business literature is full of support for being first and legions of would-be business leaders, steeped in the Jack Welch school of business strategy, will argue this to be the case. The advantages accorded to...

Higher commodity prices, along with higher currency and commodity price volatility, have combined with challenging economic circumstances to make for difficult economics within many industries today. These factors can introduce risk to both top-line revenue and the cost structure, and wreak havoc on net cash flow and profitability. To the extent th...

Global public service infrastructure faces the competing demands of age, capacity and economic headwinds. The aging infrastructure of Western economies needs upgrading – just as challenging economic conditions bring government spending and deficit measures to a head. And the inadequate infrastructure of emerging markets is in desperate need of expa...

With the search for next generation drugs getting harder, longer, and more expensive, pharmaceutical companies are scrambling to develop a broader suite of relevant capabilities (e.g. specific disease areas, high throughput drug screening, payor management, etc.). For example, biotech companies appear to have advantaged capabilities around developm...

Despite the economic climate, many companies in the healthcare sector remain very well capitalized. And with the capital markets re-opening, we see growing momentum to re-evaluate portfolios and to exploit today’s price environment. We studied 1,750 healthcare deals over the 1998-2008 period, to identify common themes behind winning/losing deals. O...

Many leading major oil companies and independent producers have poured investment capitol into heavy oil, shale gas, tight gas, and coalbed methane, believing unconventional resources to be key elements of future energy supply. However, the economic crisis and subsequent reduction in financial liquidity in companies around the world threaten the gr...

We now live in a world where non-investment grade industrials do and really should trade at 2-3x EBITDA. This is true, despite historical market multiples and precedent transactions being in the 5-7x EBITDA range. It all starts with the fixed income markets. We have entered a new era for corporate valuations, where the impact of fixed income market...

As central figures in mergers and acquisitions, today's Chief Financial Officers are redefining the practices of their profession. This paper is an excerpt, published in strategy business (issue 53, Winter 2008) that represents the first chapter of the new book, The CFO as Deal Maker: Thought Leaders on M&A Success. The book is a series of fifteen...

Easy money conditions in recent years fuelled a surge in deals ranging from acquisitions and LBOs, to leveraged recapitalisations. The use of increasingly forgiving, and complex, capital structures, including the growth of second lien and PIK toggle note financings, was not only a sign of an overheated market, but will also have an impact on recove...

Call them the New Blues - emerging blue-chip companies and sovereign wealth funds from developing markets such as Brazil, Russia, India, China and the Middle East - that can compete on the same level in mergers and acquisitions with the largest and most powerful corporations in the West. These freshly-minted contenders, along with a spate of govern...

Most buyers would prefer to negotiate privately with a target company, rather than fight for the asset in an open auction. But sellers will try to create competitive tension between multiple bidders wherever possible. In this roundtable, the panellists discuss the advantages and drawbacks of M&A auctions, and ways for both buyers and sellers to boo...

group of academics and practitioners addresses a number of questions about the workings of the stock market and its implications for corporate decision-making. The discussion begins by asking what the market wants from companies: Is it mainly just steady increases in earnings per share, which are then capitalized by the market at the current indust...

M&A collars are a useful but underutilized tool for the M&A toolkit. With growth through M&A back on the corporate agenda, we build on the relatively scant literature with our guide to M&A collars: - What Are Collars? - How Collars Add Value - Do You Need A Collar? - How To Design Your Collar - Capital Markets Strategies

Executives often complain that Wall Street doesn't appreciate the value of their companies. And they are often right. Research shows that companies' shares can trade at up to a 30 percent discount - either to what the companies would fetch if the pieces were on the market separately or to the value as seen by private equity investors. As the conven...

Stock liquidity is a frequent consideration for primary or secondary issuance, stock splits, share repurchases and special dividends. However, there has been very little literature or rigorous guidance around what constitutes liquidity, its impact, and potential remedies. * How To Measure Stock Liquidity * The 'Liquidity Discount' * Policy Implicat...

Corporate finance's elusive optimal capital structure puzzle has now expanded to an exercise in ALM, with cash, investments, and corporate pensions complicating the picture . . . we make the case for pension asset reallocation, but prescriptive solutions require more than just efficient frontier and VaR analysis. * Why Now? * What's Wrong with Equi...

We've all seen the studies that show M&A destroys value, obscuring reality behind the law of averages and offering little actionable advice to executives. Many deals are unsuccessful, but many create tremendous value ... we answer the more important question, "How can we incorporate M&A as part of our growth strategy to meet the value imperative?"...

Cash balances are at record levels and continue to grow. With balance sheets largely mended, cash flow improving, and the cost of capital rising, balanced decapitalizations can offer compelling economics: lower capital costs, higher returns, enhanced credit strength, and real intrinsic value. * Why Now? * How Much Is Too Much? * The Costs & Benefit...

Credit ratings are rarely even mentioned in business schools and remain one of the most understudied aspects of modern corporate finance. Although ratings and rating agencies have come under fire postEnron, they remain powerful gatekeepers to an issuer's access to, and cost of, capital: * Trends and Implications for Issuers * Which Ratios Really Ma...

With equity markets and M&A volume trending up, we expect a dramatic rebound in public divestitures; preliminary signs are already positive: - Strategic review and economic profitability analysis frequently identify divestiture candidates within multi-line businesses; however, divestitures are often delayed due to common misconceptions. - Restructu...

Determining your weighted average cost of capital involves a number of measurement issues . . . we: - Normalize the 10 year risk free rate to about 5%, looking forward on the swap curve and also comparing with 30 year Treasuries - Estimate the market risk premium to be about 5% - Present several methods to derive reliable estimates of beta includin...

Economic performance measures can have powerful advantages over traditional accounting metrics, but require thoughtful interpretation to avoid classic pitfalls: - Costing for Capital - EVA-based Throughput Accounting - Joint & Common Costs - Lean, Six Sigma, and Economic Profit - Incorporating Value into the Profit Equation

USD movement against the EUR, the Japanese Yen, and CAD/USD fluctuations are forcing CEOs & CFOs to think strategically about FX and revisit old policies and practices. Long Term Equilibrium Exchange Rates Why Hedge? What to Hedge? How to Hedge? FX Hedging in Cross Border M&A Corporate FX Hedging Practices

Today's M&A environment seems more challenging than ever - Board inertia, accounting concerns, and uncertain economic prospects. We address pitfalls that commonly impede renewal of growth prospects in your stock price: Hurdle Rates Starve Growth Book Loss on Disposition Doesn't Matter Don't Fret Over Goodwill & Marked-Up Assets Don't Wait to Time t...

Who, When, What & How? . . . In the face of recent events, dividend and share repurchase policies are now being rewritten: Low interest rates and depressed equity returns put pressure on companies to increase shareholder distributions A dividend renaissance is partly due to low yields elsewhere, and the perception of dividends as a safe haven in tu...

Today's deflationary environment makes financial considerations more challenging, and perhaps more counter-intuitive than ever: * Less debt is now "optimal" * Extend duration, while rates are low * Build liquidity to insure your equity * Issue equity, despite low share prices * Dividends versus buybacks

Contrary to popular wisdom, buybacks don't create value by raising earnings per share. But they do indeed create value, and in two very different ways. First, a buyback sends signals about the company's prospects to the market--hopefully, that prospects are so good that the best investment managers can make right now is in their own company. But in...

"Twenty years after the publication of The Goal, the goal remains elusive," states the author. This article outlines ways to improve production strategy and uncover new opportunities for growth. It explains economic value added, an integrated performance measurement, management, and reward system.

The financial management practices of many multinational corporations are at odds with both financial theory and the strategic case for global expansion. Despite the weight of academic literature, many financial executives still cling to ad hoc rules of thumb that discourage value‐enhancing global growth. In particular, they tend to require large r...

Central to modern finance theory is an understanding of the cost of capital-the minimum required rate of return that is used by companies and investors for both valuation and ongoing performance measurement. This paper provides new insights into the market risk premium for U.S. equities, as well as better methods for measuring and quantifying a com...

This article presents a complete ranking of America's 100 largest bank holding companies according to their shareholder value added. This research, the first of its kind for the banking industry, defines an EVA measurement for banks and presents evidence of EVA's stronger correlation with bank market values than traditional accounting measures like...