February 14, 2025
Things I Learned This Week at the Big Easy
Backstory. I participated in the IPO of Franks, the Louisiana-based OFS business. During my coverage of Franks, in 2016, the company made the acquisition of Blackhawk Specialty Tools, a supplier of engineered well construction and well intervention solutions, including a premium automated top drive cement head that captured a lion’s share of the market in just a few years. It was considered a coup. $321 million. Billy Brown had sold part of his company to Bain Capital in 2013, and they sold the whole company to Franks. It has continued to be a stalwart in the stable of what is now Expro.
Follow the Dream. Billy was born in New Orleans, raised in Lafayette and ended up in Houston. While owning Blackhawk, Billy, an avid hunter and golfer, has acquired a few acres of land just outside of Columbus, Texas, where he hunted with friends and clients. When Franks bought him out, he decided to chase a dream and began to develop his piece of land in Columbus. A couple of years ago, he decided to supplant the 9-hole golf course with an 18-hole track. And as he did with his businesses, he has done it all first class. The Covey, an 18-hole championship golf course, made its debut in March 2023. In its first year, The Covey was rated #1 NEW and top 10 overall golf course in Texas by The Dallas Morning News, and Golf Digest ranked The Covey as “Best New Private Course in the Nation” in 2024.
Highest Use. I had the pleasure of co-hosting an Oilfield 360 podcast with David de Roode, featuring Billy and his life history and philosophy. We did the podcast from the “Eagles Nest,” the “house” at the turn of the course, with a spectacular view of a perfectly manicured golf course, built on the rolling terrain of the Eastern Hill Country. Well done sir! So much better than putting it into a hedge fund! Land! The place is beautiful, and I didn’t even get to the bird shooting part. Thanks, Billy and David.
Earnings Continue. But as an analyst, we all knew that it wasn’t so much what you did, but what you are going to do, and for this year, most are going to do less. Unless, of course, you are a natural gas-biased E&P company. In which case, put down the champagne and get back to work! Uncertainty has long been the bane of our industry’s existence, and now that has expanded to include everything! As a result, there has been little change. This year will be slightly weaker, layoffs are happening, concerns about maintaining, oil volumes are growing, making significant net growth very unlikely and while we point at that as a driver of higher prices, in this market, it may not move prices at all. Mr. Trump wants cheap oil. We don’t, and more importantly, we can’t. At least not if we want to continue to be a financially viable industry. We can’t plan (hedge) far enough out, or with enough volume surety, to overcome the uncertainty. So, look around and see who could be a good partner, while spending most of your time with your nose to the grindstone.
Oil #1. “Chevron says slowing U.S. oil output jeopardizing terminal projects.” Wow. I listen to all the many pundits and soothsayers give me the correct oil price and production forecasts, but lately, it has gone fairly quiet. Why? Because the idea of the U.S. growing oil production dramatically from here is nuts. But no one can really say that. I have taken the “under” on 15 million barrels per day, along with a few friends. But when the production growth rate actually has a material impact on a business, I will pay more attention and give more credence to their opinion. So, when I read the opening quote, then the first line – “Slowing oil production in the U.S. is casting a shadow over projects that are intended to expand the shipment of crude to markets overseas.” Quote from a Chevron executive. Natural gas volumes will increase, fairly significantly, over the next several years from capital projects already under construction. Oil? Global demand will grow, but until oil prices move higher, and the industry believes they will stay higher, U.S. production might not. Sure, that will likely cause oil prices to rise, raising prices. But then every investor will ask, “how long will it last?” and the more supply we add, the shorter time it will last.
Oil #2. Chevron believes in the expected stall of U.S. production growth and the impact of that throughout their businesses. As a result, the company also announced that it would lay off between 15% to 20% of the company’s workforce. That level is not “seasonal trimming” while we wait for the pendulum to swing, but a reduction in the core number of people the company believes are necessary to manage the business correctly. The layoffs will begin this year, with most of the cuts coming before the end of 2026, with the goal of reducing costs by $2B to $3B by then. At the end of 2023, Chevron employed 40,212 people across its operations, so the reduction would be 6,000 to 8,000 people. We have said for some time that beneficial technology in a company isn’t limited to things we put downhole, but also the technology of how we run our businesses. I point to Halliburton’s “Battle Red” effort, streamlining invoice data transmission, which could improve cash flow by $800 billion a year. With AI, and the expectation of slowing U.S. production, Chevron thinks it can do even more with even less.
OFS #1. It isn’t just E&P or midstream that is trimming ranks. The world’s largest OFS company, SLB, formerly known as Schlumberger (I love doing that!), is “reorganizing” certain functions across the company and continuing to reduce its workforce. Recently, the concern was that Biden’s last round of sanctions would make it even more difficult for SLB to continue working in Russia, but we don’t know how that factors into the recent announcement. As part of its reorganization, the company created a new performance-related position led by a new Chief Performance Officer. I love this. A focus on performance. Our industry and this company have always focused first and foremost on performance, but it is nice to see those functions formalized over more social issues.
NatGas #1. At NAPE last week and at the Raymond James dinner, one of the most asked questions was “where will the natural gas come from to meeting growing demand?” The immediate answer? The Haynesville. No pipes out of the Marcellus and Utica for years means the gas has to come from somewhere. Right? And the knee jerk reaction is still for the Haynesville. But what if???
Rystad Energy is well known and respected and they have a warning about what is everyone’s immediate answer. They focus on a dwindling inventory of remaining economic well locations, which will make drilling activity in the Haynesville much less responsive to Henry Hub prices in the $4/MMBtu range than it has been historically.
“Rystad estimates that 30 to 35 new Haynesville wells are needed to hold production flat each month, still slightly higher than the run rate at today’s rig counts. Following a wave of consolidation, the largest four Haynesville players—Aethon, Expand, Comstock and Tokyo Gas—together with their joint-venture partners, hold 73% of the remaining sub-$3 per MMBtu inventory in the play. This consolidation limits the extent to which private operators can realistically ramp up activity.”
“Instead, we expect modest increases from these four largest operators, with some potential upside from the majors. We expect Haynesville drilling levels to ramp up only slowly and modestly, reaching about 40 by year-end, with a medium-term cap of about 50 rigs. Reaching that 50-rig ceiling likely requires additional capital to enter the play, with Chevron and Aethon recently targeting divestiture and new capital, respectively.”
Independent Spirit. I am reminded of the salsa commercial from years back where the cowhands found out that the salsa they were eating was not made in Texas, but in New York City, it was looked upon with disdain. We might get another chance. Several months ago, it was announced that the Texas Stock Exchange was going to open in 2026, backed by firms like Blackrock and Citadel Securities. It is intended to be a fully electronic exchange, focusing on smaller, more volatile companies, in which Texas and the energy business has thousands. In response, the New York Stock Exchange, which had opened a branch in Chicago, is now moving that branch, or at least renaming it to “NYSE-Dallas.” It’s a race, and the race appears to be on. The New York Stock Exchange is a business like any other. The goal is to expand and make money and they obviously see the upstart Texas exchange as a rival to be put down, ergo the change from NYSE-Chicago to NYSE-Dallas. It will be interesting to see who wins. The NYSE-Dallas exchange is going to have to significantly lower rules, requirements and rates relative to it’s NYC-based counterpart. The Texas Stock Exchange, while sponsored by some outside sources, was intended to be for Texas, not just Dallas. It’s hard to believe that the NYSE wants more small and volatile companies, but in a period of lower growth, as we all know, every door to open looks inviting. My money is on the Texas Stock Exchange, not something made in New York City.
The Truth Will Set You Free. On the editorial pages of the Wall Street Journal, a recent article about the TV show Landman - “A detailed unapologetic tribute to the tenacity, courage and dedication of the people who work in the oil business.” Many people in the industry have said that the show isn’t terribly realistic. That Billy Bob Thornton seems more like an operations manager than a landman, but if you remember, in one episode, the oil company president, John Hamm, when he promotes Billy Bob, says “you’ve been running things all along anyway.” Everybody in our business has always done the jobs of many, and initiative still matters in our industry. It’s nice to see us recognized for such. And those who say it isn’t very realistic, if you can press all of your time in the field into ten episodes, I’m willing to bet you could have at least a few interesting stories, and if more than one or two men get together, the stories get to be continuous. We don’t have blowouts on workover rigs every day, but it should be noted that the industry has had 14 fatalities in the last three weeks. So, we are a dangerous and critical industry. It’s very nice to be recognized as such on the editorial pages of a national newspaper. And it does more for Jerry Jones‘ reputation than anyone could’ve imagined. One of my favorite comments in the show says, “demonizing those who provide a substance almost everybody uses almost every day makes no sense; there ain’t nobody to blame but the demand that we keep pumping it. For now, and for years to come, we’re going to need fossil fuels,” a point Landman makes again and again, mocking those who think denouncing them will alter reality. “There’s an alternative. You can throw your phone away and trade that Mercedes for a bicycle or horse and start hunting for your own food, but you’ll be the only one and it won’t make a damn bit of difference. Plus, I hear the moral high ground gets real windy at night.” You gotta love it.
Not Very Smart. A study published in 1998 in the American Demographics magazine showed that people with the most education have the least amount of sex. According to the study, people who have attended graduate school average about 50 sexual acts a year; graduates of four-year colleges average 56; those with some college education average 62; and high school graduates average 58. Today? It is still being proven true. According to the Economist, not the National Inquirer, comes a study, in which the write-up opens with “Does more education lead to less sex?” It seems there is a “degree divide” in the bedroom. Between 2002 and 2023, 25 to 35-year-olds with a bachelor's degree had sex 11% less often than the average adult; those with a graduate degree had sex 13% less frequently. In 2024, one in five seniors at Harvard revealed to the Crimson, a student newspaper, that they had never had sex. The message? If you want a life full of sexual pleasures, don’t go to graduate school. In fact, don’t even graduate from college.
Oil #3. OPEC is predicting that global oil production will grow by about 1 million barrels per day this year. Below is a chart showing where they think it will come from. This is one reason for my “under” bet.
Oil #4. But the EIA disagrees with me. They, like OPEC, are bulls on production. They revised their forecasts and now expect bigger oil surpluses than previously projected for this year and for 2026, driven by continued growth in American and non-OPEC production and projections that sanctions won’t dent Russian output. Oil is $71 as I write this. World oil markets are expected to average a surplus of 1 MM BOPD in 2026, up from the 800,000 MM BPD surplus it projected in last month’s report. The forecast is twice as big as the glut the EIA expects this year, which also was revised up from its previous report. U.S. and non-OPEC production growth is expected to be stronger than previously thought. It is an interesting thing about predicting oil prices. You start off knowing you are wrong, but you would like to be at least directionally right. I’ll still take the “under.”
Snippets.
Another Polar Vortex is on the way, getting natural gas producers even more giddy.
“So, the people who made us rename everything from military bases to football teams to pancake syrup are very upset about this Gulf of America thing aren’t they?”
Full Stop. Politics. We thought they would end with the election. Foolish us. And they are going after Elon much more than Donald. And everyone was riled up about tariffs. We all kind of know what a tariff is, but few know how prevalent they are. When the idea of “reciprocal tariffs” came into fashion, the noise stopped. MSNBC went from ballistic to (almost) silence. Reciprocal? You mean like “‘goes both ways”? Every country charges tariffs. The U.S. tariff rate is 30% of the global average. Mr. Trump is right. We are being penalized by countries that charge a higher tariff rate on U.S. goods than we do on theirs. Ideally, a world without tariffs would be ideal. Not convinced? Do you own a pickup truck? Think about it. In the last few years, we have seen more and more foreign pickups, almost all from Toyota. That is, of course, because they make them here in the U.S. Why should that matter? Because the U.S. has had a 25% tariff on any pickup truck imported into and sold on our soil. 25%!! That would keep everyone else out. And it has. The tariff was instituted and has been in place since 1964. 60 years of protectionism. But it got Toyota and others to move here and hire thousands. As soon as everyone realized that other countries already have tariffs on U.S. made goods, it just went quiet!
PPHB – U.S. Energy Market Update Highlights.
Commodity Prices: WTI crude oil is currently $71.24 per barrel (up ~0.9% week-over-week) and natural gas is $3.57 per MMBtu (up ~4.7% week-over-week).
Crude Oil Production: U.S. crude oil production is currently ~13.5 MM BOPD (up ~1.5% year-over-year).
Crude Oil Inventories: U.S. crude oil inventories increased by ~4.1 million barrels week-over-week vs. an estimated increase of ~2.4 million barrels.
Frac Spread Count: There are currently 198 frac spreads operating in the U.S. (an increase of 8 spreads week-over-week).
Onshore Drilling Rig Count: There are currently 570 drilling rigs operating in the U.S. (an increase of 3 rigs week-over-week).
Great Idea! Thousands of Danish citizens are launching an effort to buy California as a response to Trump’s attempt to take Greenland. They say they will provide Californians with “rule of law, universal health care, fact-based politics and a lifetime supply of Danish pastries.”
Gone But Still Here. The goliath of the energy news business, Hart Energy, has been acquired by privately held publisher, Crain Communications. Crain is based in Detroit and maintains a business media and information footprint of 21 international and award-winning industry brands, and combined, the Crain brands reach 78 million readers globally. Heart adds an energy platform to Crain, which includes Hart Energy itself and multiple conferences. Crain had all the usual boilerplate comments, but the one that I loved was - “We are excited… to be part of this dynamic, expansive industry that touches businesses and lives across the globe.’’ Yes, we are. Congratulations to all.
Lawsuits. Last I heard, there are over 60 lawsuits filed against the government for Mr. Trump’s actions so far. We have our own. On my birthday, congressional Republicans introduced joint resolutions to overturn the Biden administration’s final rule for a new methane fee on waste emissions from oil and gas operations. Twenty-five Republican senators introduced to the Senate a joint resolution under the Congressional Review Act to overturn the U.S. Environmental Protection Agency's rule to implement the proposed methane fee. The resolution was filed within 60 days of the senate session, allowing for fast-track procedures that prohibit a senate filibuster. The EPA announced the final rule on Nov. 12, 2024, a week after the election. Investments in methane detection and remediation will continue, but the stick being held over our heads is not constructive.
Any and all comments, arguments and rebuttals are welcome!
In addition to my association with PPHB, I serve on three private company boards. Merit Advisors is a property valuation company and I have long been a fan of optimizing how a business is run, not just the tools we make. Merit is in the business of savings companies’ money, actual cash, by doing a much more in-depth and realistic view of equipment and reserve valuations and I am very impressed with their work. I am also on the advisory board of Preng & Associates, a leading executive search boutique that specializes in all things related to Energy & Power. Nova is a gas compression company run by a very dynamic CEO with a very strong board and ownership.
I serve on the Advisory board of the Energy Workforce & Technology Council (formerly PESA), the National Ocean Industries Association (NOIA), and the Maguire Energy Institute at SMU my alma mater.
jim
214-755-3914 | james.wicklund@pphb.com
Leveraging deep industry knowledge and experience, since its formation in 2003, PPHB has advised on more than 180 transactions exceeding $11 Billion in total value. PPHB advises in mergers & acquisitions, both sell-side and buy-side, raises institutional private equity and debt and offers debt and restructuring advisory services. The firm provides clients with proven investment banking partners, committed to the industry, and committed to success.
