February 16, 2024
Things I Learned This Week in the UK
The Quail Have Left the Building. I have gotten more opportunities to do one of the things I love best and I thank all my good friends for their friendship. And the surprise birthday party was epic. I am blessed to call such wonderful and amazing people my friends. Thank you all very much. And 39 at last!
World Wide Worry. All of this domestic travel has been great and I have gotten schooled in the current situation and general outlook for the U.S. oil and gas industry this year. It will be wrong. It always is. It is getting close that matters. But what of the situation in Europe? Germany set records for burning coal and then brags about the reduction in energy use, but it is from the decline in industrial production from the recession. A recession seems to dampen energy demand and the question remains, how do they get it back? LNG plants put on hold, stiffing our allies to gain votes from “young activists”, Biden’s term. So one really needs to see this first hand, in action. And considering my propensity for detailed research, I feel it incumbent on myself to go and visit at least Great Britain. So since I am in London when you read this, this week will be short.
The Big Fix. Tuesday, SMU’s Maguire Institute hosted a screening of Robert Bryce’s excellent new docuseries: Juice: Power, Politics & The Grid. It’s a compelling look at the perils facing our more important energy network — the electric grid — and why we need fission to fix it. Each episode is about 20 minutes long. The first episode focuses on the Texas blackouts in 2021. The last one explains why we need long-term thinking about our power grid. The docuseries, which was directed by Tyson Culver, has great graphics and animation. Very impressive. All of the episodes are available for free on YouTube.
I mentioned the docuseries a couple weeks ago but I included the wrong URL. (Hey, it happens.) Go to their website: juicetheseries.com It has links to all the episodes and lots of other content, including short clips from some of the 30+ interviews they did for the docuseries. For updates on the series, and broader coverage of the energy and power sectors, I also suggest you follow Robert on Substack.
There are five 20-minute segments covering the reality and needs of U.S. electricity and power. The series features 34 interviews that were shot in Texas, Japan, Vermont, Oklahoma, Colorado, California, Washington D.C., Illinois, Egypt and England. The “cast of characters” includes many of the world’s top thought leaders on energy, including political scientist Roger Pielke Jr., Grid Brief editor Emmet Penney, civil rights leader Jennifer Hernandez, author Michael Shellenberger, Canadian nuclear activist Chris Keefer, author Meredith Angwin, former IEA director Nobuo Tanaka, World Nuclear Association director Sama Bilbao, Campaign for a Green Nuclear Deal founder Madi Hilly and many others.
Meeting of Minds? The White House dismissed Mike Johnson’s demand for direct talks with Joe Biden to resolve an impasse over border security and Ukraine aid. No comment.
EIA Petroleum Report.
Crude Implications: Bearish – build above expectations due to refinery turnarounds and BP’s Whiting refinery downtime. Money managers cut ICE Brent and NYMEX WTI net long positions by ~20% week over week pushing net positioning slightly below average levels in a year. Whiting expected to be back online later this week.
U.S. Crude Production: Indicated at 13.3mm BOPD, up 1.0mm BOPD versus last year.
Refinery Runs: 14.5mm BOPD, down 0.3mm BOPD week over week and down 0.5mm BOPD year over year. Utilization at 80.6%.
Crude Imports (net): 2.1mm BOPD, down 1.2mm BOPD week over week and down 1.0mm BOPD year over year. Brent-WTI spread at $5/bbl, flat w/w.
Gasoline: Neutral – draw above expectations. Demand down 7.3% w/w and down 1.3% y/y.
Distillate: Neutral – draw above expectations. Demand down 7.9% w/w and down 9.8% y/y.
Adios Germany. “The country will inevitably burn more fossil fuels as it regresses from the brink of intellectually empty platitudes to the harsh realities of physics.” Among the most illogical moves made by the ruling class has been the proactive dismantling of 22 GW of the world’s best-run nuclear reactors. With nuclear power plants running at 90% capacity factors or better, Germany was once capable of churning out nearly 170 terawatt-hours per year of carbon-free baseload power, an enviable anchor that served as one of two economic foundations for its once impressive manufacturing sector.
Feeling Loved. Democrat Sen. Chris Murphy admits Democrats' "strategy" on immigration "has failed to deliver for the people we care about most, the undocumented Americans that are in this country," so they're adjusting it.
I Wasn’t Thinking About This. So the House of Representatives voted, by one vote, to impeach Alejandro Mayorkas, the Secretary of whom Republicans blame for the overly porous border. What is interesting is that the full Senate, all 100 members, have to attend the hearings and no other business can be pursued and passed until the impeachment is over. It helps explain why the House so wanted this vote. They will make the immigration issue front and center for both houses of Congress and give voters a greater insight into the issues. Very interesting.
And It Continues. This week was Diamondback buying Endeavor in a combination of two big Permian players, in an all-stock deal that values the company at more than $50 billion. Pioneer went for $64 billion. As one put it, it makes a Permian pure-play with more than 800 Mboe/d of production and 6,000 locations with breakevens of $40/bbl or less.
In London… The UK Home Office is paying for 16,000 homes for asylum seekers in spite of a housing shortage, especially for younger workers and families. Landlords have been incentivized to take up asylum seekers with guaranteed full rental deals. Nice.
What Goes Up… Inflation is slowing, the Fed is going to start lowering rates and all is good with the world. Except for those pesky updates. It seems that inflation ticked up and the likelihood of a rate cut goes down. Oil isn’t the only volatility hitting the markets.
Turnabout. A couple of years ago, an activist group worked hard to get on the board of Exxon. People were expecting Dea Amati’s changes but the group wanted to “drill baby drill” in the Permian and limit Deepwater past Guyana. Then this year, other activist groups sued Exxon as well, pushing for more emissions cuts. Realizing that Exxon was actually doing a lot to reduce emissions and make its overall organization more environmentally friendly, the group dropped their suit. But they have awoken and angered a giant. Now these groups accuse Exxon of using bullying tactics and putting shareholder rights “under attack” by targeting them in a lawsuit. Tired of being a punching bag in light of all the company has done, they are going on the offensive. Exxon’s suit “amounts to tactics of intimidation and bullying to silence our fair ask to tackle the climate crisis.” Exxon is tired of groups who hold a de minimus amount of stock up causing issues at annual meetings, “bringing an increasing number of repeat proposals that do nothing to grow long-term shareholder value.” Well done.
Earnings. From Raymond James. “Patterson-UTI closed out the year on a positive note with +$250 million of FCF, with another 7 million shares repurchased - lifting full-year shareholder capital returns to +$300 million. PTEN expects another strong year of FCF in 2024, with an EBITDA-to-FCF conversion rate of +40% and continuation of the +50% shareholder return plan driving +$400 million of dividends/repurchases. Quarterly results outperformed across the board as activity and margins held up better than expected.” Full disclosure. I own the stock.
Europe Dodges Again. Winter in Europe is two-thirds over and it was another warm one. Last winter, if weather had been normal, Germans would have been burning furniture to stay warm. A warm winter saved them and allowed them to rebuild storage. As a result, storage facilities were still 67% full compared with a ten-year seasonal average of 49%. It is very likely that storage inventories will end the depletion season at or close to a record high, the second highest ever after the end of winter last year. To add to the issue, offshore winds were stronger than the seasonal average in both December and January, boosting electricity production from wind farms. High fuel prices and an economic slowdown in Germany and other parts of the UK depress demand as well. Germany’s energy-intensive industries including iron and steel, ceramics, glass, chemicals and fertilizers reported production was down by more than 22% in December 2023 compared with the same month two years earlier. The EU’s seven largest gas-consuming countries; Germany, Italy, France, Netherlands, Spain, Belgium and Poland, reported below-average usage every month in 2023. All of this is to say that panic and concern over European natural gas availability has been alleviated for now, but if next winter is cold… It also lends little support for U.S. natural gas prices, which are languishing as well as production rises and a warm winter stiffed demand. Give it time.
It’s Everywhere! Woke culture is rife in the Army. The UK Army’s time and resources are being “squandered to promote a political agenda,” the Defence Secretary Grant Shapps said, as he held crisis talks with military chiefs over plans to relax security checks to increase diversity. The Ministry of Defence has 93 different diversity networks for personnel to discuss race, gender and mental health. -London Telegraph
Shout Out. SMU Cox students Weston Emery (BBA '24), Jude Folmar (BBA '24), Dutch Mark (BBA '25) and Ricky Sharma (BBA '24), sponsored by the SMU Cox Maguire Energy Institute, took top honors in the undergraduate Energy Innovation Case Competition hosted by NAPE and the TCU Neeley School of Business at the annual NAPE Expo LP in Houston. Each year students are invited from top business schools to prove their knowledge and understanding of the energy industry. The students were given five hours to create a presentation on the benefits and disadvantages of upstream industry trends. Teams presented to industry expert judges that are leaders in the sector. Go Ponies!
Podcast City. I have been flattered to co-host a series of podcasts with my very good friend, Dave de Roode. In this engaging episode of the Oilfield 360 Podcast, we welcome Ryan Ezell, PhD, President and CEO of Flotek Industries as our distinguished guest. Ryan shares an insightful journey of innovation, leadership and the pivotal role of chemistry in advancing the oil and gas industry. Alongside David de Roode and Jim Wicklund, we delve into Ryan's profound experiences, from his formative years in Mississippi to his impactful contributions at Halliburton and presently at Flotek, emphasizing the significance of green technology and sustainable practices in energy production.
Ryan's unique perspective on balancing operational excellence with environmental stewardship offers invaluable lessons on driving change and fostering innovation in a traditionally conservative industry.
This episode is a must-listen for anyone interested in the intersection of energy, technology and leadership. Join us as Ryan enlightens us on the path to a more sustainable future in energy, the evolution of Flotek and the enduring impact of mentorship and resilience in personal and professional growth.
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.
