July 7, 2023
Things I Learned This Week Battling the Elements
July 7, 2023
Hard At It. A very abbreviated version this week. I am doing some very baseline research. I am at the Newhalen Lodge in Nondalton, Alaska. Non-Dalton? Anyway, the guest book reads like a who’s who of the oil business. Jeff Hildebrand was here last month, so I am grilling the fishing guides for any tidbits that might have been mentioned while reeling in a sockeye salmon. No cell service and little internet but loads of insight, like “load the rod”.
World by Storm. Patterson seems intent on becoming the lead consolidator of the OFS industry by buying Ulterra Drilling Systems this week before the NexTier ink is even dry. Andy heard the call and is answering it well. Keep it up sir!
Working. The job market continues to be very strong, which under other circumstances would be a good thing but, in this market, it raises the likelihood of another Fed rate hike shortly. It now appears almost fait accompli. Higher interest rates devalue assets including oil, which puts another brick on the load of uncertainty surrounding the oil industry.
More Balance. The war in Ukraine continues but there are some kinks in the U.S. support. In the coming election cycle, look for it to be a major topic. But the imbalance that typified the beginning of the war has levelled a bit.
EIA Weekly Stats:
Crude Implications: The weekly draw was below expectations. 1.4 MMBBLs released from the SPR and 24 MMBBLs have been released since March. DOE offered to sell 26 MMBBLs from the SPR during April to June and may buy back 12 MMBBLs for the SPR this year. WTI backwardation between 1M-12M is $3/bbl, $1/bbl higher w/w. Money managers’ net long positions in ICE Brent and NYMEX WTI dropped to a new record low since April 2020, 50% below the recent peak post OPEC+ announced voluntary cuts in April.
U.S. Crude Production: Indicated at 12,400 MBPD, up 200 from previous week, and up 300 MBPD from same period last year.
Refinery runs 16,030 MBPD, down 224 w/w and down 408 y/y. Utilization at 91.1%.
Crude Imports (net): 3,137 MBPD, up 1,895 w/w and down 1,090 y/y. Brent-WTI spread at $5/bbl, flat w/w.
Headlines.
U.S. DOE Aims to Spur Hydrogen Demand with $1 Billion Spend
Number of Energy IPOs May More Than Double
Boston University Offers Therapy to Students After SCOTUS Ruling Against Affirmative Action
Sales of Hummer EV Pickup DECLINED by 83% in the Second Quarter This Year - Only 47 were sold in Q2
Saudi Arabia, Russia to Make Additional Oil Supply Cuts
U.S. Manufacturing Activity Shrinks by the Most in Three Years
Moving on Up. Another top analyst leaves the ranks for a corporate job. Smart move. Chase Mulvehill, formerly of BofA, will join Baker Hughes in the IR role. Four years ago, another top analyst, Jud Bailey left his seat at Wells Fargo to take the job Chase now holds as Jud jumps up the ladder to a corporate development and strategy role. Congratulations gentlemen and well done! Spinner hawk was long ago.
Toyota Is Right. We Need More Hybrid Cars and Fewer EVs.
So Let Me Get This Straight. The White House was evacuated and HazMat teams were dispatched to secure a bag of schedule 1 narcotics. You have a visitor log of everyone that entered. You have video footage. Possible fingerprints and DNA evidence on the bag. And its owner is “unlikely to be found”?!
Can’t Be Believed. The following “suggestion” comes from a White House Report and there is one in the EU that came to the same conclusion/plan. The report says - Blocking Sunlight Can Prevent Global Warming. The White House published a report which investigated the “possible deployment” of climate change techniques like artificially blocking sunlight. Solar radiation modification (SRM), also known as solar geoengineering, is aimed at preventing sunlight from accelerating the warming of the planet. The EU suggested putting a sun-blocking screen over Europe to cool the planet. These are the people in charge.
All Wet. The offshore rig market is on the rebound. We have known and written about that before, but Offshore Magazine announced it earlier this week. And where are they??
Onshore. Rystad had some interesting comments this week. One issue for the U.S. rig count is the activity level of private operators. They kept the market afloat for most of last year but started to disappear in 2023. Rystad- “Driven by the prolonged weakness in oil prices, in addition to the plunge in natural gas futures, Rystad Energy expects further declines in U.S. onshore activity as operators pullback plans. But the pace of deceleration may slow in the coming months on the back of the brisk fall seen over the past few weeks. Horizontal drilling is set to decline by 2%, while completions increase by 3% year over year in 2023, our analysis shows. The revisions are due to current market conditions and the recent drop in rig and frac fleet counts.”
Quiet. There is little news this week. We are in the quiet period prior to earnings as management teams are furiously scribbling conference call scripts and releases. As usual, it will matter more what the companies say about the rest of the year rather than about what has taken place. Pay close attention.
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.
