July 26, 2024
Things I Learned This Week Cycling in Europe, Again
I’m on my second European bicycle ride of the summer. The first was with 18 good friends staying on a barge and biking around the Provence region of France for a week. This trip is with my 21-year-old son, Henry, who spent the summer interning in Paris, and we are riding bicycles from Bruges, Belgium to Amsterdam. He’s a little bit younger than me and has much better legs. This is one of those situations where being a little older, wiser and smarter don’t mean a damn thing. But I’m becoming educated on all things that matter to 21-year-old college students these days, nothing has changed much after all these decades. With gasoline showing at nine dollars a gallon there are few complaints. This is the standard for Europe. It goes to show how spoiled we are. The cars are small and exceptionally efficient. If you wanted to destroy most of the small streets in Europe, go get a Ford expedition and try and navigate the streets. It doesn’t work. It even gets tight on bicycle sometimes.
Dearth. We searched high and low for any oil and gas news in Europe. Between Kamala, Netanyahu, and anti-American protests, we found virtually none.
'Donald Trump Will Destroy Democracy,' Says Party Nominating Candidate No One Voted For
Banking 101. The headline read “Over $500 Billion in Unrealized Losses for U.S. Banks”. Scary considering U.S. debt levels and the refinancing needs of real estate over the next two years. The biggest concern? The surge in unrealized losses on banks' securities portfolios.
US Rig Count. We can’t catch a break. In large part this is due to the M&A that has taken place over the past year or so. The land rig count was down 3.2% in Q2 and down another 3.5% this quarter. But many are saying it has hit bottom and will recover in 2025 and 2026. 2026 seems a long way away, and it is mainly industry optimism that is driving that outlook. This is from the same people who said oil would hit $100 in Q3. I’ll take the under. Optimism on natural gas is based on new LNG demand and data center needs. It’s always something and we always hope that this next one works. It might. The consolidation efforts will have progressed, but no one thinks consolidation of E&P is done. We too are eternal optimists. You have to be to be in this business. Hope isn’t a strategy, but almost a religion in our industry. There are reasons to be optimistic, as always, but even that blind squirrel….
Debt Deal. Nabors Industries Inc. (NYSE: NBR) priced $550 million of 8.875% 7-NC3 senior guaranteed notes due 2031 (B3/CCC/CCC) at par to yield 8.875%. The proceeds will be used to redeem its $558 million outstanding senior notes due 2026. And the same day - Nabors GAAP EPS of -$4.29 misses by $2.92, revenue of $742.97M beats by $2.3M.
But Us. A key regulator is said to have determined that half of the 22 large US banks it supervises have insufficient or weak management of operational risk. The Office of the Comptroller of the Currency rated those banks as three or worse on a five-point scale. The harsh grades are part of sweeping regulatory scrutiny in the wake of a series of bank failures last year.
But We are Not Alone.
Breaking Wind. Accidents occur. Like Macondo. One bad decision by one executive and disaster strikes. We have written about the cancellation of east coast offshore wind projects. Many are uneconomic after deals cut 3-4 years ago no longer reflect the costs in the current market and can’t be renegotiated. So, they get cancelled. Others go ahead, but problems occur. The Vineyard Wind project off the East Coast has an issue. A turbine blade failed. Not a big deal in and of itself, but…. When pieces started floating up on the beaches of Nantucket, enough was enough. The BSEE issued a suspension order that stopped all current operations and further installations. The GE Vernova equipment has failed before, but we have failed many times in our past. Of course, we are often vilified now, so the comparison doesn’t really work. The blade that failed was 325 feet long. That is big and impressive. The project was the first operational wind project on the east coast. A Reuters report commented that: “[these] turbine blade incidents have been a setback for projects at a time when the US and other governments are relying on wind power in the transition away from fossil fuels to fight climate change. The mishaps have raised questions about the quality of GE’s turbines which are widely used across the industry.” So far, six semi loads of the blade have been recovered and disposed of, which is another issue since there is no way to recycle these blades. Yet. PS - I stole the title from Robert Bryce.
Explain This. The UN, which consistently condemns Israel as the world's only violator of women's rights, has named Iran to head the committee on women’s rights, after being kicked off two years ago.
Snippets.
China and some of the world’s biggest developing nations made a renewed demand on richer countries to lift climate financing to trillions of dollars a year to accelerate the green transition in emerging economies.
Memphis will be the home of Elon Musk’s gigafactory, with 100,000 Nvidia chips, using enough power for 50,000 homes, in a multi-billion investment.
Stellantis tells owners of over 24,000 hybrid minivans to park outdoors due to battery fire risk. Not good.
Around half of working Americans are employed by a firm with less than 500 workers.
Nine in ten banks are community institutions that hold less than $10 billion in assets.
OPEC+ doesn’t plan any changes to oil-output policy next week and will continue to bleed 2.2 million barrels pre days back on the market.
Startup of Commonwealth LNG's proposed 9.5 million tpy plant in Cameron Parish, La., could slip after a US Court of Appeals told FERC to reevaluate approval of the project to include climate impacts.
Sunpower is down 83% in 2.5 years and ISI is suspending coverage.. oh my!
Adios to an Idea. We have written in the past about the Tellurian integrated LNG project and company. Founded by one of the industry’s LNG pioneers, there were great hopes as the stock was in the $20’s pre-COVID. The idea was to own natural gas production, liquify it, and more if needed, and sell on a consolidated basis. It made sense. To trade commodities and actually own the commodity as well is considered a very good thing. But contracts were not forthcoming, as investors said they would rather buy non-integrated businesses. The E&P business has sold off but all that is left is a shell. So, the stock price hit mid $20’s years ago and now has sold, for $1 per share. One dollar. To Woodside of Australia.
Beats #2. Growing old is no fun but it beats the alternative. I lie about my age all the time but fewer and fewer people are buying my 39 years pitch. So, from my friend Boysie –
“If you want to know how old a woman is, ask her sister-in-law.” (Eva Gabor)
“The older I get, the more clearly I remember things that never happened.” (Mark Twain)
"Old age comes at a bad time." (Ed)
"I’m at that age where my back goes out more than I do." (Phyllis Diller)
"Nice to be here? At my age, it’s nice to be anywhere." (George Burns)
"First you forget names, then you forget faces, then you forget to pull your zipper up; then, you forget to pull your zipper down." (Rob Reiner)
Leaving Home. In what many will see is a seminal event, Schlumberger, now known as “SLB”, originally took the company public in 1962 on the NYSE, will no longer list on the Paris stock exchange. That just seems to be cutting ties with the mothership. They cited administration costs and low trading volume, which we understand. It’s a good move. Schlumberger, or excuse me “SLB” leaving Paris, France just strikes me as amazing. First, they ditched the name and now they ditched the home country. Welcome to America.
Best Signage.
Headlines.
Copper drops below $9,000 per metric ton, down ~20% from its all-time high of May.
Saudi Arabia's fiscal breakeven oil price is soaring, up to $71/bbl currently. - Josh Young.
PPHB – U.S. Energy Markets update Highlights.
Commodity Prices: WTI crude oil is currently $76.96 per barrel (down ~5.5% week-over-week) and natural gas is $2.22 per MMBtu (up ~7.2% week-over-week).
Crude Oil Production: U.S. crude oil production is currently ~13.3 MM BOPD (up ~9.0% year-over-year).
Crude Oil Inventories: U.S. crude oil inventories decreased by 3.7 MM BOPD week-over-week vs. an estimated decrease of ~2.6 MM BOPD.
Frac Spread Count: There are currently 228 frac spreads operating in the U.S. (a decrease of 10 spreads week-over-week).
Onshore Drilling Rig Count: There are currently 564 drilling rigs operating in the U.S. (an increase of 3 rigs week-over-week).
Nails in Coffins. “Ford lost $65,000 on every EV it sold last year, losing $4.9 billion due to an extremely competitive pricing environment, along with strategic investments in the development of clean-sheet, next-generation EVs.” It lost $2.2 billion in 2022. EV sales were up 18% last year, but that just seemed to compound losses. This year, it has already cut its plans for Lightening F-150’s in half. They aren’t alone. Last year, GM delayed the opening of its $4 billion truck factory for a year. GM now says it will meet customer demand rather than having a target number of vehicles. We have written about the almost 4,000 dealerships across the country begging the administration to quit mandating vehicles for which there was no demand and inventories were piling up. Many dealerships have passed on spending the approximately $1 million required to service the EVs. We have long noted that EVs are more expensive than ICEs, meaning that the affluent buy them and lower income people must live with ICE emissions. Then a study showed about half of all the EVs sold in the U.S. were sold in the most heavily Democratic counties in the country. Rental car companies around the world are dropping EVs because of their higher expense to repair and significantly lower resale value. If you thought EVs would take over the world, think again. Thanks Robert R. for the updated numbers.
Comeback. Transocean announced six new contract extensions, with three getting $500,000+ dayrates. They included a $580,000 per day contract for an 8th generation drillship with a 20k psi stack. They’re baaaaacckk.
They Are Back Too. Weatherford reported earnings with EBITDA margins of 26%, announced a $1/year dividend, a $500 million stock buyback and earnings of $1.66 per share. Bernard left nine years ago. Many haven’t been paying attention. You should.
Driller Consolidation: Helmerich & Payne made waves Thursday morning upon the announcement of an agreement to buy KCA Deutag for an impressive $2 billion in cash. The deal will increase H&P’s Middle Eastern rig count from 12 to 88 rigs, creating a titan presence in the region. 71 of these rigs are in Saudi Arabia, with the remainder split between Oman and Kuwait. The merger is expected to be immediately accretive to both cash flow and free cash flow per share. Not only does this transaction have implications for onshore drilling throughout the Arabian Peninsula, but it also bolsters H&P’s asset-light offshore drilling position in Angola, Azerbaijan, Canada and the North Sea.
Widening the Net. The FTC said they would only approve the Exxon-Pioneer merger if CEO, Scott Sheffield, wasn’t a board member, this is a travesty. They argued that Scott had communicated with OPEC officials to raise the price of oil. The idea that a US independent can influence OPEC or world oil prices is a joke and the FTC never asked Scott about it in their hours of testimony. The FTC’s at last report was preparing to recommend criminal charges. This is way past absurd. But some must think it is overreaching boundaries. Then this week, the FTC announced it was investigating whether executives at major oil companies, including Hess, Occidental Petroleum and Diamondback Energy improperly communicated with OPEC officials. It is ridiculous and it shows.
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.
