March 14, 2025
Things I Learned This Week Staying at Home!!
Home all week! That may not have happened yet this year. You can tell quail season is over. But life is getting busy. Energy and power are front and center in the new world we are in today. A couple of years ago, everyone was howling that there was no place at the green table for traditional energy. Well, that was proved wrong. Oil is handing over the leading baton to natural gas, but the other runners in the race seem to be running out of steam, or are so hung up on bad economics that they will be soon! Me? I’m just trying to remember where I put things last.
OPEC+. So, after a couple of years of restraint on oil production, OPEC+, which is OPEC and ten other countries*, led by Russia, is going to start putting that “shut in” oil back onto the market. First is the question of how much is shut in and then how quickly it can actually start hitting the market. Some think the surplus is less than a million barrels, and there are estimates as high as 5.8 million barrels. Regardless, the plans calls for 138,000 barrels per day to be added in April, next month, and then a similar amount every month into 2026. Russia wasted no time in saying the decision could be reversed if market forces dictate. If the cuts continue as planned, just “in” to 2026 rather than “through” 2026, that puts ~1.4 million barrels back on the market by January, and ~2.4 million barrels by next August. OPEC+ believes it will put 2.2 million barrels back on the market, but decided to do it over 18 months instead of 12. The IEA most recently estimated a 720,000 b/d excess in 2025 even if OPEC+ does not begin unwinding its cuts.
* Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan.
$64,000 Question. There will be great debate about that question – how much and how quickly, but either way, the market is looking at uncertainty with a negative bias. The current futures strip for 2027 is $63. That variable, when combined with the range of uncertainty of global supply/demand, does not inspire aggressive investment. It doesn’t imply negative returns either. But as technology improves the efficiency of every segment of the oil industry, through the entire supply and activity chain, margins can even expand with lower than previously expected oil prices. It implies a bumpy 2025-26 for the industry in almost any scenario feasible today. And while the production cuts have negatively impacted some in OPEC+, some countries with sufficient refining capacity have mitigated the impact of the production cuts by increasing the volumes of refined products exported, which are not covered by any restriction.
Records. Manhattan apartment rents soared to a record high in February amid intense competition that saw bidding wars in a more than a quarter of all deals. The median cost of a new lease is now $4,500. From Bloomberg.
Monkeyless Back. When we were in DC recently on the EWTC fly-in, the vote on the methane fee was looming. We mentioned to all that it needed to be gone, and not so we could continue to emit methane, but because it did little, other than line government’s pocket. So, Congress voted along party lines to repeal the Waste Emissions Charge Fee on oil and gas producers that release high levels of methane. The API called it a “duplicative, punitive tax.” It was part of the IRA bill passed and was a mainstay of the previous administration’s climate efforts. The WEC started at $900/metric ton and was supposed to increase to $1,200/ton in 2025, and $1,500/ton for 2026 and beyond to incentivize companies to repair and prevent methane leaks. It would have brought $550 million into the government’s coffers, money that should be spent fixing the issue. The EPA said the fee was on oil and gas operations that release more than 25,000 tons/year of CO2 equivalent. As an industry, detecting methane and learning how to immediately repair any issues, has been an ongoing effort by the industry. But to punish companies for producing volumes of their products and then planning on collecting over half a billion dollars to charge them is grifting, plain and simple. Trump is expected to sign the bill.
Hail Yes! A massive hailstorm crippled a 3,000-acre solar panel facility 40 miles outside of Houston. The storm shattered hundreds of panels and led nearby residents to worry that toxic chemicals may be leaking out of the panels and endangering local water tables. The hail storm caused solar panel damage to the Fighting Jays Solar Facility, a 350-megawatt project brought online in July 2022 and located in Fort Bend County, Texas, which is currently operating at reduced capacity. According to the Department of Energy, hailstones the size of baseballs can possess sufficient kinetic energy to shatter the glass on solar panels completely. The hail ranged in size from quarters to golf balls and even baseballs. Hail is becoming a major issue for the solar industry as more sites are being built in the central part of the United States — a hail-prone region — and the solar cells are moving towards larger panels with thinner glass. Solar panels contain metals such as lead and cadmium, which are harmful to human health and the environment, but they are generally only released during recycling. It is estimated that the solar industry is losing $2.5 billion annually from equipment underperformance, likely caused by equipment malfunctions and weather conditions, according to an article in kWh Analytics’ 2023 Solar Risk Assessment. An underwriter for renewable energy released a report stating that the solar industry needs to find low-cost solutions due to the escalating frequency and severity of hailstorms, and said that hail claims values average around $58.4 million and account for 54% percent of the incurred costs of total solar loss claims.
How Many Foots? Expand Energy landed a 5.6-mile lateral in a well in West Virginia’s Utica formation. The 29,687 foot lateral was drilled in five days with one bit run. That speaks volumes about the number of wells needed to boost natural gas supply as well as the number of rigs needed when wells can be drilled that quickly. It also speaks volumes about what the combination of Southwestern and Chesapeake has accomplished. The Appalachian Basin is where most of the recent record-setting laterals have been drilled. The first question now will be who sets the next record, but to me, the real question is what does this do to the productivity of drilling, and not just in the Northeast, but exporting that technology to other basins. I have no doubt that natural gas volumes will increase significantly over the next few years, but that doesn’t automatically mean prices will follow suit. With the current strip at $5, I’m hedged. Expand holds more than 650,000 net acres in the Haynesville Shale in Northwestern Louisiana and 1.3 million net acres in the Marcellus and Utica shales in Ohio, West Virginia and Pennsylvania. Thanks Nissa.
Getting Schooled. Cleveland City, Ohio has the lowest graduation rate of the 50 largest school districts in the U.S. Other cities with low graduation rates include Memphis, Milwaukee and Columbus.
Cleveland City: Has the lowest graduation rate of the 50 largest school districts in the U.S. It also has the lowest graduation rate for African-American and Latino students.
New Mexico: Has the lowest graduation rate of any state in the U.S.
Arizona: Has the second lowest graduation rate of any state in the U.S.
Alaska: Has a graduation rate that's close to New Mexico's.
Oklahoma and Wyoming: Have a graduation rate of 81%.
South Carolina, Michigan, Idaho, Colorado and Washington: Have a graduation rate of 82%.
Who Said What? Fatih Birol, the director of the Paris-based International Energy Agency, said there is a need for investment in oil and gas fields to support global energy security. Wow. A public official, from an agency that has not been the oil and gas industry’s best friend, is now saying we need to spend more money to produce more oil and gas. Sorry, but just read that again. An international body is saying the oil industry needs money to produce more oil. The head of the UN and others must be spinning. Getting phased out sounds like a really cool soundbite to some, but it appears everyone is starting to realize that we are not even close to being ready for a hydrocarbon-free world.
Stock Call. “In the near term, look for energy to be down in absolute terms but up in relative terms - Can’t sell what you don’t own.”
As Soon As We Get Married, (S)he’ll Change. While that is among the most ridiculous statements ever, Calpers’ (California Public Employees Retirement System) investment rationalization may top it. “Calpers has set an ambitious target of $100 billion in climate investments by 2030. To reach that goal, Calpers has categorized about 1% of its Saudi Aramco holdings as climate-friendly, along with stakes in PetroChina, Marathon Petroleum, cement producers, chemical manufacturers and other high-emission industries that have pursued some climate-related initiatives.” Wow. Of course, now many of these companies are changing course and going back to their nature, what they do best. And Calpers is left with an oil portfolio and the cries, “but you were supposed to change!!!”
You Would Have Done Better with Milk!
Automation Today. Several times over the last few months, people have taken exception to my views on automation. “We automated our manufacturing, logistics and operations years ago. It’s yesterday’s news.” And it’s true. For example, Iron Roughneck instead of throwing chains. No one loses a ring finger anymore. NOV had automated tripping pipe years ago. My argument is that we are just beginning. Combined with quickly evolving reasoning-enabled AI models, automation of all things in our business will ramp up. But how far can it go? How about a 75-foot-long intervention, survey and ROV vessel, operating in the North Sea, with no one aboard? Read that again for me. The Reach Remote 1 USV (Uncrewed Service Vessel) is equipped with Kongsberg-supplied hull-mounted dual EM2040 multi-beam echosounders and Topas PS120 sub-bottom profiler systems, a work class electric ROV and multiple communications systems, including VSAT, 5G, Iridium, Ceragon, Pointlink and Starlink. It will work in the North Sea with its first project being for Equinor in Norway, tasked with survey, ROV intervention, IMR and monitoring-related work. The point being that this is one sophisticated asset, and it is all controlled remotely. It makes you wonder what’s next. It will be here next week at this pace.
What Will AI Change in Our Lives? Everyone wonders where AI will fit in their lives. You only need so many term papers written for you. Imagine now, the airport control tower whose AI model knows where every plane in the sky is, what their trajectory is and constantly adjusts the complex ballet of aircraft such that one never hits another. Cool, right? The new Secretary of Transportation is working to make it real. After the helicopter/airplane incident in Washington DC earlier this year, Secretary Duffy called Washington DC a no-fly zone for helicopters. But he didn’t stop there. “No more risks until we’ve got systems that actually work.” He wants to tear out and replace the current air traffic control system and build a “world-class, state-of-the-art” system that the world will envy. “Seven years? Forget it. We’re doing this NOW,” Duffy snapped. He is pushing Congress for the money now.
Visual representation of the Social Security database. - Elon Musk
Set Back. The U.S. Supreme Court declined to hear a case filed by 19 Republican state attorneys general that aimed to block Democrat-led states from suing major oil companies who they accused of deceiving the public about the role fossil fuels have played in causing climate change. Two justices dissented, but not on the legal merits of the case. We have written extensively on the various lawsuits filed on the issue. State supreme courts can be more political than those at the federal level, and some of these lawsuits have been deemed to have merit in some cases, even though there is no actual “proof” and the end users, who drive the cars that pollute, are ignored. Democratic-led states have sought monetary damages from companies including Exxon, Chevron, ConocoPhillips, Shell and BP due to the effects of climate change, such as wildfires and rising sea levels.
Scale in $’s. “Brazil Plans to Use $3.5-Billion Oil Fund to Bolster Economy” – Oilprice.com. I saw this headline and started thinking about stimulating our economy. Then I realized that the amount equals 33 hours of interest on our national debt. 33 hours. I realized what hierarchy can mean. Brazil is the 8th largest economy in the world. You appreciate our country’s size, relative to the rest of the world.
Painful. There’s a known adage in the analyst world, and especially in the oil and gas business, that you never lower numbers just once in a down cycle. When you first see analyst lowering forward numbers and they say it’s just going to be a short term drop and this will be the last time we’ll have to lower numbers, it is almost the kiss of death. Sometimes we get the true meaning of the word, spiral. We have been writing for the last several months about Venture Global’s issues and woes. The lead banker, Goldman Sachs, dropped numbers for the company during the roadshow for their IPO, which priced below the range and then traded down. And now this. “Venture Global Shares Plummet as Plaquemines LNG Price Upped by $2B.” The stock is down 60% for the year. Time to buy?? I’m not that brave.
AI-Powered Predictions. Last month, a European intergovernmental organization introduced the world’s first AI forecast system, the European Centre for Medium-Range Weather Forecasts. Their model more accurately predicts temperature, precipitation, wind and tropical cyclones than conventional models that are just crunching the huge amounts of data. Whereas for AI, all that data is helpful, but the “processing” of its predictions can be done faster and more accurately. What surprised me was that the “faster” was by 20 minutes. Not days, which would give early warning for evacuations and such, but minutes. So, it helps traders in Europe and around the world make quicker moves in power and natural gas markets. Historically, weather forecasting is one of the largest users of supercomputing horsepower. And it is not very accurate. Another victory for AI??
That Was Quick. Albania has been on TikTok for one year. People said it has incited violence and bullying, especially among children, and it is now being banned.
Oops. In 2021, Oshkosh Defense won a $2.98 billion contract for new trucks. They then received an order for 50,000 mail trucks and later promised that 75% of them would be electric. Nearly $3 billion and 3 years later they delivered 93 trucks.
E&P Valuations. JPMorgan ran their E&P models at 2025 and 2026 WTI oil prices of $66.33 and $62.60 per bbl and NYMEX natural gas strips of $4.54 and $4.26 per MMBtu. The results:
The E&P sector trades at a median FCF yield of 13.8% and 11.1% in 2025 and 2026 using current strip prices.
Oily Large Cap E&Ps are trading at a 2026 FCF yield of 10.3%.
Oily SMID E&Ps are at 10.5%.
Natural Gas E&Ps are at 13.5%.
On FCF/EV in 2026:
Large Caps are trading at FCF yields of 8.0%.
Oily SMIDs are at 9.8%.
Natural Gas E&Ps are at 12.2%.
On EV/EBITDA multiples, the E&Ps trade at a median of 3.7x and 3.5x in 2025 and 2026.
Sign of Things to Come. A recent ad for a webinar hit my inbox this week. What caught my eye was that, over the past couple of weeks, I have heard from a number of people about the increasing move to automation. It is one thing to imagine it, but here is a webinar discussing its implementation. Foreshadowing???
Elevating Efficiency: “The Shift to Autonomous Operations in Upstream Oil and Gas Production. As the upstream oil and gas industry continues to innovate, leading operators are embarking on their journey toward fully autonomous operations. The evolution of digital oilfield projects, highlighting key shifts from offline, model-based decisions to real-time optimization and integrated operations will be discussed.”
“With a renewed focus on emission reductions and sustainable practices, the industry is increasingly leveraging artificial intelligence and equipment performance management to enhance operational reliability and efficiency. Specific applications include such things as; well test automation, closed-loop production optimization and flaring reduction, emphasizing the integration of digital twins and predictive models.”
Jackpot. The Double Eagle founders have been involved with $14B in exits.
Well, Okay Then. “One of the main reasons Pioneer sold to Exxon was that we were running out of inventory.” Scott Sheffield, former CEO of Pioneer.
It’s a Good Thing? “U.S. shale core inventory depletion is going from conspiracy theory to front page news at record pace. Bullish oil and gas!” Josh Young.
Enchiladas. I was reading an article about Mexico and the tariffs. The president of Mexico had planned a huge gathering in Mexico City with a defiant anti-Trump mood, the event was scheduled to be post-tariff. But of course, in the last minute, Mr. Trump extended the tariff implementation another month and the president went to the rally that was scheduled to be angry, and it ended up being a party. Fiesta. The president was applauded and hailed as a hero. Because she had worked it out with Donald Trump. That might complicate her political life going forward. But the part that struck me was that, according to Mexican estimates, 10% of total exports could be affected by the tariffs. I thought, well that's not too bad… It's not a big deal. The tariffs are only going impact ~10% of exported goods, but there are some estimates out there that put it as high as 40%. But it was missing one piece of information that I thought it needed to include, and that was the size of Mexican exports to the U.S. exports. Mexico exports $506 billion worth of goods to the U.S. every year. Even I can do that math. $50 billion of impacts by the tariffs. If I had a choice between being angry and it costing me $50 billion or for being happy and it cost me nothing, I think the happy option makes sense. And the plaza in Mexico City was filled with happy people. Including the president. I'm encouraged.
PPHB – U.S. Energy Market Update Highlights:
Commodity Prices: WTI crude oil is currently $66.27 per barrel (down ~0.1% week-over-week) and natural gas is $4.18 per MMBtu (down ~4.0% week-over-week).
Crude Oil Production: U.S. crude oil production is currently ~13.6 MM BOPD (up ~3.6% year-over-year).
Crude Oil Inventories: U.S. crude oil inventories increased by ~1.4 million barrels week-over-week vs. an estimated increase of ~2.1 million barrels.
Frac Spread Count: There are currently 210 frac spreads operating in the U.S. (a decrease of 4 spreads week-over-week).
Onshore Drilling Rig Count: There are currently 576 drilling rigs operating in the U.S. (a decrease of 2 rigs week-over-week).
Benefits of Consolidation. Since 2014, the offshore drilling space has gone from 12+ major players to just 4 majors operating deepwater rigs. Seadrill is still a target for either RIG or NE, which will consolidate the market even more and that combination could happen any day. Economic fundamentals, like consolidation and oligopolies, are usually pretty good indicators of future industry returns.
On X. “Yes, the bureaucracy is bloated but the real issue is how much money is doled out. $2 billion to buy appliances for people? $100 million to a new group right at the end of Biden’s term to a friend of the administration? This is why they are fighting it so hard.”
On the Record. “Stacey Abrams-linked Power Forward Communities received $2 billion in tax dollars in 2024 after reporting just $100 in revenue the year before. They were so unqualified that the grant agreement required the NGO to complete ‘How to Develop a Budget’ training within 90 days.” - EPA Administrator, Lee Zeldin.
Our Buddy. “I'm… going to ask Saudi Arabia and OPEC to bring down the cost of oil,” Trump said in Davos in January. “I'm surprised they didn't [do that] before the [U.S.] election.” “Historically, when Trump speaks, [OPEC] will hear him out. And more times than not, it will be discussed internally. That is the reality.” – OPEC Delegate. “OPEC+ remains committed to its strategy, which is based on market fundamentals, rather than external political statements [or] short-term remarks, regardless of what Trump says.” – another Delegate. “In this context (Venezuela and Iran pressure), I feel OPEC may have no choice but to compromise with Trump.” – Said another.
San Fran Transit: “We Refuse to Release Crime Surveillance Videos Because It Will Make People Racist.” Releasing videos “would create a racial bias in the riders against minorities on the train.” – Amanda Prestigiacomo.
The New Doctrine. It was CERA Week and here are some of the opening comments from our new Secretary of Energy, Chris Wright. A few of his comments:
“Today, renewables supply roughly 3% of global primary energy. You often hear larger numbers quoted, but that is because of a thermal equivalent scale-up. I don't believe that scale-up is justified, hence I stick with the actual energy produced. Everywhere wind and solar penetration have increased significantly, prices on the grid went up and stability of the grid went down. Is this pathway really going to put natural gas in the rearview mirror?”
“Nitrogen fertilizer synthesized from natural gas is responsible for fully half of global food production. Natural gas is also the largest source of home heating in the United States. It is central to the rapidly growing petrochemical industry and the largest supplier of processed heat for manufacturing steel, cement, countless metals, gypsum, semiconductors, polysilicon and thousands of other materials.”
“Oh yes, and natural gas is also responsible for 43% of U.S. electricity.”
“Beyond the obvious scale and cost problems, there is simply no physical way that wind, solar and batteries could replace the myriad uses of natural gas. I haven't even mentioned oil or coal yet.”
“Everything in life involves trade-offs. Everything. Responses to climate change bring their own set of trade-offs. The Trump administration will end the Biden administration’s irrational quasi-religious policies on climate change that imposed endless sacrifices on our citizens.”
“China now consumes nearly three times as much energy in manufacturing than the United States.”
“We are working to launch the long-awaited American nuclear renaissance, fission and fusion.”
“Over half of people today are wearing hand-washed clothes. They have yet to realize the timesaving and women-liberating joys of a washing machine.”
“Over two million people today cook their daily meals and heat their homes burning wood. The indoor air pollution from this activity alone is estimated to kill over two million people annually.”
“We are reversing policies that force consumers to pay more for clothes washers and dryers, hot water heaters and dishwashers that deliver inferior performance.”
“Our goal is lower cost and higher performance.”
Hello Markets. “Utica Oil Player, Ascent Resources, ‘Considering’ an IPO.” The 12-year-old privately held E&P, Ascent Resources, produced 2.2 Bcfe/d in the fourth quarter, including 14% liquids from the liquids-rich Eastern Ohio Utica. We don’t know what the current market crash will do to their opportunity, but at least they are natural gas and not oil. Mainly.
Scale in the Oil Business. J-Lay Pipelay Vessel – Amazon. It installed five 11,000-ft SCRs (steel catenary risers), deemed to be a first for E&P in the Gulf of Mexico. The vessel is 199.4 meters or 654 feet long, 32.25 meters or 105 feet wide and it carries 10,000 tons of pipe storage. Little in our business is small, easy or simple.
Corroboration. As an analyst, you never read other people’s research. At least not for your covered companies. You would never know if an idea was truly yours or that thing you read from JP Morgan last week. And the other analysts didn’t know any more than you did (we all think that). But when a non-aligned, dedicated research shop, not looking at stocks or ratings, agrees with me, it feels great! Rystad is such a firm. They aren’t always right. No one is, but they do a great job of research. So, it was nice to see someone else put out a succinct and thoughtful outlook and one that agreed with me!
“Efficiency gains across drilling and completion operations has been top of mind for all participants in the oil and gas sector. Oilfield service providers have displayed a suite of technologies to continually drive efficiency in both drilling and fracture stimulation operations in order to reduce costs and emissions while maintaining well performance results. With 2025 activity likely to fall below 2024 levels, efficiency gains are a major contributor of downward pressure on equipment deployments. With a limited call on U.S. oil production in the short to medium term, continued advancements in drilling and completions will ensure that additional equipment deployments will be difficult to justify from an activity standpoint.”
Another Layer of Gas Demand. Put 1.8Bcf/d on the natural gas demand ledger which should kick in soon. During CERA Week, Chris Wright announced the approval for the extension of exports by Delfin LNG. Delfin LNG is a brownfield deepwater port that will support up to four FLNG (Floating LNG plants) with minimal infrastructure costs. The deepwater Port license was applied for in 2015. It received a positive Record of Decision from MARAD and approval from the DoE for long-term exports to countries that do not have a Free Trade Agreement with the U.S. Remember, under Obama, LNG exports were approved almost immediately by the NSA, saying that trading cargoes of energy friends and potential friends is a good thing. We currently lead the world in LNG volumes. “This is in addition to previous actions on the Commonwealth and Golden Pass LNG projects,” Wright said, “and our actions to enable the bunkering of LNG for powering tanker ships.”
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.
