March 7, 2025
Things I Learned This Week!!
It was a busy week. President Trump delivered an address to the joint houses of Congress. Daniel Energy Partners held their THRIVE energy conference in Houston. The Park Cities Quail Coalition held its annual dinner (I couldn’t afford anything in the auction!). And we had a Merit Energy board meeting. That might not sound like much, but Mr. Trump gave us many things to think about and the DEP conference was the equivalent of an old home week, seeing many old friends and making many new ones. And much of the discussion was about Mr. Trump’s impacts on our business. It was widely noted that instead of “Drill Baby Drill,” it is more likely to be “Build Baby Build.” And regardless of Mr. Trump’s desire for lower oil prices, there is really virtually no chance that the industry loses its discipline and goes nuts, boosting supply in a lower price environment. Been there, done that, won’t be doing it again.
Control. One point that Mr. Trump makes on Panama, is that the Chinese control the canal. Critics are quick to point out that, no, they don’t, and the Canal Authority runs it independently. There are arguments on both sides as well as disagreement on both sides. But that concern may have been truly identified and rendered moot all at the same time. It was announced this week that Blackrock, the giant investment fund, was buying 43 ports in 23 countries from Hong Kong tycoon, Li Ka-shing’s CK Hutchison Holdings. The almost $20 billion deal includes ports on both ends of the Panama Canal. The Chinese may not “run” the Canal, but owning the two largest ports on both ends would give them about the same leverage. But now that whole issue may be put to bed. Blackrock might now show blatant favoritism for the U.S. but clearly any gouging of U.S. companies is less likely.
They’re Back! Decades ago, I was on the team from Sun Oil that agreed to take six exploration blocks in Libya. We had little to no data, but the NOC said if we didn’t explore, we could no longer buy, and Sun was a large lifter from Libya. So, I was very interested in the announcement this week that the country was officially holding a bid round this year for oil exploration. Why, you ask? Because there hasn’t been a licensing round for 17 years! From civil war to tribal fights, Libya’s oil industry has been, at best, maintaining and we see a fading scenario from here, at least without more exploration. And now here it comes again. We expect to see a fair amount of interest since it has historically been fairly easy to operate there, but with no real head of the country today, uncertainty still reigns. More effort is needed and looks to be pending at this point. So far, Mellitah Oil and Gas resumed gas production in the Bahr Essalam field, and Eni has an offshore drilling campaign in the Sirte Basin.
Observations from Thrive. There was a discussion of international production vs. domestic-unconventional. The U.S. is a magical anomaly, according to one CEO. Services, infrastructure, rocks, capital and private ownership all came together to create the magic and it is now evolving in Argentina and Saudi. It’s gaining traction, with partnerships helping the lack of the many parts. And Saudi just made the decision to push regardless of missing variables. Abu Dhabi is the poster child of having all the variables. Algeria has many, but is missing capital. The national oil companies are no longer in the early stages anymore. Their sophistication is growing. But you still can’t compare the two. We have first mover advantages, as well as technology leadership, but the rest of the world is now at a place where it can start using our methodology as proven, rather than beta.
PPHB – U.S. Energy Market Update Highlights:
Commodity Prices: WTI crude oil is currently $66.36 per barrel (down ~5.7% week-over-week) and natural gas is $4.36 per MMBtu (up ~10.8% week-over-week).
Crude Oil Production: U.S. crude oil production is currently ~13.6 MM BOPD (up ~2.3% year-over-year).
Crude Oil Inventories: U.S. crude oil inventories increased by ~3.6 million barrels week-over-week vs. an estimated increase of ~0.6 million barrels.
Frac Spread Count: There are currently 214 frac spreads operating in the U.S. (an increase of 4 spreads week-over-week).
Onshore Drilling Rig Count: There are currently 578 drilling rigs operating in the U.S. (an increase of 2 rigs week-over-week).
Deepwater. White space is being seen in the deepwater rig market, but it will come back. None are tapping the breaks at all. Many projects are FID and underway, so while there is no real urgency, no one is tapping the brakes either. Halliburton is more tilted toward development. SLB is more titled towards exploration.
Technology. HAL’s Jeff Miller made some excellent points about technology. It has the advantage of more high technology R&D than smaller rivals, and its two largest overall competitors, who are also technology driven, are no longer in the frac business, giving the company a significant advantage. And the company is focused on innovations to improve customers returns. They get pulled by industry into technology rather than building it and hoping they come. Capital allocation in technology is a challenge, but risk is reduced by developing tools that customers want rather building assets customers should want. When asked if Halliburton would ever build another conventional frac fleet, it was severely doubted. No surprise. When asked about acquisitions in the frac market, he made a very good distinction and one we heard from Rowan years ago. They are focused on uniformity of equipment. Rowan had one kind of electric motor on their rigs. All techs could work on all the equipment on any rig. Halliburton noted that they are really only interested in buying equipment that is identical or similar to the things they already run. One type of equipment/controls, lower maintenance, a deep understanding of equipment and uniformity.
Waterborne. The offshore panel consisted of Oceaneering, Noble Drilling and Expro. There is white space on the deepwater schedule for this year, but it is for moves and upgrades. Utilization is tight and rates should move higher. In the forward years, everyone was optimistic. Oceaneering is focused on replacing people with technology, among other things. Noble was more optimistic than it has been in ten years, and ten years ago is when the offshore market died. Now it is coming back.
Best Line. “This electric wireline truck would be almost silent if it weren’t for the diesel generator powering it.”
Great Outlook. The CEO of Weatherford spoke, and $WFRD may be one of my favorite stocks as of late. The CEO said that the two critical initiatives are getting management right and fixing the balance sheet. They are working with customers in a different way, and it’s working. Technology and innovation are giving them the opportunity to focus on production technologies. In addition, WFRD has been a buyer of technology, acquiring them and letting them run independently. Now, they are an organic developer. Big switch. They pull all aspects together to feed into technology development and develop a feedback loop to learn and improve on. Most OFS stocks are at, or near, 52-week lows and Weatherford currently trades at the bottom if its historical chart. Production optimization means more focus on enhancing artificial lift and creating more digital capabilities, both on the ground, and in the cloud, are huge opportunities. The breadth of what WRFD can do has been a surprise and wasn’t well known four years ago. A very detailed 5-year process, 60%-70% done. 85% of the company uses the same ERP system, and they are updating that to a state-of-the-art system, which will take a couple of years.
Midstream. Plains All-American, Enterprise Products and Energy Transfer all spoke on a panel. Enterprise products has over $7 billion in assets under construction, all spoken for. Sourcing will be an issue from the tariffs. Relatively protected. Two great points were made:
Plains All-American expects less growth, more optimization. Growth slowing drives consolidation. Growth in Texas gets stacked up, so local potential is great.
80% of capital expense for Enterprise is for NGLs.
The conclusion is that Plains is more mature, can do easier bolt on acquisitions and can quickly bolster its footprint.
Natural Gas Outlook. The Natural Gas Panel was excellent. Volatility was a hot topic, with demand down 1.5 Bcf in November due to warm weather, and then that reversed when 300 Mcf was added to demand in January, representing a 2 Bcf per day swing in demand in only a few short months. A couple of points made:
Excitement over AI and LNG and replacing Coal.
In-basin demand growth is helping the Northeast, and the idea of data centers in the Marcellus backyard is huge.
30 GW of government projected wind won’t happen, and something has to pick up that shortfall.
Great to have a winter!
There is potential for a spike in natural gas prices this summer, as no new supply will show up by then, and getting to “full” storage by November 1st may result in a spike to get storage filled or demand destruction at some higher price. Gas supply out of the Permian is limited.
Power. One of the hottest topics at the conference was on the subject of power. No oil, gas or coal. Electrons. Power. And everyone seems to be getting into the power business. It was noted by a panel that power is a lower return and longer payback than seen in the traditional oil service industry for companies such as Liberty and Solaris. But longer contracts, the surety of work and payment. Duration. 3-year cash return on traditional completion equipment but 4-5 years in power.
Turbine. Cat Solar, the turbine division of CAT, is providing equipment and turbines to a number of power rental businesses as well as to companies involved with data centers. The small size has a very short lead time, and for the larger size, two of which can run a frac spread, there is a 14-16 month wait time and the cost is around $15 million.
Nice Stuff. At Thrive, a number of companies had equipment outside. One that caught my eye; Nextier. They have a 100% natural gas reciprocating power trailer, generating 3,600 horsepower. They also have a trailer that can treat produced gas to the point of “clean enough” for 100% natural gas and turbines. That has been one thing that slowed down the use of turbines, especially in the Permian. Having clean enough gas.
Power, Again. Solaris, Liberty and Nextier were on a panel. There was some discussion about the completions business, mainly on capital discipline, but the majority of the discussion was around power. The first two have made acquisitions in the power space to accelerate their efforts. Nextier is not trying to build a power rental business, believing that the value is brought by the integration of power and equipment. Regardless, power is the hot topic of the market right now with everyone trying to figure out how to play.
Point Made. On one panel, I was asked about how the frac fleet is shrinking. An OFS panel addressed the topic. Frac efficiency, more horsepower, more sand, more water etc. has made it clear that we are doing more with less. The “more” is sand and water. The “less” is the need for as many frac fleets and drilling rigs. Everything being leading edge, tip of the spear. Even if frac fleets are going down, the horsepower is moving up. 30k-40k horsepower was on location ten years ago but some simul-fracs and other designs are resulting in significantly more horsepower, with some approaching 80k horsepower. It isn’t the crew count, but the total horsepower in the field. Remember that. The head of Patterson, of which Nextier is a part, said he was excited about rig upgrades that improve efficiency. On the completions side, we should be coming out of a slowdown later this year. Everything that runs on natural gas is 100% used. Total horsepower is down slightly year-over-year, with increased focus on pushing low-capex Ulterra products, the bit company with a 30% international market share, giving it upside. “How can we add more low capex business, whereas power can be high capex, and we will be judged by how well we allocate capital?”
Notable. Oil is the same price today as 20 years ago. Not adjusted for inflation, just nominal price. 20 years. What else costs the same or less from 20 years ago? Computing power and data storage. And these and other technologies have resulted in our ability to produce record amounts of oil while seeing the level of activity around multi-year lows. Technology in the oilfield has allowed that to happen. And it will continue.
Rivalry. Or political Space Race. Next week, two huge rockets – one European, one American – are due to blast off from North and South America. Europe’s new heavy-lift vehicle, Ariane 6, is set to launch its first “commercial” mission, taking off from Kourou in French Guiana, after months of setbacks. SpaceX is due to launch the latest iteration of Starship, the world’s biggest and most powerful rocket, from its facility in Boca Chica, Texas, for its eighth trip. SpaceX has made more than 200 trips into space, so the French firm is a less experienced player, but no one takes the cost or complexity of these rockets lightly.
Snippets:
“How many wind turbines do we have in Texas? 19,127 at last count and we lead the nation. A weaker-than-expected 1Q25 guide that largely reflected greater-than-expected seasonal headwinds. (By 6-8%).”
“Management remains constructive on the longer-term growth prospects of the segment.”
The stock was weak on “an unexpected increase in FY25 capex to drive incremental (natural gas) volumes in 2026.”
“We sensed some restlessness from holders given the more tepid offshore outlook espoused by many of the company’s OFS peers during earnings season.”
“This raises concerns about the aggregate cash margin for the company, and may give bears a reason to question longer-term returns.”
“Bolt-on acquisition, adding over 40 locations directly adjacent to its existing position. Importantly, at less than 3x EV/EBITDA.”
Indian Power. India now has a larger population than China and is set to take the growth lead in SE Asia after China’s financial woes. The country has been a big proponent of renewable energy over the last few years but now seems to be running out of gas. Weak demand, power agreement delays and project cancellations were all given as reasons for the shift in the Indian market. The country added 73 gigawatts of renewable tenders last year but is now having trouble keeping it engaged. It should also be noted that India set a record in terms of the amount of coal burned as well.
Progressive? MSNBC’s hosts made the following comments after the President’s speech. The fact they are having to go to those lengths to come up with arguments against what Trump is doing is telling. And the stuff that will be impacted? Beer, booze and guacamole. So, they are listing the things that are going to be unavailable or too expensive because of the tariffs. So, in order to be treated fairly in the world, you're not willing to give up avocados for a few months? The price of your beer and tequila (depending on the beer you drink) might go up in order to fix economic disadvantages that have existed with the U.S. for years. Wow.
“Tariffs can be good. It's just that Trump’s tariffs aren’t good.”
“You need to be surgical and he's using a machete.”
“Sure, the tariffs can bring more manufacturing back to the U.S. but sometimes it's cheaper to manufacture things overseas.”
Reality Test. If my CEO announces that he's hired McKinsey and Company to review the management structure, and I get an email telling me to list five things I did last week? I would list the five things I did last week. Anyone who complained about being asked by McKinsey to list five accomplishments is too difficult or controversial or scary or triggering or any of those things? Why would you want them working for you?
Power. Liberty Energy announced the acquisition of IMG Energy Solutions, a leading developer of distributed power systems. IMG brings integrated capabilities across engineering, design and development, construction management, enhanced software and monitoring systems, and operations and marketing. The acquisition strengthens Liberty Power Innovation’s (“LPI”) offering by incorporating IMG’s advanced engineering designs, software control systems, utility interconnection experience (PJM), and power marketing expertise. Liberty has been growing its LPI business for some time and has investments in many different areas, including nuclear. Power, generating electricity, is the hottest thing in the OFS sector today, with Atlas, ProPetro and others diving into the business. The problem is that the big CAT turbines are sold out for at least a year, you pay up front with progress payments, and it costs around $15 million. If you aren’t already in the queue, it might be too late for turbines. It is easier to use reciprocal engines right now and that is the other option. 100% natural gas is next.
Proven Right & Vindicated. Why You Should Always Print Out Your Boarding Pass.(link)
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.
