May 31, 2024
Things I Learned This Week at the Courthouse
A Very Short Note This Week. Having a post-courthouse retreat in Southern France for 10 days. This is longer than next week, which will likely not appear at all! Then off to speak at a drilling conference on the land drilling rig market. I will have lots to talk about! Be good.
And It Continues. Now Conoco and Marathon. The party continues. A $22 billion deal for Marathon. Will Devon come out of the shadows and up the ante? You may know this by the time you’re reading this, but I don’t know what the time is. I’m writing this so I get to speculate and see how correct I am. It will be hard for Devon to pass up an opportunity of this size, and one that is so synergistic to its current operations. I am prejudiced in that I own stock in Devon. But it wasn’t for any expected takeover or consolidation, but the attractiveness of the variable dividend. It will at least be interesting to watch, but it also signals to the market that there is another buyer or potential buyer of large pieces of assets, if there happen to be any left. The smaller companies will consolidate. It will take longer for them to reach critical mass. But 2020 seems just a few weeks ago.
Tellurium. I bought a little of that ages ago. Will the vertically integrated model work and will chain succeed again? I figured I would buy enough to keep track but not enough to really matter. I’ve kept track and lost money. The integrated model didn’t work well enough to get enough equity to get the Driftwood LNG facility built. The integration was that the LNG facility’s “feedstock” was Tellerium produced natural gas. Tellurium has had a great deal of trouble finding willing capital for this project. So now they are selling their Haynesville properties for $260 million to Aetheon.
Wild Birds. I am a quail hunter. If anyone would like a market update, opinion or some lively banter over dinner, after a day of quail hunting, I happily offer my time and services for free. Hell, I’ll clean birds too! We all know about the issues with quail. Or thought so. Years ago, it was the killer ants from Mexico that would negatively impact quail populations. Then weather. Then wild guessing. Lots of issues exist and clearly weather is important, but over the past several years, a great deal of research has been done on the subject and it appears that parasites - eyeworms and cabal worms - have been the primary culprit. As a parasite, it doesn’t directly kill the host, but it weakens them and makes them easier prey and less able to withstand weather changes. Really?! So after several years, the FDA has approved the use of inoculated grit and feed that has greatly reduced the impact of parasites by making it easier for quail to digest food. Even though a very similar approach was taken with farm animals years ago, it took years to hit the market. And it has not. Under the name of QuailSafe, it is estimated to cover a 6,000 acre ranch for as little as $2k. That may be some of the best news in years. And I’ll bring my own shells!
Back to the Office. FINRA, the governing body of all things financial, is set to reinstate pre-pandemic rules for monitoring workplaces. So?? Well, it turns out, from a regulatory perspective, keeping up with financial professionals from home is not ideal. And fighting FINRA is a losing prospect for most financial service companies. So, what does this mean?? No more working in PJs. Barclays will require thousands of investment banking staff globally to spend five days a week in the office starting June 1. Citigroup is requiring about 600 U.S. employees previously eligible to work remotely to commute in full-time. HSBC is moving about 530 people back into the office. The city of New York is thrilled since city tax collections collapsed as people worked from home, but this is a regulatory move, not a tax move, but the benefit to the city is the same. With office real estate hitting the skids, this is probably good for office occupancy but likely not enough to stem a recession in that business.
Real Real Estate. We have been writing about the real estate crisis that has hit China in the last year as property companies go broke and the government figures out how to bail them out. We have also noted that funds are already turning properties over to lenders and raising vulture funds to buy them back at a discount. “For the first time since the financial crisis, investors in top-rated bonds backed by commercial real estate debt are getting hit with losses. Buyers of the AAA portion of a $308 million note backed by the mortgage on a building in midtown Manhattan got back less than three-quarters of their original investment after the loan was sold at a steep discount. It’s the first such loss of the post-crisis era,” says Barclays. As for the five groups of lower ranking creditors? They got wiped out. Market watchers say the fact pain is reaching all the way up to top-ranked holders, overwhelming safeguards put in place to ensure their full repayment, is a testament to how deeply distressed pockets of the U.S. commercial real estate market have become. “These losses may be a sign that the commercial real estate market is starting to hit rock bottom.” — David E. Rovella at Bloomberg
Liquidity. Aramco announced it will sell about $20 billion of stock in the market to raise capital, bringing down its 93.5% ownership by about 1%.
Approval. Hess shareholders approve $53B sale to Chevron.
A Win! We wrote last week about the efforts by some investment groups. CALPERS was mentioned significantly, voting against Exxon’s standing board since Exxon continues to pursue a lawsuit against two groups who originally sued Exxon. Breathe easy. Sanity prevailed. 95% of the votes cast were for the Chairman Darren Woods and his lead director, Joseph Hooley. It also rejected proposals seeking reports from Exxon on gender, race and social impact. Wow. That is encouraging.
U.S. Production. Rystad Energy is out with a U.S. production forecast through 2025. Rystad Energy expects onshore U.S. Lower-48 production growth to be concentrated in the Permian. After growing about 350K bpd between the fourth quarter of 2022 and the fourth quarter of 2023, this year Rystad Energy expects fourth quarter combined Bakken, Eagle Ford and Rockies production to be flat year-over-year. In the Permian, however, rig counts remain supportive of growth even after trending down following several major acquisitions. The Permian looks likely to exit 2024 at 6.5 million bpd, up from about 6 million bpd earlier this year.
Education. The Covenant of the Islamic Resistance Movement, referred to as the Hamas Covenant or Hamas Charter, was issued by Hamas (the Islamic Resistance Movement) on August 18, 1988 and outlines the organization's founding identity, positions and aims. In 2017, Hamas unveiled a revised charter, without explicitly revoking the 1988 charter. The original charter identified Hamas as the Muslim Brotherhood in Palestine and described its members to be god-fearing Muslims raising the banner of Jihad (armed struggle) in "the face of the oppressors." The charter defines the struggle to be against the Jews and calls for the eventual creation of an Islamic Palestinian state in all of former Mandatory Palestine and the obliteration or dissolution of Israel. The charter has been criticized for its use of antisemitic language, which some commentators have characterized as incitement to genocide. Hamas' 2017 charter removed the antisemitic language and clarified Hamas's struggle was with Zionists, not Jews.
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.
