Things I Learned This Week at Ruthie’s Diner

November 17, 2023

Rockin’ On. While you may not know Ruthie’s, you should. Anytime a BLT costs $4.50, it is worth a visit. The onion rings were only okay, but Ruthie’s is where you have lunch after a morning of walking the fields of Pennsylvania in search of pheasant and chucker. And if those fields are the property of Rolling Rock Country Club, all the better. But enough of communing with nature for now. There are important things to discuss. Like when are we coming back? And other key questions.

Slow Week? I didn’t seem to miss much while in the field. The Middle East remains a powder keg though you couldn’t tell it from the oil price. Isn’t a Middle East war one of those things that make oil prices go higher? China’s economy and the U.S.’ slower economy. Just Stop Oil people in the streets of London continuing to use oil-based materials in their protests against it. Same old, same old.

EIA Weekly Stats:

U.S. Crude Production: indicated at 13.2mm BOPD, flat w/w, and up 1.1mm BOPD y/y.
Refinery Runs: 15.4mm BOPD, up 0.2mm BOPD w/w and down 0.8mm BOPD y/y. Utilization at 86.1% due to turnarounds. Higher utilization ahead.
Crude Imports (net): 1.5mm BOPD, down 0.4mm BOPD w/w and down 0.2mm BOPD y/y. Brent-WTI spread at $4/bbl, down $1/bbl w/w.
Gasoline: Neutral – draw vs. expected build. Demand down 5.7% w/w and up 2.4% y/y.
Distillate: Neutral – draw below expectations. Demand down 4.4% w/w and up 6.4% y/y

Smart Guy. David Blackmon is one of my favorite … pundits? Analysts? Commentators? All the above? Always interesting. This week, he takes air at the makers of Dodge Ram pickups. Dodge, like everyone else, has been developing electric pickups. Tow your boat? Don’t go over 100 miles, before you have to find a changing station and wait to charge. “The solution? Equip the truck with an internal generator powered by…wait for it…oh, you have to wait for this one…NATURAL GAS. I swear I’m not making this up,” said David. But I consider this enlightenment and applause it. Officially, the car is not a hybrid since the natural gas fired generator doesn’t directly power the car but charges the battery. Very fine distinction. And one that allows Stellantis to fully qualify for the EV subsidies and tax breaks provided in the Inflation Reduction Act. A hybrid in all but name. Activists tried to kick out the CEO because he said the future today is hybrids, not EVs. He is looking more right.

Nice Headline. Consumer prices rose 3.2% in the year through October, an encouraging slowdown in the rate of inflation. The closely watched category was up 3.3% year-over-year, with food away from home up 5.4% and food at home up just 2.1%. Categories showing moderating year-over-year inflation included rice (+1.0%), pork (+0.3%), ham (+0.5%), chicken (-0.4%), fish and seafood (-1.8%), milk (-1.6%), fresh fruits and vegetables (-0.1%), coffee (+0.4%), eggs (-22.2%), and butter (-3.7%).

Blowhard #2. In June, Siemens blamed a “substantial increase in failure rates of wind turbine components” for its mounting losses—about $4.8 billion this year—and warned that its financial problems could drag on for years as it repairs and replaces faulty equipment. The company has a backlog of orders from wind developers chasing government subsidies, but banks won’t extend credit because of its financial troubles. Siemens wants Berlin to issue loan guarantees on the faulty premise that its failure could endanger the country’s economy and national security. Wind is the new too-big-to-fail enterprise.

Ouch. Again. Ford joined the pileup of EV delays when it postponed its $12 billion planned EV investment, stating that buyers weren’t willing to pay a premium over gasoline cars—even with a $7,500 federal tax credit and hefty state subsidies. “The customer is going to decide what volumes are,” Ford CFO, John Lawler, said. Has the company checked with its regulators about that?

Fast Action. Mach Natural Resources inks $815MM Anadarko deal fresh off of IPO. Just weeks after going public, Mach Natural Resources is not letting any grass grow under its feet. Tom is relentless. Congratulations. It is buying Paloma Partners, an upstream company backed by private equity firm EnCap Investments.

Spreading. The Houthi Terrorist Group in Yemen, a proxy for Iran, has announced that they launched a number of ballistic and land-attack cruise missiles earlier today at southern Israel, further stating that this is their third attack against Israel and that they are prepared to conduct more in the coming hours, days and weeks ahead.

In Case You Wondered.

EVs Faltering? While the average five-year depreciation for all vehicles is 38.8%, electric vehicles are more than 10 percentage points worse at 49.1%. In this era of high gasoline prices, SUVs also lose more value than the average vehicle at 41.2%. Industry experts have raised an alarm over declining EV sales amid rising inventories of these vehicles, on which the auto industry has staked its future. Toyota recently cut its forecast for EV sales for the next fiscal year by 39.1%. Ford has also reduced its production of these vehicles. “The disparity between electric vehicles and hybrids is worth noting, with EVs the worst group at holding their value and hybrids among the best,” said Karl Brauer, iSeeCars executive analyst. “Some manufacturers have reduced or even abandoned the hybrid market in favor of EVs, but these figures suggest consumers still appreciate a hybrid’s combination of higher fuel efficiency and zero range anxiety.”

Numbers. U.S. oil production as of August was a record 13.1mm BOPD, up 8.9% versus last year. That is 23 straight months of annual year-over-year increases (which only puts it in 3rd place behind the 56 month streak from 2011-2015 and 38 month streak from 2016 to 2020).

At 5.6mm BOPD, Texas represents 43.1% of U.S. oil production.
The Federal Gulf of Mexico offshore region was 14.5% of U.S. production in August while New Mexico (largely Federal leases) registered at 13.8%.
These three areas combined totaled 71.4% of U.S. oil production.
In June, private lands represented 73.9% of U.S. oil production, federal offshore & onshore was 14.4% and 10.2%, respectively, and native lands were 1.5%.
Private lands produced 9.5mm BOPD while federal offshore & onshore produced 1.9mm BOPD and 1.3mm BOPD, respectively.

Anti-LNG?

All Aboard! Air Products to add carbon capture to hydrogen plant. Air Product's carbon capture facility is being built at its existing hydrogen production plant and will serve Exxon Mobil and other customers when it comes online by 2026.

From Robert Bryce. Well Said. “The energy transition isn’t. Despite years of unending hype, hundreds of billions of dollars in federal tax credits, and some $600 billion spent on wind and solar in the U.S. since 2004, investors are abandoning alternative energy in droves. As the Wall Street Journal noted last week, ‘Rising financing costs and prices for equipment make it harder to develop clean-energy projects as industry investors increasingly weigh the risks of providing capital against the benefits of reducing carbon emissions.’ Wind and solar companies are ‘finding it more difficult to secure financing than at any time in the past decade.’ It also quoted David Foley, a senior managing director at Blackstone, who recently told attendees at an energy conference in New York that, ‘The irrational exuberance, all the excitement about clean energy is clearly getting squeezed out.’ The latest evidence of that squeeze came last Friday when Siemens Gamesa (Siemens Energy AG) announced it was canceling plans to build a $280 million wind turbine plant in Portsmouth, Virginia. That project was supposed to create 300 of those ‘green’ jobs we’ve heard so much about.”

Headlines.

Frac Monitor: Preliminary November numbers continue to show weakness.
ExxonMobil CEO warns vilifying oil industry hinders path to net zero emissions.
Iran's crude exports will "come down" over the coming months as the U.S. steps up enforcement of sanctions according to the Biden administration who had turned a blind eye for a year.
No oil or energy company is in the top ten most shorted stocks, or the least shorted.
China to Dominate 80% of Global Solar Market Despite West's Best Efforts, says Wood Mac.
Noble (NE) declares its quarterly dividend, a 33.3% increase from prior dividend.
EIA projects North America LNG export capacity to double by 2027.
Russia sells almost all crude above G7 price cap.

Growth Sector. North American LNG export capacity is expected to grow by 113% from 11.4mm BOPD to 24.3mm BOPD by the end of 2027, according to the U.S. Energy Information Administration.

Thinking Outside the Box. Exxon to drill first Arkansas lithium well, aiming to become a top EV supplier by 2030. The company said it aims to be producing enough lithium to supply the manufacturing needs of more than one million electric vehicles per year by 2030. Talks with battery and EV makers are ongoing, the company said.

Snuck Under the Wire. Citing heavier downside risks to the country's fiscal strength, Moody's late on Friday dropped its credit-rating outlook on the United States to negative from stable. "The sharp rise in U.S. Treasury bond yields this year has increased pre-existing pressure on U.S. debt affordability. In the absence of policy action, Moody's expects [United States] debt affordability to decline further, steadily and significantly, to very weak levels compared to other highly rated sovereigns." Deputy Treasury Secretary Wally Adeyemo disagreed with the stance, ahead of another potential government shutdown at the end of this week. "The American economy remains strong, and Treasury securities are the world’s preeminent safe and liquid asset," he said in a statement mailed to media outlets.

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.