August 1, 2025
Things I Learned This Week on Flathead Lake
After being in Aspen last weekend, going to the Farmer’s Market in Whitefish, Montana was a change. Style and fashion were about 180 degrees out of phase. It was great. We sat in our chairs under the shade of a huge tree, listening to local musicians belt out their tunes while we hit the numerous food trucks and stalls. America at its finest, in 75-degree weather! It got over 100 degrees this week in Dallas. I read about it. Now I am going to put my feet in a trout stream and dream about quail hunts. My best friend from the 8th grade retired this year, following his wife’s retirement last year. Both were tenured professors at the University of North Texas. They still live in Denton, except for the three months they spend each year at their place in Whitefish. I finally got invited!
Earnings and Warnings Continue. Few beats, few hits, more misses and almost everyone lowered guidance. That is the earnings report for the OFS sector so far. As an analyst and investor, what you did last quarter matters most. It gives me insight into the trailing market. But what happens now? That is what matters. And what is happening now, for most of the oil and gas industry, both E&P and OFS, appears to be less, not more. E&P will outperform. At 50 dollar oil, an oil company’s value has been cut significantly. That puts the value of a drilling rig about even with a boat anchor. For the last several years, E&P has benefited from the technology developed by the OFS sector. But, for many reasons, that has come at the expense of the OFS sector.
Shifty. So, what do you do in a shifting market? You shift. The company, among the historical OFS leaders, that has done the best job of shifting, is Baker Hughes. I remember when GE was putting together its stable of OFS players, including Vetco, Hydril and others. While the individual silos were great companies with great management teams, GE never seemed to get it. At least that was the conventional wisdom in the market for years. Over the last several years, with the combination of the old OFS Baker Hughes and the hybrid of GE Energy and Power, the company has downsized its OFS businesses and emphasized power and LNG, two of the hottest terms in the market today. We discuss the Chart Industries deal below, but that backward snapshot shows relative performance over the last 12 months, during which time Baker had the lowest return on invested capital of the group.
Exception to the Rule:
Baker Hughes is up ~22% year-over-year
SLB is down ~23% year-over-year
Halliburton is down ~30% year-over-year
Weatherford is down ~48% year-over-year
Chart This. Baker Hughes buys Chart Industries in a 13.6 billion dollar deal! That was the headline and the exclamation point is very well deserved. Baker Hughes is spending almost 14 billion dollars to expand its LNG vertical, which, considering the current market outlook, is a good place to be. BKR’s IET group, which includes its LNG businesses, has a 30 billion dollar backlog and Europe just agreed to buy more LNG than it can use. Significant cost savings have already been identified. Chart had an agreement to combine with Flowserve, a 7 billion dollar valve and industrial machinery company. Chart will pay a breakup fee of 266 million dollars to Flowserve. Now, the speculation starts. It would seem reasonable that parts of the continually marginalized OFS businesses still remaining within BKR might soon come up for sale. It takes a while for the moth to emerge from the cocoon, but when it does, it leaves it behind.
A Big Change in Scale. This deal will put BKR’s market cap at just shy of $60 billion. That is 3x bigger than Halliburton and larger than Schlumberger (“SLB”). SLB clocks in at $53 billion and that is after the ChampionX acquisition. Halliburton is at $20 billion, NOV is at $5 billion, and Weatherford is just above $4 billion. Not as mainstream as some, TechnipFMC has also been a beneficiary of the LNG and power trends and now boasts a market cap of $15 billion. On June 30, 2014, SLB’s market cap hit $152 billion. Today it is $53 billion. Halliburton hit $62 billion at the same time and is now $20 billion. Baker trailed then at only $32 billion, about half the size of Halliburton. Weatherford hit $26 billion but now sits at $4 billion. NOV hit $37 billion, and is now at $4 billion.
One Analyst’s View of the Baker – Chart Deal.
“This is a significant step that high grades the portfolio, adds value accretive customer offerings and transforms Baker Hughes’ Industrial and Energy Technology segment.”
“Chart Industries brings differentiated capabilities across a diverse set of end markets that are advantaged by secular growth drivers such as natural gas, data centers and decarbonization.”
“The highly complementary capabilities enable enhanced value-creation solutions for customers across the lifecycle of projects and accelerate aftermarket growth through increased service penetration of the combined installed base.”
“$325 million in annualized cost synergies are expected to be realized by the end of the third year.”
“The deal has a compelling financial impact, as it is accretive to growth, margins, EPS and cash flow.”
Chart Industries. The company designs and manufactures engineered cryogenic equipment used in the liquid gas supply chain. The product offerings include vacuum-insulated containment vessels, cold boxes, liquefaction process units, heat exchangers, other cryogenic components, ambient temperature fans and gas processing equipment. These products are used in the production, purification, liquefaction, storage and distribution of atmospheric hydrocarbons and industrial gases. Ten analysts covering Chart stock had a consensus rating of “Strong Buy” and an average price target of $198.60. It went for $210.
Texas. A man starts to interview someone and begins to ask him, “Where are you from?” but stops himself. The other man asks, “What were you going to ask me?” He replies, “I was going to ask where you were from, but I realized if you were from Texas, you would have already told me. And if you aren’t, why should I embarrass you by asking?”
And More. Atlas Energy, a sand and logistics company in the Permian Basin, is acquiring PropFlow, a leading provider of patented on-wellsite proppant filtration technology. It “is intended to strengthen Atlas’ existing proppant handling capabilities as part of the Company’s vision of mine-to-blender proppant logistics.” PropFlow provides a wellsite proppant filtration system that eliminates debris from the proppant streams. Atlas’ goal is to “provide customers with the supporting infrastructure to pump at rates that surpass historical benchmarks.”
If We Build It, They Will Come. Last year, $4.3 billion was spent on M&A in U.S. natural gas-fired plants. That’s up from the $3.2 billion in 2023. This year, through June, the total is $49 billion. That has to make it one of the fastest growing businesses in the history of mankind! The realization has hit that batteries and alternative energy cannot provide the reliable power necessary to run AI data centers. And AI data centers are already being built. Demand is not speculative. So, if not alternative energy or batteries, what’s left? Nuclear and natural gas. SMR’s will completely reshape the nuclear and power landscape and will have a large impact on power generation, but they are not likely to be commercially viable for another 8 to 10 years. What’s left? Natural gas. We all know, or at least believe, that demand for natural gas will climb from the current 105 BCF per day to about 130 BCF per day by 2030. Much of that increase in demand will be used to power AI data centers. Until now, we have mainly talked about mechanics and economics from the E&P perspective. Three of the largest gas producers told me a couple of months ago that we could meet that 130 BCF per day of demand with just 25 to 35 additional rigs and a $4.50 natural gas price. That is old news. What we are seeing now is private equity buying and building natural gas-fired power generation plants. Remember when Warren Buffett, after making the Oxy investment, said he wanted to build eight new natural gas-powered plants in Texas? It looks like he was early again. But almost $50 billion invested in the first six months of this year, after only $3.2 billion just two years ago, shows that everyone in our industry should find a way to get in front of that juggernaut and its money.
PPHB U.S. Energy Market Highlights:
Commodity Prices: WTI crude oil is currently $70.00 per barrel (up ~6.0% week-over-week) and natural gas is $3.05 per MMBtu (down ~3.2% week-over-week).
Crude Oil Production: U.S. crude oil production is currently ~13.3 MM BOPD (up ~0.1% year-over-year).
Crude Oil Inventories: U.S. crude oil inventories increased by ~7.7 million barrels week-over-week vs. an estimated decrease of ~2.3 million barrels.
Frac Spread Count: There are currently 168 frac spreads operating in the U.S. (a decrease of 6 spreads week-over-week).
Onshore Drilling Rig Count: There are currently 526 drilling rigs operating in the U.S. (a decrease of 3 rigs week-over-week).
This Is Important. FERC is revising its procedures on NEPA, the National Environmental Policy Act, following a Supreme Court ruling in the Seven County Infrastructure Coalition v. Eagle County, Colorado case. The ruling limits environmental impact evaluations to the actual physical scope of a project, rather than including upstream or downstream effects. There have been a number of court cases that have stalled or overturned projects, particularly gas pipeline and LNG projects. Key aspects of FERC’s revised NEPA procedures include:
Removal of references to rescinded regulations
Focus on direct project impacts
Emphasis on judicial deference to agencies
Focus on relevant environmental information and coordination
EIA Short-term Forecast Overview.
Global oil prices: The Brent oil forecast is $69/b, up $3 from last month due to a more significant geopolitical risk premium. Significant global oil inventories will put consistent downward pressure on oil prices, with the Brent price averaging $58/b in 2026.
U.S. crude oil production: U.S. crude oil production will decline from an all-time high of just over 13.4 million b/d in the second quarter of 2025 to less than 13.3 million b/d by the fourth quarter of 2026. On an annual basis, oil production will average 13.4 million b/d in both 2025 and 2026.
Natural gas storage and prices: A 5% increase in gas storage drops the price forecast, with Henry Hub averaging ~$3.40 per MMBtu in the third quarter of 2025, down 16% from last month. It is still expected to average $3.70/MMBtu this year and $4.40/MMBtu next year.
Wholesale power prices: U.S. average wholesale power prices will increase by 12% this summer compared with last summer.
Done Quietly. Chevron had its Venezuela oil license restored after the country released ten Americans who were being detained by the government. According to a Wall Street Journal report, no royalties or taxes will go to the Maduro regime. The Biden administration appeared to turn a blind eye to President Maduro’s failure to uphold his promise of free elections, and the Trump administration suspended it when it came into power. Chevron reportedly warned the administration that China taking over development of the fields would not align with U.S. interests. I am not sure how compliance will be monitored, especially given that the Maduro regime has not honored a single promise in years.
Frac Report. ProPetro, a Midland based frac company, has recently been strategically shifting its capital expenditures and expertise into the power generation business. The results for the core frac business help explain the decision. The headline following the announcement: “GAAP EPS of -$0.07 misses by $0.11, revenue of $326M misses by $3.46M.” We will not dissect the full quarterly results here, but the company made an outlook statement that speaks volumes about where we are in the cycle. “We believe Permian frac fleet counts are likely approaching 70, compared to approximately 90 to 100 fleets operating at the start of the year. Increased market uncertainty, driven by tariffs and rising OPEC+ production, has resulted in more idle frac capacity than anticipated. Furthermore, price discipline has weakened at the lower end of the market, particularly among subscale frac providers.”
Fast Cars. The Aston Martin formula one team agreed to sell a minority stake that values the team at about $3.2 billion, as demand to invest in the sport shows no sign of slowing.
Pulled. Peak Resources recently withdrew its plans for an IPO. Peak operates in the Powder River Basin and cited unfavorable market conditions for crude oil as the reason for the withdrawal. Specifically, the ongoing court injunction on new drilling permits in Wyoming and the declining price of oil made the timing unsuitable for an IPO, according to Hart Energy. Wait and see.
Who Won? Solar. If this had been a race, solar would have won. And it looks ready to stretch out that lead. We have written a great deal about how East Coast offshore wind was in big trouble even before the Trump administration came in. Solar has made fewer headlines but added more capacity. When one format begins to dominate the market, competing formats often fall away quickly. Last year, in absolute terms, global solar capacity grew three times faster than global wind capacity. Solar capacity increased by 452 gigawatts in 2024, while wind capacity grew by only 115 gigawatts. Solar’s growth is particularly notable. Over the last ten years, it has grown ~8x, while wind has grown ~2x, according to Climate Central. Both are expected to continue leading growth in U.S. power generation, with solar projected to grow by 75% from 2023 to 2025 and wind projected to grow by 11% over the same period.
Ouch. NOV dropped 10 percent versus a 2 percent decline in OIH after reporting earnings. Light orders, a miss and a guide down. Any incremental cost savings are expected to be essentially offset by tariffs in the second half. The third quarter should see an uptick in orders and the fourth quarter should benefit from year-end bulk tool sales.
Power. We all know how China has been scaling up its power capacity with coal, LNG, solar, wind and anything else that works. Hydroelectric power plays a major role. The Three Gorges project was controversial from the start, with more than a million people in 1,500 cities, towns and villages forcibly relocated. It took 12 years to build and 6 more to reach full capacity. It generates 225 gigawatts, the equivalent of 9,000 modern wind turbines. Now, the new dam is actually a series of dams. Situated in Southeastern Tibet near a highly sensitive and disputed section of the border between China and India. The envisioned Medog Power Station would harness a 6,000-foot drop in the Yarlung Tsangpo River along a 35-mile stretch. If its five cascading mega-dams are completed as planned, one source, Doomberg, says that Medog promises to fundamentally reshape global energy markets. Little deters China. The 1975 Banqiao Dam failure alone officially caused at least 26,000 deaths, with some estimates placing the real toll between 220,000 and 230,000.
Treated Equally. The Department of the Interior (“DOI”) announced its intention to end “preferential treatment for unreliable, subsidy-dependent wind and solar energy.” It will no longer offer special consideration for wind and solar projects on federal lands, instead requiring heightened scrutiny of requests for leases, rights-of-ways and construction plans. The DOI is also addressing provisions in the recent budget bill to eliminate existing right-of-way and capacity fee discounts for wind and solar projects. These energy projects will have the same environmental considerations as other projects.
Not Good Foreshadowing. PJM, a regional transmission organization, held its wholesale power auction to supply electricity between June 2026 and May 2027. The auction hit a record high, up 22%, after last year’s all-time high. The PJM wholesale power capacity auction is a mechanism where electricity generators commit to providing power in the future, ensuring enough capacity to meet anticipated demand. These auctions occur several years in advance and help regional transmission organizations plan for future electricity needs and maintain grid reliability by incentivizing generators to invest in capacity. The price of power continues to rise with no end in sight. There are rolling blackouts already projected for three years out.
Reliable Baseload. Governor Gavin Newsom was bragging this week that more than two-thirds of the state’s electricity comes from solar, wind and geothermal sources. So, California is knocking itself out of contention to host any of the AI data centers that its tech companies are going to develop. These centers require reliable power, which the alternative energy sources noted above don’t provide. Of course, this shift will also increase the likelihood of rolling blackouts across California, since the state has almost completely eroded its reliable baseload of power and replaced 75% of it with sources that, by their own admission, are intermittent. It’s like bragging you have the biggest buggy car company in the world. It may have sounded good at one point. It doesn’t sound so good today.
News. “The U.S. Olympic and Paralympic committee has effectively barred transgender women from competing in all women’s sports, telling the federations overseeing swimming, athletics and other sports that it has an obligation to comply with an executive order issued by President Trump. The policy follows a similar step by the NCAA. The U.S. OPC oversees about 50 national governing bodies, most of which play a role in everything from the grassroots to elite levels of their sports. That raises the possibility that rules might need to be changed at local sports clubs.” - Associated Press.
Still Clean Air! President Trump’s administration has proposed a rule that would rescind a 2009 declaration that determined that carbon dioxide and other greenhouse gases endanger public health and welfare. The “endangerment finding” serves as the legal foundation for a range of climate regulations under the Clean Air Act for motor vehicles, power plants and other sources. It has long been the central scientific basis for U.S. efforts to regulate greenhouse gas emissions and fight climate change. “There are people who, in the name of climate change, are willing to bankrupt the country,” said the head of the EPA. “They created this endangerment finding and are able to put all these regulations on vehicles, airplanes and stationary sources to basically regulate out of existence, in many cases, a lot of segments of our economy. And it cost Americans a lot of money.” The EPA proposal must go through a lengthy review process, including a public comment period, before it can be finalized, likely sometime next year. Environmental groups are likely to challenge the rule change in court.
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.
