July 11, 2025
Things I Learned This Week Over July 4th
Our hearts go out to the people who lost loved ones in the recent floods. Houston families in the oil patch make up a large part of Camp Mystic. This was the worst U.S. flood in over 100 years in terms of fatalities. Not all records are enviable. All of the best and prayers continue.
July 4th. I was too busy making margaritas last weekend to publish, but we met a bunch of energy people and much was learned.
Gone Quiet. The 2nd quarter ends, and the quiet period begins. Most companies are relieved because they haven’t yet figured out what they are going to say. “Uncertainty” is clearly the winning word of the year so far. One article noted $50 billion in offshore spending that is being held up due to “uncertainty.” What can any of the energy companies say that will alleviate that uncertainty? Nothing. They don’t know either. At some point, the crystal ball will clear, and money can be spent again. And when exactly does that start? Below we talk about the rig count, commodity prices and quarterly comparisons. These data points show the momentum being seen in the markets, and it seems to be headed in a unfavorable direction.
Bumped Up. The announcement that OPEC+ was again accelerating the return of oil to the market was greeted as expected. Not good news for pricing. And to those that say the volumes aren’t exactly right or that some of that oil was already in the market, or any number of other mitigating arguments, it doesn’t change the reality. The world is currently oversupplied with oil, and it has been for some time. The details: After OPEC doubled its production return to the market over the past few months, it is getting ratcheted up again. This time to 548,000 barrels of oil per day versus the expected 411,000 barrels. Eight countries met for less than 10 minutes, indicating complete agreement on the move. Only 20% of the 2.2 million barrels per day of reduction remains shut-in and it is expected to be back on the market in September.
What Do You Say? A couple of down cycles ago, one OFS CEO pointed out that the level of activity at the time in the market was unsustainably low. It stayed “unsustainable” for about twelve quarters. Timing is everything. We can all fully believe that activity will improve, but the questions of “When?” and “How much?” continue to plague the industry. Four-mile laterals? How many rigs and frac crews do you really need? Investors will ask, “When will things improve?” and “How bad will it get?” and “How low does the rig count go?” The problem is that no one has the answers, but everyone is compelled to say something. It makes it very difficult to buy or recommend energy stocks with the current outlook. The shakeout of companies will continue with E&P combinations taking the forefront. Small cap OFS companies need to participate in the consolidation wave as well.
Activity. The U.S. rig count continued its decline through Q2. Q2 was down 8.3% from the Q1 average. That does not bode well for the OFS sector on Q2 reporting. A bigger problem is that the current rig count is down 5.6% from the Q2 average, making the outlook for Q3 difficult to spin positive for most. In terms of comparison, the rig count is down 7.9% from this time last year. Since all of the historical correlations of commodity prices to rig counts are now thrown out of the window, drilling for crude oil represents 80% of the rig count, but natural gas is likely to gain some ground this year.
Oil Pricing. Commodity prices drive spending, and while the rig count is no longer the preferred metric, with lateral lengths being the better tracker, it does indicate the overall level of services demand in the short term. As goes cash flow, so goes spending. And cash flow? Price is the most leveraged variable. In Q2, crude oil prices were down 10% to $64.63, which was down 20% from the Q2 average of $81.71 last year. And while only indicative of the current outlook, crude oil prices could be around the last quarter’s average for the next several years.
Natural Gas Pricing. Natural gas is all over the place. The Q2 average natural gas price was down 20% from the first quarter but it was up almost 90% from the previous three quarters. Currently, prices are just over $3.75 per MMBtu, the price is expected to hit $4.75 in January 2026, an expected increase of more than 50% in six months. We shall see, but clearly the outlook for natural gas is much better than of crude oil. But if it only takes about 30 additional rigs drilling for natural gas over the next five years to meet demand, which equates to less than a 6% overall increase in total rigs working. A blowout upside doesn’t appear to be in the cards.
Pared Down. Chevron is reducing local and regional business units in favor of a more centralized model to improve performance and cut as much as $3 billion of costs by 2026. A single offshore division will operate assets in the U.S. Gulf, Nigeria, Angola and Eastern Mediterranean. Shale assets in Texas, Colorado and Argentina will also be brought under one roof. Service centers in Manila and Buenos Aires are set to take on finance, human resources and information technology work that used to be done in multiple countries. Centralized engineering hubs are planned for Houston and Bengaluru, India. Chevron has already been laying off thousands, with a planned 20% reduction, which works out to 9,000 employees by the end of next year, and this is part of the integrated strategy. Simplifying operations for faster execution was the CEO’s message this week. “If we’re going to continue to win and be an investment choice in the market, we have to just always be more effective and look for new ways and better ways to work.” “When you standardize and centralize work, it gives you greater opportunity to apply technology.” They follow in the footsteps of Exxon and Shell, who are also doing corporate restructuring. And then comes AI.
Predictions. I remember back in the early days of the natural gas shale revolution and seeing how weaker pricing threatened to slow activity. One of the most influential and respected guys in the business said that, due to the rapid shale well production decline rates, production would drop by 15% to 20% if the natural gas rig count dropped by just 5%. People panicked. It didn’t happen. The natural gas rig count has dropped from 1,600 to 80 today and natural gas production has gone up every year but 2 of the last 17. Now it is oil’s turn. There is nothing linear in the oil and natural gas industry. Excel projections can be off by a lot.
Reality. And now we broke another oil production record! The crude oil rig count is down 6% since last year. Regardless, in April, we set another record for oil production at 13.47 million barrels per day. Very slightly up, but still up from March, indicating a positive trajectory. Of course, Texas is still the 600-pound gorilla, producing 5.77 million barrels per day, up almost 2% for April.
PPHB U.S. Energy Market Highlights:
Commodity Prices: WTI crude oil is currently $65.38 per barrel (down ~2.4% week-over-week) and natural gas is $3.37 per MMBtu (down ~1.9% week-over-week).
Crude Oil Production: U.S. crude oil production is currently ~13.4 MM BOPD (up ~0.6% year-over-year).
Crude Oil Inventories: U.S. crude oil inventories increased by ~7.0 million barrels week-over-week vs. an estimated decrease of ~1.7 million barrels.
Frac Spread Count: There are currently 176 frac spreads operating in the U.S. (a decrease of 3 spreads week-over-week).
Onshore Drilling Rig Count: There are currently 524 drilling rigs operating in the U.S. (a decrease of 9 rigs week-over-week).
OMG. Shameless. How do you prevent “once in a lifetime” flood events like the one in Texas, and beyond, in the past week? Bill Nye, also known as “The Science Guy,” says the answer is clear… “Stop burning fossil fuels.” So, the Guadalupe wouldn’t have flooded if we had quit driving cars. And ambulances. And boats. And stopped using lights and phones. Science guy my...
Size Matters. We rule! We have written recently about how the U.S. has absolutely crushed the EU in terms of new business formation over the last 10 years. The result of our system? The U.S. is home to 6 of the top 10 companies on the Global 2000… JPMorgan, Berkshire Hathaway, Amazon, Bank of America, Microsoft and Alphabet. We also have 15 of the top 25.
Education. Measles hit a 33-year high! Of course, the outbreak is occurring before any big political moves have been made. Where is the biggest outbreak? West Texas. But oddly enough, it isn’t primarily among the expected rednecks. The core of the outbreak was among the Mennonites. Mennonites are a diverse Christian group, similar to the Amish. Some of their communities, particularly in West Texas, are known for their conservative traditions, use of the German language, limited use of technology and according to several sources, they face challenges related to health and vaccination rates due to cultural factors and limited access to healthcare. And all along, we thought it was Bubba and Goober. While at 33-year record highs, a total of 3 people have died this year of measles. On a percentage basis, it’s off the charts. No one has died for years.
I Didn’t Know. Remember waiting eagerly for the 15th or the end of the month? Getting the check and paying off all the bills that were due on the 16th or 2nd? If only we didn’t have to wait. But it seems we don’t, and this is something that I missed. Earned Wage Access, also known as “EWA.” It gives employees the option to access their salary before their scheduled payday. It helps drive talent attraction and retention, especially among younger workers who expect real-time control over their pay. Fintech companies developed the programs that are embedded directly into payroll and HR platforms to offer immediate access to hourly employees. Since it launched in 2022, 7 million employees have used the strategy, and poll demographics show nearly 80% of consumers aged 18 to 44 expect employers to offer such pay flexibility. I am a big fan of things that improve efficiency, operations and incentives for workers, so I found this interesting. Imagine not having to wait two weeks to take her out to dinner!
Skynet. Another very important thing I learned over the 4th, other than the recipe for the perfect margarita, is how underappreciated it is among many just how much AI is going to change our lives. We have written about the big project, in every company out there, of collecting, organizing and verifying every piece of data a company and business can generate. Garbage in, garbage out. So, don’t put any garbage into your AI model. Then comes designing the structure of the AI model(s). Link different models together and you have a custom-built, constantly optimizing system that does everything McKinsey and Accenture said you needed. Except, you control and own it, and there are no subscription fees. Both Microsoft and Amazon have said that AI will allow them to reduce their workforce by over 10% over the next couple of years. It will be much more than that. Another expert expects that all white-collar administrative jobs will see 50% cuts in the next couple of years. Notice what friends in other industries are doing right now. This is by no means just in our industry. I think everyone will be stunned by where we will be in just 18 months from now. Very underappreciated and misunderstood.
Hard Work. The Energy Workforce & Technology Council (EWTC) released its June 2025 jobs report which showed a slight drop in the Energy Services sector, with total jobs at 635,077 in June, down by 3,153 from May. The overall national U.S. economy added 147,000 jobs that month.
Volatility. The chart below shows the WTI oil price for the last 10 years. One thing that is notable is that during the previous four years before what is pictured in this chart, the average price was $95 per barrel. The move up from the bottom of Covid to today looks pretty good, until you realize that a commodity’s price going up 150% in two years will cause dislocation in any market. It has in ours. On a weekly basis, WTI hit $120 per barrel in June of 2022 and has been declining ever since with inventory changes, production decline issues and less activity having no real lasting impact. The current futures strip through next year has oil between $63-$64 per barrel.
Potentials. Raymond James E&P analyst, John Freeman, did a detailed look at the Permian Basin and had some interesting insights. Permian Resources is the Delaware Basin’s most undervalued E&P, said one headline. He said that, overall, the Delaware has seven years of core inventory left, about as much as the Midland Basin. In the Delaware, public E&Ps hold 90% of the core leasehold, and in the Midland, they hold 97% of the basin’s core. ConocoPhillips has the most Delaware core runway left, about 21% of the remaining inventory, with more than 20 years’ worth at its current drilling pace. Other public E&Ps hold between 6 and 8 years of runway. Between Conoco and Oxy, they own 40% of the remaining core inventory left to drill. So, who has what is left to drill?
A Slow Crumble. The U.S. horizontal rig count dropped by 16 to 480 this week with oily areas losing 13, dropping that total to 401, and the gas count fell by 3 to 79. U.S. oil drilling activity has struggled with the oversupply and global uncertainty, but natural gas players have remained sheltered to some degree, with an overall positive outlook for U.S. natural gas. U.S. public shale gas E&Ps ended the first quarter of 2025 with $5.4 billion in corporate cash flows, which is up about 80% from Q4 2024. The problem? We are still basically meeting natural gas demand with 79 rigs running. Yes, many DUCs were completed and there are other factors that may have had some impact, but less than 100 rigs to keep 100 BCF/day running? Wow.
Good Showing. Shale gas E&P companies have seen a strong start in 2025, with operators seeing an upswing at the start of the year. This increase was driven in part by a backlog of drilled but uncompleted (DUC) wells, which enabled growth without incurring new drilling investments. Henry Hub gas prices increased to $4.15 per MMBtu in the first quarter of this year, due in part to colder January weather.
Good for Us. The U.S. House of Representatives passed President Donald Trump’s “One Big Beautiful Bill Act,” also known as the “OBBBA,” on July 3rd. The bill has now been signed by the President. The House approved the Senate-amended version of the bill, which included several changes to initiatives around streamlined oil and gas permitting, while key oil and gas provisions around minimum leasing requirements remained largely intact from the House bill. The most significant change for the industry is the reduction of the maximum offshore royalty rate, which fell from 18.75% to 16.67%. Additionally, the Senate version repealed a section of the Inflation Reduction Act, which placed royalties on methane volumes for onshore and offshore operations.
OFS. From the July Q2 Dallas Fed Energy Survey: “Among oilfield services firms, the input cost index increased from 30.9 to 40.0. This suggests input costs for oilfield services firms rose at a slightly faster pace than in the prior quarter. Oilfield services firms reported modest deterioration in nearly all indicators. The equipment utilization index for oilfield services firms was relatively unchanged at -4.6. The operating margin index decreased from -21.5 to -33.4, indicating margins compressed at a faster rate. Meanwhile, the index for prices received turned negative, falling from 7.1 to -17.7.
Pick ‘Em! The Dallas Fed survey also showed that respondents expect a WTI oil price of $68 per barrel at year-end 2025, and the range came in at $50 to $85 per barrel. When asked about longer-term expectations, on average, respondents said they expect a WTI oil price of $72 per barrel two years from now and $77 per barrel five years from now. For natural gas, participants expect a Henry Hub natural gas price of $3.66 per MMBtu at year-end 2025, with longer-term expectations anticipating a Henry Hub gas price of $4.12 per MMBtu two years from now and $4.50 per MMBtu five years from now. Caveat. For the last 15 years, I have hosted an Annual Xmas Soiree Luncheon and the 20+ attending senior executives always try predicting end of year oil and gas prices. Take the survey with a grain of salt because we are NEVER good at predicting commodity prices. Ever.
Headlines.
“Marketing is heating up for gassy assets in Haynesville, Appalachia and the Midcontinent, a sign that natural gas remains one of the bright spots in upstream portfolios, M&A experts tell Hart Energy.”
“Bitcoin’s broken through $112,000 for the first time.”
“Only 20% of the 2.2 mb/d reduction remains (marked for Sep).”
“The Oilfield Services Index is down 21% so far this year and down 32% over the last twelve months.”
No Easy Way Out. Since Trump took office, U.S. Immigration and Customs Enforcement has arrested more than 38,000 illegal immigrants with criminal convictions and 2,711 alleged multinational gang members. As of the end of April, about 65,682 illegal immigrants have been removed from the country, with 1,329 accused or convicted of sex offenses, 498 accused or convicted of murder, 9,639 accused of assaults, 6,398 accused or convicted of DWIs or DUIs and 1,479 accused or convicted of weapon offenses.
No Big Deal. I saw this in a magazine. Just another advertisement for our industry. We see them all the time. But I thought this was interesting. You don’t need to replace your rig fleet to upgrade it to the top? Dual fuel? The goal is to win with the lowest cost and highest return, right? The implications are interesting, and it isn’t that this is some new whizbang thing. Just a normal business ad, but it demonstrates the efficiencies we have built into our industry. “Cut Fuel Costs & Emissions with Cat’s Dual-Fuel Upgrade for Rigs. Upgrade your rig engines to cut diesel use, lower emissions and boost efficiency – without replacing your fleet. Achieve up to 85% diesel displacement and fuel flexibility across varied drilling conditions.”
Well Done. Cardinal has bought Quality. Quality Energy Services, Inc. was founded in 2001 and is an established provider of offshore well intervention and production optimization services for operators in the Gulf and offers specialized technical services to support plug and abandonment of legacy wells. Cardinal is a leading provider of oilfield services and equipment, specializing in coil tubing, slickline and wireline services for oil and natural gas producers in the Permian Basin of West Texas, Eagle Ford Basin of South Texas, the shallow and deep waters of the Gulf, and select other U.S. land markets. PPHB acted as advisor. Congrats to all.
Tough Call. This is going to be a dilemma, especially for those in Colorado. It made news this week when President Trump said he plans to put a 50% tariff on imported copper. That of course makes domestically produced copper all the more valuable, clearly changing the economics. Now, to be fair, Colorado is not one of the top producers as of today. The state has five producers of copper and has operated large open pit copper mines in the past, but there’s the issue of political will. The largest copper deposits are in Arizona followed by Utah. Tariffs change the economics of all players, but the political pressure to NOT reap the economic benefits of copper exploitation will be fun to watch. New Mexico, Nevada and Montana round out the top five copper states.
BBB. Oh, right. The Big Beautiful Bill. Not as bad as the Inflation Reduction Act, but… In the words of NOIA President, Erik Milito, “For the offshore energy sector, the bill delivers long-sought wins for oil and gas, it restores lease sale predictability, improves revenue sharing for Gulf Coast states and revises royalty rates. However, the bill also includes significant, adverse changes to energy tax credits established under the Inflation Reduction Act, modifying eligibility timelines and introducing new restrictions for the renewables and offshore wind sectors.”
Energy Tax Credit Changes
While the Senate bill removed some of the most burdensome proposals from earlier drafts, it still poses challenges for offshore wind and other renewable energy sectors. Notable provisions include:
Excise Tax Removed: The final version drops a controversial tax on wind and solar projects placed in service after 2027 if they contain components from foreign entities of concern (FEOC), such as China.
Credit Termination in 2028: The clean electricity production (45Y) and investment (48E) tax credits will expire for wind and solar facilities placed in service after 2027, but only if construction begins more than 12 months after enactment.
Clarified Construction Rules: Codifies how developers can determine when construction begins to qualify for credits.
FEOC Restrictions Delayed: Implements FEOC rules for electricity and manufacturing credits starting in 2026, softening the earlier House-passed version.
Advanced Manufacturing Credit Phased Out: Ends the 45X credit for wind components after 2027 and phases it out for critical minerals between 2031 and 2034.
Carbon Credit Parity: Aligns 45Q carbon sequestration credit eligibility for different carbon utilization pathways.
New Leasing Restrictions: Adds new rules for solar and wind leasing but removes earlier restrictions on residential solar agreements.
Offshore Oil & Gas Provisions
The final bill includes strong offshore energy measures, many long supported by NOIA:
Mandates two Gulf of America lease sales annually for the next 15 years, each offering at least 80 million acres.
Requires six offshore lease sales in Cook Inlet, Alaska over the next decade.
Streamlines offshore operations by requiring BSEE to approve production commingling requests unless safety or production is negatively impacted.
Restores the previous royalty rate by reinstating the minimum 12.5% royalty rate for new offshore leases.
Boosts revenue sharing by increasing the GOMESA revenue cap to $650 million annually, up from $500 million.
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.
