June 13, 2025
Things I Learned This Week Biking in Italy
A Very Short Version. For the last many years, summer vacations have meant bicycling trips in Europe. Seven days of pedaling around the countryside. It morphed a couple of years ago into a floating house-party. 20 of us get on a barge and spend the week pedaling around, seeing Roman aqueducts and ruins, small village towns, amazing churches and more. Burgundy, Croatia and Southern France. This year it was Italy, setting out from Venice. Ergo, a very short note.
Real Deal. The UK government has tapped Rolls-Royce as their primary provider of Small Modular Reactors, also known as “SMRs.” So not only does the technology work, big companies are also putting their own technology behind it and a government is on the list of customers. Their SMR, which is the size of two football fields, one tenth the size of a conventional reactor, is built to last at least 60 years and its 470 megawatts of power will generate the equivalent of 150 wind turbines. The reactor can power more than 325,000 homes. The modules are built in factories and are fully assembled so they can be transported by truck, train or barge. SMRs are the real deal.
Headlines.
“France, which gets around 70% of its energy from atomic power.”
“Why do you think so many countries and governments around the world are just ignoring what’s happening in Gaza?”
“Chevron CEO warned of rising safety risks before fatal Angola platform fire.”
“Financiers: ESG May be ‘Woke Capitalism’ But Keep an Eye on It.”
“Higher Electric Bills to Fight Climate Change? PA Voters Just Say No.”
“Global solar installations have quadrupled in the past five years, from 150 gigawatts in 2020 to 600 gigawatts last year.”
“A newly hired USDA employee and five others were arrested in Georgia for orchestrating one of the largest food stamp frauds in U.S. history.”
“The new German government has signaled to France it will no longer object to treating nuclear power on a par with renewable energy in EU legislation.”
“Hedge funds are facing pushback in California as their bets tied to insurance claims stemming from the Los Angeles wildfires are attacked as unethical.”
“Venezuela is said to prep 50% gasoline price hike amid oil revenue squeeze.”
The Future is Here. A man who has had ALS for five years and has significant difficulty speaking has done what we all thought was impossible. He had 256 silicon electrodes put in his head, and they collected and analyzed his brain when he tried to speak. The system is BrainGate2, and it allowed the man to speak and sing in real-time so that he could interject comments mid-conversation. It is 40 times faster than the best brain-to-text systems. And this is in addition to Elon Musk’s Neuralink implant. It's a brand-new world.
Hot Seat. Most G7 members are in favor of increasing pressure on Russia by reducing the price cap on Russian oil from $60 to $45 per barrel.
Priorities. In our industry, regulatory reform has been one of our biggest issues. Permitting reform, offshore sales reform and really all the costs relating to complying with the ever-increasing regulations and rules. It’s been a boon for lawyers. Think about the lawyers in your company, or the state of the legal industry 10 to 15 years ago. But we are doing better than other places. The International Monetary Fund calculates that Europe’s economic regulations imposed the same costs as a 44% tariff on goods traded between EU countries. By comparison, the cost of complying with different national rules is equivalent to a 110% tariff. The regulatory cost associated with trading manufactured goods across state lines within the U.S. amounts to a 15% tariff. This is from an article talking about the difficulty of getting Europe, and especially Germany, to think a different way.
The Way? Reduce regulatory costs. For the EU, everything has to go through Brussels as well as the individual country, and whatever affects one, affects all. For example, for Germany to trade with France, on what was supposed to be an open and free market, regulatory paperwork and administrative costs are equivalent to a 44% tariff on those goods traded. In the U.S., interstate commerce always has some cost, and we complain about the level of regulation. We now deal with costs equivalent to “only” a 15% tariff, but changes in local tax structure and adhering to multiple state regulations might make this worse. This is why the U.S., in terms of business formation and capital markets activity, has dwarfed the EU’s activity levels over the last 20 years.
PPHB U.S. Energy Market Highlights:
Commodity Prices: WTI crude oil is currently $71.91 per barrel (up ~10.2% week-over-week) and natural gas is $3.49 per MMBtu (down ~7.7% week-over-week).
Crude Oil Production: U.S. crude oil production is currently ~13.4 MM BOPD (up ~1.7% year-over-year).
Crude Oil Inventories: U.S. crude oil inventories decreased by ~3.7 million barrels week-over-week vs. an estimated decrease of ~2.4 million barrels.
Frac Spread Count: There are currently 186 frac spreads operating in the U.S. (a decrease of 4 spreads week-over-week).
Onshore Drilling Rig Count: There are currently 544 drilling rigs operating in the U.S. (a decrease of 4 rigs week-over-week).
Going…. Private Equity group, Warburg Pincus, has sold its pump and compressor company to Honeywell in a $2.16 billion deal. Honeywell’s Oil and Gas Solutions Group generates about $7 billion of the company’s total revenues. The activist shareholder, Elliott Management, who is remaking Southwest Airlines, had pressured Honeywell into broadening its footprint in the sector.
Going, Again…. Baker Hughes is selling its precision sensor and instrumentation lines to Crane for $1.15 billion in order to improve Baker’s returns. The group includes manufacturing instrumentation and sensor-based technologies to detect and analyze pressure, gas, flow, moisture and radiation in several sectors. The product lines employ over 1,600 people locally, and another 1,600 globally. The division includes the Druck, Panametrics and Reuter-Stokes brands, which are expected to generate revenues of $390 million and $60 million in EBITDA.
Not Stunning But Succinct. It is a little vanilla, and not loaded with insights, but the below presents it well and sums it up for all the companies in the sector.
Halliburton is a vital oilfield services company with strong financials, but highly exposed to oil price cycles and global economic/political shifts.
Current valuation is attractive with a low price/free cash flow ratio, but recent years have been exceptionally favorable and may not persist.
Valuation scenarios suggest significant upside if oil rebounds, but downside risk remains if oil prices fall and CAPEX is cut across the industry.
Button Up. A Washington State woman is suing seven oil and gas companies, saying they contributed to an extraordinarily hot day that led to her mother’s fatal hyperthermia. We influence the weather now. The suit claims wrongful death, saying the fossil fuel industry is responsible because of its role in the changing climate. The lawsuit says the companies knew that their products have altered the climate, including contributing to a 2021 heat wave in the Pacific Northwest that killed 65-year-old Juliana Leon, and that they failed to warn the public of such risks. Yikes. Hope it goes nowhere.
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.
