June 20, 2025
Things I Learned This Week About Being Gone for Two Weeks
You get 3-4 weeks behind. It is amazing. Has anyone else spent the time to reminisce about the beautiful Italy countryside, or the sight of the Grand Canal, and then you get cut-off notices after autopay fails and end up getting thoroughly hacked, having to change all of your bank and investment account numbers as well as credit cards. This all happened three days before I left the country. I am happy to be back, and soon I will have a glass of Amarone in my hand and will drift back to comfort. But first, I have to write this.
What Can I Say? By the time you read this, we could be at war with Iran. Fortunately, or not, the most likely outcome is that we use the Massive Ordinance Penetrator (“MOP”) bombs on two nuclear enrichment locations and nothing else. No promoting or assisting anything resembling regime change. Civil war? Well, that is how it often evolves. A passive surrender by any regime? They will pick. If Mr. Trump can limit our involvement to about four of these bombs, we get everything we need with limited involvement. Think about it. Years ago, when North Korea started developing nuclear capabilities, we could have stopped it cold. But in the name of appeasement, we didn’t, and it is widely regretted today. Shut down the Strait of Hormuz? Got a coin in your pocket. We can only watch… And hope.
Ping Pong. Remember in late 2023, Nippon Steel offered to buy U.S. Steel for $55 per share. They promised to invest $11 billion in U.S. Steel through 2028, including $1 billion for a new mill, and that investment would increase by $3 billion in the future. A great deal. Mr. Biden’s administration said no. “A strong domestically owned and operated steel industry represents an essential national security priority and is critical for resilient supply chains,” said Mr. Biden. Competitor, Cleveland Cliffs, made an argument and a run for U.S. Steel, but that would create a strong monopoly in the U.S. and while Cleveland Cliffs was arguing against that point, their stock price dropped significantly. So, with the political reasons out of the way, the $14.3 billion deal closed this week on the original valuation. There is a national security agreement with the administration, which gives President Trump the authority to name a board member as well as a non-economic “Golden Share.” Golden Shares are designed to give a government or other entity a certain level of control over a company, even after it has been privatized or its ownership structure has changed. It was the agreement on a Golden Share that convinced the President to back the deal. It will make Nippon Steel the world’s fourth largest steel company, behind Baowu Group, ArcelorMittal and Ansteel Group.
I’ve decided what I want this year for Christmas (link below).
ADNOC. Financing the Dream. Not only is ADNOC spending money buying things, they are also spending money building things. Its Rich Gas Development (“RDG”) project’s final investment decision approval resulted in a $5 billion EPC spend. The project is an upgrade of processing units and adds modern operating efficiencies on four gas complexes and their offshore LNG facility. ADNOC Gas said the “project will enable development of new gas reservoirs aimed at increasing liquid gas exports, supporting gas self-sufficiency in the UAE and providing feedstock to the country’s petrochemical industry.” John Wood Group got $2.8 billion for two of the complexes, $1.2 billion went to the Das Island LNG facility and $1.1 billion was for the other two gas complexes, where work is to be done by two consortia, led by Petrofac and Kent Plc. Wood and Petrofac are UK companies while Kent is Dubai.
Chaos. In 2024, the world saw 61 armed conflicts across 36 countries, the highest since 1946, according to the Peace Research Institute Oslo (PRIO). This surpasses 2023’s record and reflects growing global instability. The rise of multiple conflicts within single countries, combined with reduced U.S. engagement, raises serious concerns, drawing increased global attention to worsening violence and humanitarian conditions.
Tulsa Calling Saudi, on Hold. H&P, the Tulsa-headquartered driller, is an excellent company and has enjoyed that mantle for years. It has not changed. But far afield, there are issues. Rigs are getting their contracts suspended. Not cancelled, suspended. At some point in the future, unknown at this point, Saudi will put the rigs back to work to continue their existing contracts. Recently, another 9 rigs were suspended, all from KCA Deutag, which H&P recently acquired, bringing the total number of suspended rigs for H&P to 26, and at an estimated loss of $7mm per rig, that is a chunk of change.
Power Rangers. Japan’s largest power generation company, JERA, has signed agreements to secure up to 733MMcf/day of LNG on 20-year agreements with U.S. suppliers. JERA is planning for the future, financially. The volumes will be delivered free-on-board and with no destination restrictions, which means they can trade cargo around as needed. According to JERA, the agreement will “offer flexibility and reliability – essential elements in our diversification strategy,” and “strengthen Japan’s energy security.” Japan realizes the same thing the Obama administration did. The ability to trade large cargoes of energy to friends, and potential friends, has great value. JERA also has contracts for 170Bcf/year from Freeport LNG and Cameron LNG and 48Bcf/year with Venture Global.
Play This. This is a contribution from a friend who is probably one of the busiest people I know right now. And it made my day as well. Thanks, HM.
The Fed Sentiment. Those of you who expect, or hope, for a couple of rate cuts this year might be disappointed. Don’t misunderstand. The Fed continues to “pencil in” two rate cuts this year, but the idea is losing steam. Seven officials now foresee no rate cuts this year, compared to four in March, and two others pointed to one cut. Ten officials expect rates to be lowered at least twice, so it is still surely possible, but as tariffs hit and uncertainty reigns, the number and/or magnitude might be altered a bit. If they leave them unchanged, it will be the fourth quarter in a row that the bank has passed on changing rates. Rates are currently 4.25% to 4.50%.
The Required Greta.
It’s Everywhere. “Dubai Billionaire Hussain Sajwani Doubles Down On Indonesia With $2.3 Billion Data Center Project.”
No New Rigs, But… The deepwater drillship market died at the end of 2014 for several reasons, and it stayed “dead” for almost a decade. Only in the last 18 or so months has the market really started to improve. Okay, I‘ll give you 2 years but no more. During that “lull,” not much upgrade work was done besides what was necessary to either keep the rigs working, or stacked, at the lowest cost. Now, the sector is on the rebound. $500,000 per day contracts are getting done. So, there is a mad rush to upgrade rigs as “inexpensively as possible while optimizing performance,” (the new phrase used). The industry’s shift to capital discipline metrics demands this, and it means drillers are upgrading and modernizing existing vessels with digital advancements that enhance performance, increase operational efficiency, extend the useful life and lower the costs, improving returns. One example of technology-enabled efficiency is Managed Pressure Drilling (“MPD”), and all the operational aspects of the actual drilling operation, optimized by AI, are being installed on rigs that are 13 to 15 years old. Sounds like me on an electric bike! 20 pounds lighter and 20 years younger. And while the term is old and often misused, the bandwidth of our operations will expand dramatically as every piece of data, from every asset that exists, is collected for eventual analysis. Communications is still a growth business.
Worth a Look. Any reasons NOT to see a reversion to the mean?
IPO Alternative. Aethon has been a rockstar, taking the Haynesville by storm. From humble beginnings, it was considered the most likely E&P company to go public. Oops. Now Mitsubishi appears to be offering somewhere around $8 billion for the company. Our advice? Take it. We’ve long told managements that if you want to get rich, just sell out, don’t go public. Once you’re public, every time you sell a share, the world will think the company is going under. If you’re doing anything interesting, you’ll never get clearance to sell shares. Take cash and walk away, and you can either start over with a heck of a nest egg or put your feet up on the back deck of that yacht in Southern France. It should be an easy decision. But, Albert Huddleston is a driven man. He founded Aethon 35 years ago, so it isn’t an overnight success, but it was the Haynesville that won the Academy Award! It is a family business in many ways, and Mitsubishi might need some help. Mitsubishi has over 7,000 employees across 30 different states and formed its U.S. oil and gas business in 2017. But up until now, virtually all of its focus has been on petrochemical and LNG. One stepping up and one stepping out?
OK, OK We Knew It All Along. OPEC lowered its forecast for U.S. oil production this year, saying we won’t hit their previous 1 MM BOPD expectation. They’re late. We’ve known for months and months that the U.S. was not going to be able to hit that growth target. Capitulation at last? It did keep its expectations for global oil demand unchanged, and of course, OPEC+ is greatly accelerating putting its previously shut in oil production back online. With what’s going on in Israel and Iran, predicting oil prices on that basis is futile. Before this conflict, it seemed obvious that oil between $55 and $65 was the most likely scenario and possibly the most optimistic one. But if everyone starts acting rationally and groups like OPEC have rational expectations of production growth, we may end up in a balanced market by the end of this year, or soon after. A guy can hope!
PPHB U.S. Energy Market Highlights:
Commodity Prices: WTI crude oil is currently $73.50 per barrel (up ~3.1% week-over-week) and natural gas is $4.05 per MMBtu (up ~10.4% week-over-week).
Crude Oil Production: U.S. crude oil production is currently ~13.4 MM BOPD (up ~1.8% year-over-year).
Crude Oil Inventories: U.S. crude oil inventories decreased by ~11.5 million barrels week-over-week vs. an estimated decrease of ~3.6 million barrels.
Frac Spread Count: There are currently 182 frac spreads operating in the U.S. (a decrease of 4 spreads week-over-week).
Onshore Drilling Rig Count: There are currently 543 drilling rigs operating in the U.S. (a decrease of 1 rig week-over-week).
European Swap Out. First, Shell sells a great deal of its U.S. refinery and E&P businesses. Then BP is rumored to be putting its U.S. business on the block. And now TotalEnergies is buying a 25% share in several offshore projects operated by Chevron, which is one of the largest producers in the Gulf. We know all about spreading risk, but these are financial decisions. These wells have already been drilled and are producing. One crazy geologist with a good idea can’t drive a transaction like this. It should be noted that TotalEnergies has the highest return on invested capital (“ROIC”) of any of the major oil companies, both U.S. and international, at between 14% and 17%. Chevron comes in between 10% and 11%. The cost of capital for Shell and TotalEnergies is between 6.8% and 7.6% and 8.0% to 9.0% for Chevron. I mention these metrics because this is a financial transaction rather than a geotechnical one, so things like cost of capital and return on capital are important. Shale and offshore both seem attractive for foreign buyers.
Then This. “U.K.-headquartered international hydrocarbons conglomerate, INEOS, is seeking the mature U.S. shale assets that don't have the upside growth potential publicly held U.S. operators need.”
Assumes Facts Not in Evidence. I saw this the other day and was again disappointed in the lack of education by some of our journalists today. The U.S. has spent nearly $1 trillion dollars on disaster recovery and other climate-related needs over the 12 months ending May 1st. “Disaster, recovery and other climate related needs.” “Weather-related?” A bad flood doesn’t automatically mean climate change. I just got back from a trip in Italy and at one small town near the river, they had a measurement post of how high and when the river had flooded. They just had a bad flood four years ago. Some media picked it up as climate change. But, according to the article, the worst flood was in 1903 and virtually all of the numbers at the top of the pole were before 1945. That’s before all of this “climate change” we read about today. There is a difference. There will be a test.
Climate Change: Long-term. Refers to changes in average weather patterns over decades to centuries.
Weather: Short-term. Refers to the day-to-day atmospheric conditions in a specific place.
Red Alert!! Amazon is saying it’s going to reduce its workforce in the coming years because the increasing use of AI will eliminate the need for certain jobs. And it begins. For years we’ve always known that an education is the way out of poverty. So, along the way we’ve dumbed down our education system so anyone can pass. Now we’re filling the workforce with people who are not as qualified as they need to be. And today we have a technology that is making a number the lower-level jobs obsolete. This is a transition in the working world that requires some intervention at a government level to improve the education system in the U.S. today. Engineering is too hard. Sociology is nice and easy. Accounting is just numbers and we’re losing jobs to people in India. AI is going to be an amazing tool, and it is going to replace a number of people, and it won’t just be computer programmers. This should be a wakeup call to the education system.
To quote and this is from Amazon: “As we roll out more generative AI and agents, it should change the way our work is done. It’s hard to know exactly where this nets out over time, but in the next few years, we expect this will reduce our total corporate workforce.” According to the World Economic Forum, about 41% of employers said they would downsize their workforce due to AI. Believe me now?
Headlines and Commentary.
“Consumer spending declines more than expected.” Consumer debt is an all-time high, and so is the default rate. It can’t go on forever just like the government can’t go on forever incurring debt it can’t pay back.
“U.S. office glut is set to contract.” That is very welcome news. Between people working remote from COVID and the big buildup of office space through the last economic upturn, I wasn’t sure we would ever see a headline like this. Notice it says “set to contract” rather than “is contracting,” but I’ll take it.
“ICE detains NYC mayoral candidate.” Isn’t grandstanding the thing we’re supposed to do now?
“Lender’s boost fossil fuel funding as pledges crumble.” You gotta like that. In 2024, lending commitments to the fossil fuel industry increased by 23%. JP Morgan, Bank of America and Citigroup will be leading players. Barclays also made the top 10.
Pragmatic. “Europe backs Israel over Iran, despite anger over Gaza.” While scrolling on X, formerly known as Twitter, I was stunned that virtually the only people on my feed are protesting for Palestinians and Gaza in Israel, and the Jews have never before been so openly vilified. There are many contributors who are saying Iran should have a nuclear weapon and that Iran is a peaceful country that Israel has attacked with no provocation. Iran didn’t do anything besides, of course, saying they would kill every Jew if given the chance. I’ve gotta stop looking at that app, there’s nothing but stupid people left on it. But it is encouraging to see that Europe understands the threat a nuclear Iran would be.
Batteries. I have always been somewhat suspect about the economics of using batteries to normalize fluctuations in the power supply from renewables. They are meant to be a backup as well as a moderator. But the backup times weren’t very impressive. The AI data centers springing up everywhere all require reliable power, and wind and solar don’t fall into that category. But the latest iteration of the “Big Beautiful Bill” continues the tax credits for battery production, while ending credits for wind and solar projects that are not currently under construction. While I understand the use of batteries, natural gas-fired generation is dramatically more efficient in every way, and it is less expensive. So, without the continued credits, battery production would likely fall. Any business that is totally dependent on government handouts to be profitable is not a true business. I would’ve put a great deal of my money in. It’s great speculation, but as in everything, the timing has to be perfect. I’m sorry the Senate made the decision they did, and I wish all my friends in the battery business continued good fortune. As a taxpayer, I just hate to see my money spent in ways that I know in advance are not the best use of capital.
Everybody Wants In. How is this for a complaint? “There's a feeling that Asian buyers are overpaying,” - M&A advisor. Hart Energy’s Energy Capital Conference was interesting, and one part was especially interesting to us. We have written about shale properties changing hands between U.S. and European investors. But it isn’t just Europe. We have written about Mitsubishi looking at Aethon. In April, unsubstantiated reports claimed that ADNOC was valuing Aethon at ~$9 billion. Mizuho also bought Haynesville acreage. Buy the supply chain. Asia imports huge amounts of LNG... Why not own the source? There are up to six big E&P deals supposedly on the table today. Most of it will be natural gas. One banker estimates at least $10 billion of transactions are at, or near, the closing table.
What Does Claude Think? Decrypt asked seven top AI models to forecast the Israel–Iran confrontation. Six predicted a drawn-out campaign of airstrikes, cyberattacks and proxy clashes, while ChatGPT alone predicted a near-term diplomatic deal.
Across the six pessimistic forecasts, the models cite mutual deterrence, U.S. reluctance to intervene and survival calculations as brakes on escalation. They foresee intermittent conflict lasting from 3 to 24 months, with risks tied to nuclear timelines and rogue proxies.
The article notes the shared verdict amounts to a “shadow war in daylight,” more frequent strikes without tipping into open war. This uniform outlook highlights how the models converge on survival-driven deterrence as the defining constraint for both capitals.
Not All Conspiracy Theories are Wrong. From an outside source and food for thought:
Chinese Communist Party-controlled entities have infiltrated the U.S. and now enjoy multiple access points to critical infrastructure. Local law enforcement agencies rely on drones designed and manufactured by DJI, a Chinese company with links to the People’s Liberation Army. Washington has warned that DJI drones provide data about our infrastructure to Beijing. Chinese companies, like Huawei and Sungrow, account for a significant portion of U.S. solar inverters, which enable solar power to support the grid.
This dependency allows Beijing to target towns and cities throughout America, as well as data centers powering AI. Our ports are also dominated by ZPMC cranes embedded with Communist Party-controlled software. Beijing wouldn’t need to detonate an electromagnetic pulse to turn out our lights. It already has kill switches placed throughout the country. With its control of TikTok, the party is also prepared to wage psychological warfare against Americans, turning public opinion against our government. Its strategy is easy to predict… Sabotage America’s critical infrastructure, then convince Americans to blame each other.
Spending Some Money! ADNOC, the national oil company of Abu Dhabi, has been on a roll! I had dinner with a group of its executives at a NOIA meeting a year ago in Madrid. They had already kicked off their spree. And now comes an $18.72 billion bid for Santos, an Australian oil and gas company, the country’s 2nd largest producer. Santos owns crude oil and natural gas assets from Alaska to Australia and Papua New Guinea and has an LNG export facility. This is just the latest. The deals have included chemicals, drilling, completions and technology. Over the last five years, ADNOC and its investment unit, XRG, have been actively involved in acquisitions and partnerships aimed at expanding their global energy presence, particularly focusing on gas, LNG and low-carbon energy.
A Reminder. It was 2019 when Iran hit Saudi and took half of Saudi’s production offline, about 5% of global production. It came back fairly quickly, but that wasn’t the first expectation in the market. Oil couldn’t stay above $60 for more than a day. Factoid: Iran holds the world’s second largest natural gas reserves and fourth largest crude oil resources.
For All the GeoNerds.
Musing. The following sentence struck me in several ways. It is a quote from the WSJ about the recent LA protests. “Tensions rose in the hours after the official end of the event and after demonstrators had been ordered to leave. A more antagonistic crowd remained, some throwing rocks at police cars. Tear gas, flash bangs and pepper bullets filled the air as law enforcement tried to disperse increasingly hostile protesters.” So, like concerts, parades and other permitted events, there is some “end of the day” setting, so that all the people cleaning up and the security guards can go home. It is kind of like those people who won’t leave the bar even though it’s 2am and everybody wants to go home. “More antagonistic crowd” who wouldn’t leave after closing time. Everything short of physical force has been tried and the “increasingly hostile” guys at the bar still won’t leave. If it was your bar, what would you want to do? One insightful sentence.
A Parade. At the same bar mentioned above, there are three bullies. They flex their muscles in gaudy fashion. They push around smaller people in the bar. They are jerks, with few friends other than scared sycophants. In walks the biggest guy in the bar. The three bullies whisper among themselves that they could take this guy down, but they don’t say it very loud. This guy has a toned-down attire, maybe wearing a t-shirt that subtly, but effectively, shows his strength. Some whisper that he should be dressed better but they know that without him here, they are a target of the bullies. Last week, our country held a parade celebrating the 250th birthday of the U.S. Army. We celebrated the history. China, Russia and North Korea hold more frequent parades, which typically involve more soldiers and displays of newer military hardware. Large-scale military parades are a forum to unveil new weapons and convey national strength, according to a nuclear policy expert at the Carnegie Endowment for International Peace. Even if the masculinity of such an analogy is “toxic,” it is very much the real world.
Wash My Own Car?!? I know that many of the family stories we have heard during the current immigration turmoil can be heartbreaking. Often, enforcing rules can be no fun, but it must be done. We hope this all works out over time. But the media is going to great lengths, not just pulling on your heartstrings, but instilling fear of the sacrifices we are expected to endure. I’m not trying to trigger anyone, but… “the immediate effect has been a falloff in business, and a strain in some parts of the labor force after several carwashes around Los Angeles were hit by ICE and at least one remained closed for lack of workers.” Take the pain.
Extremes Morph to the Center. DEI is dead. Long live inclusiveness, social responsibility, employee engagement and good governance. The jamming of already embraced ideas down the corporate throats of our industry appears to be over. DEI is dead. But our industry has been improving. Other industries across the country are improving too. The use of natural gas instead of coal has made the U.S. the only country in compliance with the Paris Climate Accord and we aren’t even a member. We have reduced the number of diesel consuming drilling rigs that are drilling for natural gas from ~1,600 rigs to ~130 today, all while continuously increasing production. 650 industry bankruptcies have dramatically improved corporate governance, even if later than hoped. All the good concepts of the DEI movement, which in my opinion helped kill the benefits of ESG by hijacking the “S,” will continue to drive the thinking and actions of our industry.
And Finally… I have always loved the title of the book, “Do What You Love and Money Will Follow.” This is in the same class.
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.
