June 27, 2025
Things I Learned This Week Hanging at Home
It is Dallas, so like Houston, anyone that can afford to leave, does. Aspen, Vail, Jackson Hole. It is so sad that none of those people have an extra room. That must be the problem. What else could it be? So, I’ve been sitting here in Dallas, doing the slow-roast thing. But it really isn’t that bad. Want a reservation at a place but could never get it? Tonight? Tomorrow night? Easy. Traffic… There isn’t any to speak of. I keep thinking it must be Sunday at 6:00am, when it is really 4:30pm on the freeway. I really only have two big problems, and they are related. When I tried to stop my iPad from falling into the pool while writing this piece, I invariably dropped the Margarita I was holding in the other hand to catch it. But trust me, I will get this right with the right amount of practice before the summer is over!
Tamed Tiger. Iran is not going to close the Strait of Hormuz and that realization sent oil back down to $65. The party is over. The drama is by no means over yet, but the likelihood of an interruption of the oil supply to push prices higher has diminished. And a spike to a higher price really doesn’t do anyone in the industry any real good. I understand hedge funds love the volatility, but they aren’t, or shouldn’t, be the ones setting the market. We are back to where we started, with Mr. Trump wanting lower oil prices to improve his chances in the midterm elections. As we have written before, we don’t really want to be an industry that only makes money when there is some disaster, but rather we want to be an industry that makes money full-cycle and generates consistent, positive returns. The next big thing that could spike oil prices? Who knows. But the concern about whatever it is that could spike the price of oil does not seem to be in the immediate cards dealt.
Still At It. Equinor and some partners will invest more than $2 billion in a new subsea play that combines the development of several discoveries. It will export oil and gas via the Troll C Platform in the North Sea. This is in the Norwegian sector of the North Sea, where things are still being done, as opposed to the UK, where not much is happening with a 78% windfall tax.
Just Oil. Wednesday’s 12.2% straight down, open-to-close decline in crude oil prices was the deepest since March 2022, and just the 14th time since 1983 that the commodity experienced a double-digit percentage decline from market open to market close, with no other occurrences in the prior month.
Reversion Back. We wrote last week about the historical decline in oil price volatility. Remember when Iran blew up that Saudi oil terminal in September of 2019? The strike ended up taking millions of barrels per day of production offline for an unknown period, oil prices held above $60 for only one day. This past week, the U.S. President bombed the 3rd largest oil producer in the region and oil prices, after spiking up early, are now back to the levels seen before the June 13th initial Israeli attack on Iran. Brent ran up 15% after the initial attack and now is back to where it was pre-June 13th. There does not appear to be any real shortage of oil today. So, if you expect to strike it rich when oil hits $100+, you may not realize your dream for a long time.
Money Needs to Flow. The Federal Reserve bank had a recent capital ruling decision that will be a boon for larger banks. The administration is going to roll back the capital rule that banks have complained about – the enhanced supplementary leverage ratio. Right now, they are restricted from acting as intermediaries in the $29 trillion market. The largest U.S. banks will now see a lower capital requirement ratio, falling from 5.0% - 6.0% to 3.5% - 4.0%.
Baseload Fuel. The output of Spanish gas-fired power plants has jumped 58% since the April 28th nationwide outage. The hope is to better stabilize the network after record usage of air conditioning has been seen this year across Europe. You know, the more reliable power generation.
Snippets.
“Shell Denies BP Takeover Talks.”
9.3 Bcf/day of LNG flows through the straits of Hormuz, and Qatar is responsible for 93% of that.
Wow, It’s So Small. “The current bizarre shape of the crude oil futures curve, backwardated at the front, contango through the belly, is extremely rare, occurring less than 1% of the time since 2000, and simply cannot last. Wild curve, screams dislocation, not balance. Either the front is too tight, the back is mispriced, or both. But this structure isn’t built to last. Something’s gotta give.” So, I’m reading all this, and I found it interesting, causing me to go down a rabbit hole looking at it, and I can’t seem to find quite the same data. And then I realized what the vertical axis was… This is a band of two dollars. Between $65 and $67. Over the next 60 months. This is the line that “has to” correct! Panic. But wait. That means we could hit balance at $66. Oh wow. I just wasted 20 minutes.
Soar Like an Eagle. We have all been told a number of times that the computing power needed for future demand is huge. We agree. The chart above is from the EIA and notice that one line, “Computing,” soars to the top. “In our Annual Energy Outlook 2025 Reference case, we project the electricity consumed for commercial computing will increase faster than any other end use in buildings. Computing accounted for an estimated 8% of commercial sector electricity consumption in 2024 and grows to 20% by 2050. Ultimately, more electricity could be consumed by computing than for any other end use in the commercial sector, including lighting, space cooling and ventilation.”
Fly on the Wall. A couple of months ago, I wrote about an intriguing Canadian company. Coming from a technical background, technology fascinates me, so when my friend Eric gave me the pitch on his company, Flyscan, I did some research and was very impressed. Everyone is working on methane detection, and rightly so. It is a critical issue and will continue to be critical from a monitoring and mandating perspective going forward. The dominant technology has not yet broken out, with many different approaches currently in the market. But none were detecting liquids. Usually, liquids involve spills, rather than just a gas escaping an oil well. And liquid means pipelines, tank batteries and the like. So, Flyscan developed a technology that takes the current market, which usually involves a guy in a small airplane taking pictures with his iPhone and revolutionized the service by allowing for the efficient collection of a terabyte of data. The data is collected digitally, minimizing distractions, and Flyscan is able to see things that are often missed by the naked eye. It is like the Lone Ranger’s transportation versus Batman’s. The most likely first customers would be pipeline companies. In addition to liquids detection, it can identify pipeline scouring and exposure better than manual visual capability. Okay, so what? Before we had noted that Enbridge and Marathon had already made equity investments in Flyscan. When your biggest customers want to own you, that is usually considered a good thing. The company has now announced that Kinder Morgan has joined the group of strategic investors. To work for all of those companies, and to have equity investments from each, denotes something where attention should be paid.
Valuation. Intra-Cellular Therapies, who develops drugs for mental illness, was just acquired by Johnson and Johnson for $14.6 billion, or 24x trailing twelve months revenue. It has lost over $1 billion over the last five years. And we thought people in the oil and gas business were the biggest optimists!
PPHB U.S. Energy Market Highlights:
Commodity Prices: WTI crude oil is currently $65.24 per barrel (down ~11.2% week-over-week) and natural gas is $3.55 per MMBtu (down ~12.3% 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 ~5.8 million barrels week-over-week vs. an estimated decrease of ~1.2 million barrels.
Frac Spread Count: There are currently 182 frac spreads operating in the U.S. (no change week-over-week).
Onshore Drilling Rig Count: There are currently 538 drilling rigs operating in the U.S. (a decrease of 5 rigs week-over-week).
More Oil. You have to love how it works. We bomb Iran and everyone gets their panties in a wad over the “retaliation” that will be heaped upon us. I watched the TV shows where the hosts were close to panic over the hidden “death cells” in the U.S. that would pop up. Nope. Iran decided on tit-for-tat and launched 14 missiles, the same number of “bunker bombs” dropped. They launched them at a U.S. base in Qatar. They called in advance to warn everyone so there were no casualties, and virtually all of the missiles were intercepted. And Iran said, “So there!” and it’s over. But it does indicate how times have changed for oil. We have enough of it in our own country that we can bomb the 3rd largest source of crude in the Middle East without any real panic or fear of higher oil prices. Oil matters. In fact, it really matters in today’s political world. But the existence and production of our shale assets has greatly diminished our use of crude oil from the Middle East, and the drop in oil prices proved Mr. Trump right. “The days when geopolitical shocks unleashed a gusher of petrodollars may be over.” — Grant Smith.
Grinding Away Higher. The U.S. produced more energy than it consumed last year in 2024. This surplus energy production helped energy exports grow to a record high in 2024, up 4% from the previous year. Imports were flat, with the highest net exports on record.
Artificial Intelligence. AI. It is taking the world by storm. If your toaster isn’t advertised as using AI to make your toast perfect every time, why would you own it!?! But to be fair, I am a big fan of a trend that is gaining momentum, both in the interest and use, since we have been preaching it for ages. “While it is critical that our downhole tools must be efficient, use the latest technology and improve our returns, we are going to have to start running our companies with the same principles.” Years ago, really just a couple of years ago, field supervisors were still driving around with several 3-ring binders, getting approvals and signatures before sending that binder to Houston so invoices could be created and sent. Now it’s an iPad in the truck and the invoice issuance is immediate. One of the first OFS companies to implement this as a core strategy reduced their working capital by $800,000,000 a year.
Wise Guys. “Roughly 75% of crops require pollinators, with nuts and fruits particularly dependent. While other species of bees and insects can play a role, they can’t replace honeybees. This past year saw the worst colony losses on record. There would essentially be no crop without the bees,” said Zac Ellis, the Senior Director of Agronomy at Olam, an agricultural company. The U.S. has observed a startling uptick in the number of die-offs since the mid-2000s. But technology to the rescue! A unit, dubbed a “BeeHome,” is an industrial upgrade from the standard wooden beehives, all clad in white metal and solar panels. Inside sits a high-tech scanner and robotic arm powered by artificial intelligence. Roughly 300,000 of these units are in use across the U.S., helping to keep bees alive. And Beewise’s units keep bees alive dramatically better than the standard hive, providing constant insights into colony health and the ability to provide treatment should the colony’s health start to falter. So, the next time you see a honeybee, hope he has a nice home. For all our sakes.
Even More Oil!! The USGS has updated its report of potential undiscovered, technically recoverable crude oil and natural gas on Federal Lands for the first time since 1998, before shale was “discovered.” The new USGS numbers: Around 29.4 Bbbl of oil, 391.6 Tcf of natural gas and 8.4 Bbbl of NGLs lie beneath U.S. federal lands. These numbers include unconventional oil and natural gas reserves. The winners below:
Anti-Trust Issues. Canadian Natural Resources agreed to sell 75% of its interest in the Seiu Lake Natural Gas Processing Plant in Alberta to secure antitrust clearance for its proposed acquisition of SLB’s stake in the Palliser Block joint venture that includes control of 15 processing plants in the province. The Canadian Competition Bureau found the proposed transaction likely would result in a significant increase in market concentration in an area surrounding three natural gas processing plants – Seiu Lake, Wintering Hills and Wayne Dalum, which could lead to higher prices and fewer options for natural gas producers in that region. SLB said last October that it had agreed to sell its interests in the Palliser Block, including oil and gas wells, surface facilities, a pipeline network and certain oil and gas development rights. And many of you didn’t even know they did that!!
It’s a Cruel Irony. Just as our industry was adapting to this transition by spreading their wings and delving into other forms of energy generation and support. And then the current administration is going to end the aid just as we’re getting started. This is not an argument for or against anything happening in Washington. It is hard for me to understand the machinations of the current administration. I am not a fan of an economic venture, supported by the government, for long periods of time. The key there is “long periods of time.” Government should act as an incubator, it has its benefits to all, but after 29 years, you’d think that wind would start to be self-sufficient. But the impact on our industry is now being seen. We’ve seen the major companies and their CCS efforts, the idea of switching to hydrogen, large infrastructure builds, the growth in services businesses on the margins of the “transition.” We will feel the impact. A great deal of what people call the “transition” will continue. The reason no one likes the word “transition” is because we have been transitioning to a cleaner and more efficient industry for decades. What is happening now is nothing more than the extension of a decade’s-long effort. We always look for new opportunities for our goods and services. We worked with oilfield service businesses, natural gas service businesses, industrial municipal service businesses and renewable service businesses. The renewable side may have some issues coming up, but it should not deter companies from continuing to expand their capabilities. For all intents and purposes, the oil industry is very mature, with very slow growth in the industry from this point forward, and while there will be pockets of growth, the overall macro definitely slows down going forward. So, being innovative and creative is still a good idea. It just teaches us that counting on the permanent existence of government subsidies is never really a good idea.
The Cover of Time Magazine 1986.
Nukes. A recent presidential report emphasizes the importance of abundant energy for national and economic security, and it argues that nuclear energy can reduce America's dependence on foreign countries. For some time, regulatory approval of nuclear power plants was fast and efficient. However, regulatory approval has significantly stalled since 1978, with only two new reactors becoming operational. The Nuclear Regulatory Commission (NRC) put in place very expensive and time-consuming licensing processes that are not applicable to many of the newer and safer technologies that are being developed. The approach was criticized in the report, saying that there is so much red tape and absurd requirements that the demand for nuclear plants to meet safety standards are lower than naturally occurring radiation levels. The very positive report for the nuclear industry was for a reevaluation of nuclear energy policy to promote its development, enhance energy security and capitalize on technological advancements, asserting that a balanced approach to energy production risks is essential for the nation’s future.
The Comment. While groundwater extraction, mining and earthquakes also cause the ground to shift, global warming vastly increases the risks. What happens is that soil swells with winter rain and then shrinks as it dries in the heat, cracking foundations in the process. Europe has soil high in clay content that exacerbates the problem.
The Conclusion. The real culprit is climate change. Europe is the warmest continent, so it is worse there, according to some. The cost is estimated to be 43 billion Euros in damage by 2050 in France alone, according to insurance trade group, France Assureurs. Expect them to come after the oil business. They have to blame someone. The fact that Midland, Texas was once an ocean is also due to climate change, but I don’t think that was caused by Exxon and Chevron, though they are most likely to be blamed. It doesn’t stop there. Jakarta has sunk more than 8 feet in a decade, and Tehran drops as much as 22 centimeters a year. In the U.S., Houston is the most affected, with 40% of the city subsiding more than half a centimeter a year.
Brand New. Now, the idea of an enterprise-wide model for a company is not unrealistic, in fact, it is in place at many large companies. But the idea of “enterprise” has expanded dramatically. This isn’t a financial ERP system, or an inventory control system, or a field operating and control system. It is all of those, and it is enabled by the quickly expanding abilities of AI. To get the best system, the quality, veracity and volume of the data is critical. We are currently in the phase of collecting, verifying, error checking, structuring and organizing the needed outputs. It is a huge job and every company we know is hitting it hard. It may be the most active and helpful summer internship job in a while. And as more people learn what the AI models can do, and not just the LLMs, but the reasoning AI models that are currently being rolled out, it will become adopted quickly. The other thing is that the models can be taught to build other models, meaning they can be taught to build an enterprise-wide CRM or ERP. This can now be done by a programmer and a program-writing model, putting together modules of programming that already exist. We are already seeing pricing fall on bids for the big consulting companies, who have been recommending $1.5 million installations with $250,000 a year in user fees, as smaller companies are offering to do much the same work for a fraction. The key issue? Structure of the resulting model. We are now back to McKinsey offering to help you structure your model. Many companies feel they have a better handle on needed outputs and answers than anyone else. This isn’t how to make your manufacturing more efficient, this is having an AI model with all of your company’s data and information. For example, taking geoscience, accounting and operations data so you can get solutions, suggestions and help on execution plans, enabling a business to run more integrated and more efficiently than ever before. I’ll end my sermon. I asked one of the LLMs to tell me about “Preparing data and structuring for enterprise-wide AI adoption.” The answer? It is crucial for success.
Here's a breakdown of the key steps and considerations:
Step 1. Data Collection and Preparation:
Gather Diverse Data Sources: Collect data from various sources within your enterprise, including structured databases, unstructured data like text and images and real-time streaming data.
Prioritize Data Quality: Ensure the collected data is of high quality by cleaning, removing inconsistencies and errors, normalizing formats and labeling data accurately for supervised learning tasks.
Implement Data Quality Assurance: Use tools and processes for data cleaning, outlier detection and removal and error correction to maintain data integrity.
Leverage Data Augmentation: Techniques like data augmentation can increase the diversity and quantity of labeled data, improving model robustness.
Consider Synthetic Data: For limited or sensitive data, consider using synthetic datasets to fill gaps and preserve privacy.
Establish Data Labeling and Tagging Strategy: A sophisticated strategy is essential for accurate data annotation, which is the foundation of effective AI models.
Step 2. Data Structure and Infrastructure:
Build Robust Data Infrastructure: You need scalable databases, high-performance computing resources and advanced data pipelines to support large-scale data collection, storage and processing.
Structure Data for AI Models: Prepare data in formats suitable for training and deployment of AI models. This may involve converting structured data to vectors or using LLMs for data analysis.
Manage Unstructured and Semi-structured Data: Develop strategies for processing and integrating these data types, using techniques like parsing, chunking and embedding.
Prioritize Metadata Management: Well-defined metadata helps AI models understand and query data effectively.
Step 3. Data Governance and Management:
Develop a Data Strategy: Create a data strategy that aligns with your AI vision and business priorities, focusing on data quality, accessibility and governance.
Implement Data Governance Framework: Establish policies and procedures for data ownership, access, security, privacy and compliance.
Ensure Data Privacy and Compliance: Anonymize or mask personally identifiable data, encrypt data and ensure data is collected and processed with proper permissions.
Establish Feedback Loops: Implement feedback loops to incorporate new data and continuously improve AI model accuracy.
Step 4. Organizational Structure for AI Adoption:
Form an AI Center of Excellence: Create a dedicated team to lead and drive the enterprise-wide AI plan.
Adopt a Phased Approach: Start with a pilot project, then expand to other departments and ultimately achieve full integration.
Embrace MLOps: Implement processes and tools for managing the entire AI lifecycle, including data preparation, model training and deployment.
Foster a Data-Centric Culture: Promote a culture that values data quality and utilizes methodologies that enhance data utility.
In summary, successful enterprise-wide AI adoption depends on a solid data foundation built on high-quality, well-structured data, supported by robust infrastructure and strong data governance practices.
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.
