Things I Learned This Week on Campus

First, there was a photo referred to in the first paragraph last week, but somehow the picture got lost. So, to start this week, I have to show you what fishing on the Missouri River can look like in April. It’s hard to see the fly!

This week is my son’s college graduation. BBA with an emphasis in Finance and Accounting from the Leeds Business School at the University of Colorado at Boulder. I love writing that out. Congratulations, Henry. Well done. Now off to Egypt, Kazakhstan and Turkmenistan for his senior trip, all on him. Amazing kid.

The Prevailing Headline. “Oil Rises as Hormuz Remains Shut After U.S.-Iran Peace Talks Stall.”

Big Move. Shell is acquiring the Canadian E&P company ARC Resources. Many of you won’t know ARC, just because we don’t pay that much attention to Canadian companies. Shell is consolidating its position in the Montney Shale. Yawn, right? Except this is a $16.4 billion deal. Billion with a “B.” This is the largest acquisition Shell has made in over decade, since 2016, when it bought BG Group, the former British Gas, for $70 billion. In 2017-2018, Shell sold out of its Canadian operations for $11.5 billion, so it is going back in. The company has been transitioning from an oil company to natural gas company ever since the BG acquisition. The 2017-2018 sale was of heavy oil assets. The Montney is both an oil and gas play, like the Permian, and oil produced is light sweet. Shell now has over 1 million acres in one of the most prolific shale basins in North America and possibly the least developed. Pay attention.

More Earnings. Oilfield Services reports first, E&P a week or so later. We noted the big three last week. We have more.

PTEN. “Better-than-feared, but still soft.” Slight earnings beat. Cost controls are still a focus, but expectations for a better second half of the year remain. Margins are holding up due to cost controls, but earnings power is compressing versus last year. Drilling was $352 million, with frac at $680 million. The company is sold out of equipment that runs on natural gas instead of diesel.
TechnipFMC. Delivered a strong quarter, is generating significant free cash flow and sees a multi-year offshore upcycle accelerating into 2027+, driven by deepwater demand, Subsea 2.0 efficiency gains and a growing backlog of high-quality projects. The company committed to returning about 70% of FCF and returned $285mm in buybacks and dividends in Q1. It is the seventh consecutive quarter of pipeline growth, with an expanding customer base, now up to 22 clients.

Nabors. Nabors had a solid quarter despite Middle East disruption. Operations in Saudi Arabia, Oman, Kuwait and UAE remain largely intact. Lower 48 activity is improving and Sanad growth continues, with 53 rigs now in Saudi Arabia plus additional rigs in Oman and Kuwait. Management is prioritizing free cash flow and debt reduction. The Lower 48 is outperforming the Baker rig count, with 66 rigs working in the U.S., expected increase to 69. Leading-edge Lower 48 daily revenue is still in the low $30,000s, but Nabors expects pricing to move toward the mid-$30,000s through 2026 and into 2027. Growth market expectations revolve around Saudi Arabia, Mexico and Argentina in the international sector.

Leadership. The National Ocean Industries Association (NOIA) was founded in 1972 with 33 members and represents all facets of the domestic offshore energy and related industries. This past week, the board of directors elected Eric Zimmermann, chief operating officer of LLOG, now a part of Harbour Energy, as NOIA chair for the 2026–2027 term. Clay Thompson, director of Gulf of America operations for Occidental, was elected NOIA vice chair for the same term. Continuing in his role is Treasurer Casey Stewart, VP of Finance and Asset Manager in the Gulf for Kosmos. Congratulations gentlemen.

Born Again. “The war in Iran and the turmoil it has set off in global oil markets are fueling a surge in electric car sales in much of the world. In March, the first four weeks since the bombing began, consumers in France, Germany and the UK drove off in 206,200 EVs, a 44% increase over the year-earlier period. In South Korea, electric car transactions more than doubled. In Italy, where the path to electrification has been slow, 16,000 battery-powered vehicles left dealerships last month, a 67% increase.” – Bloomberg.

A Little Help. The Russia/Ukraine war has moved out of the headlines, usurped by the Strait of Hormuz. But the war rages on, and North Korean leader Kim Jong Un has sent about 15,000 troops to Ukraine to help the Russians. So far, it is estimated that about 2,000 have been killed and many more injured. Why would North Korea help the Russians? How about food, money and technical help. But life just got a bit more difficult for the North Korean soldiers. They are no longer allowed to be captured. There is now a policy requiring soldiers to commit suicide rather than be captured. Excuse me? So the North Korean soldiers in Ukraine, fighting beside the Russians, now must kill themselves rather than allow capture. This is one way to motivate the troops. Win, don’t lose and face capture. Leader Kim Jong Un and Russian Defense Minister Andrey Belousov have unveiled a memorial in Pyongyang for North Koreans who have died fighting in the Ukraine war. Different morality.

PPHB U.S. Energy Market Highlights:

Commodity Prices: WTI crude oil is currently $105.07 per barrel (up ~11.3% week-over-week) and natural gas is $2.77 per MMBtu (down ~-7.2% week-over-week).
Crude Oil Production: U.S. crude oil production is currently ~13.6 MM BOPD (up ~0.9% year-over-year).
Crude Oil Inventories: U.S. crude oil inventories decreased by ~6.2 million barrels week-over-week vs. an estimated decrease of ~0.3 million barrels.
Frac Spread Count: There are currently 169 frac spreads operating in the U.S. (increase of 4 spreads week-over-week).
Onshore Drilling Rig Count: There are currently 544 drilling rigs operating in the U.S. (increase of 1 drilling rig week-over-week).

Kiss Good-Bye. The UAE announced its sovereign decision to exit OPEC and OPEC+, effective May 1, 2026. Dr. Sultan Al Jaber, Managing Director and Group CEO of ADNOC, stated that the company's focus remains unchanged:

Meeting the growing energy needs of customers and partners around the world with reliability, responsibility and the ambition to deliver more across oil, gas, chemicals and low-carbon and renewable energy.
Maintaining an unwavering commitment to its partners, emphasizing that trust, partnership and credibility are proven track records for the company.
Providing a flexible and affordable supply to ensure a stable global energy system as part of its long-term strategic and economic vision.

The UAE and Saudi Arabia are thought to have the most meaningful spare capacity in OPEC and OPEC+, so the departure of the UAE makes it much harder for the group to manage the oil markets. The UAE produces about 4.8 million barrels per day and has significant room to increase production. That power to affect the markets moves from a group to one company. That, in turn, raises broader questions about the sustainability of Saudi Arabia’s role as the market’s central stabilizer, especially if it is left carrying a disproportionate share of the adjustment burden. The net effect points to a more fragmented supply landscape and a potentially more volatile oil market over time, as OPEC’s capacity to smooth imbalances diminishes.

Nosebleed. Oil is over $100 and natural gas volumes are set to grow by 25% over the next five years. This is the moment we have dreamed of. Finally, we see the stocks reflecting it. The OSX Oilfield Index is up 43% this year and the E&P XOP is up 38%. These are four month average gains, and some other metrics are much higher. Oil prices could go even higher. But that would mean the Strait of Hormuz is still closed, so a global recession is a potential issue. We all know the natural gas demand growth drivers, but the price is still only $2.66, even with the known growth. You are starting to see analysts downgrade ratings because they can’t get their estimates any higher, and valuation multiples have already started to run. Perhaps we are walking on eggshells?

Rig-be-Gone. Samsung Heavy has sold a 7th generation drillship to Italian company Saipem for $245 million. Ocean Rig, back when it was an independent company, ordered several drillships but later cancelled the orders after being acquired by Transocean. Samsung decided to finish the rigs and has finally found a buyer. They sold another rig for a similar amount. Now, nearly all of the remaining rigs that were still owned by their respective shipyards are now clearing the market. Most of these vessels, including the Santorini and Crete, were originally ordered between 2013 and 2014. But, when oil prices collapsed from over $100 to $40 per barrel following 2014, many deep sea projects were suspended. In 2019, after acquiring Ocean Rig, Transocean officially canceled the remaining orders.

At Your Word. President Trump said the blockade could last months. He didn’t say one or two months. Just months. So, as we sit here today, is the Strait open? The answer is no. I continue to see the increasing likelihood of a global recession if the Strait isn’t opened soon, but the stock market says I’m wrong. I certainly hope so. The world has been very rudely reminded that oil and natural gas are critical to making the world turn. No one is saying to stop financing oil and gas anymore. Well, not as much as they usually do at least. There are still people like the nine activists from the Scientist Rebellion who super-glued themselves to the floor of a Porsche dealership. The employees turned off the lights and locked up the dealership. No bathrooms nor food. Later the next day, the police came and “saved” them. Ironically, no one told them that superglue is made from oil. While that was a few years ago, it still serves as a perfect example of poetic justice.

I’m Sorry, What? I have been worried about a credit crisis longer than I have worried about the overall equity stock market. I learned a long time ago that equity investors invest in the optionality of optimism, hoping and trusting that $2 stock goes to $4. The credit guys simply want their money back. They would like a return. No matter what, they want their original investment and will actively take everything they can of value as repayment. In 2008, billion dollar companies just disappeared. Right now, the ration of private credit to overall commercial debt is the same as sub-prime was in 2008. In modern news, we talk about Blue Owl, and I own some of it all the way down. Where we are today, I’ve seen before. A run on a bank, with some concerns raised by the hysteria of not wanting to be the last guy out, crashes a company. Except as noted in 2008, where it crashed the economy. I understand that uncertainty causes rates to trend higher and lower “bond” pricing. Until the uncertainty of the Iran Conflict, interest rates had been declining and were expected to continue the trend. Then Morgan Stanley put out a risk assessment note dealing with software company risk in the world of AI. Two hits, amid growing global uncertainty. And instead of this being acknowledged by institutional investors, private equity funds opened up for everyone. For everyone, including people like me. And “we” panic. Institutional investors know what they bought and they know there is little liquidity. The money is invested. But when people start wanting their money back, it’s not there. Redemptions get restricted. Higher rates are driving down prices as well. It is beginning a spiral. A run on the bank. Not a company or an industry, but an economy. The longer the Strait is closed, the higher the probability of failure. I still own Blue Owl.

Payback is a Bitch. Only 30% of the Federal Government’s 1.7 trillion student loan portfolio is currently being repaid. Most borrowers are delinquent, or their payments have been temporarily suspended while the Trump Administration works to fix servicing problems caused by the Biden Team. Delinquencies are mounting on federal housing administration mortgages as well. It starts with the government-backed loans to extended risky homebuyers whose incomes have been squeezed by inflation. The shares of FHA borrowers in 2024 with debt income ratios exceeding 43% generally considered risky, rose to 64% out from 55% in 2019 and 36% in 2007. One in seven FHA loans originated between 2022 and 2025 defaulted within a year. A fifth of the 2019 55% of borrowers who received mortgage relief in 2024 fell behind again in payments within a year. FHA is currently approaching a 60% default rate. Some ~45% to ~60% of borrowers in default as of last December had previously defaulted at least three times. ~16% of borrowers who took out FHA mortgages in 2024 currently owe more than their home is worth.

The Return of Conventional. We all know one of the most famous things in the oil gas business. The best place to find oil is where you already know it is. When the shale boom started, within 18 months, conventional oil and gas drilling development had pretty much gone out the window. While a shale wells could cost $8 to $14 million, their payout was dramatically faster. Now that we have four mile laterals, the economics are hard to beat. Unless you're starting to use some of our more modern shale technology to improve the development of those conventional resources. We all know there is a plethora of conventional fields that have not yet given up their last drops of oil. I had lunch last week with a good friend of mine. He spent most of his career with Chevron and he is the latest person I have spoken to who is looking to "go back in". The cost of vertical conventional wells is dramatically lower than your typical shale well. While we have fright, conventional wells for decades have been seen as irrelevant, though Shell thinks they have an excellent idea. Throw a little modern technology into a couple of older and somewhat forgotten oil feels? Sounds like a great opportunity. And I'm coming across more people who are doing this. My friend has a company looking at current projects that are anywhere from $10-$100, million and they're all known fields with existing reserves remaining. Everybody's fear that shale would die as soon as all the tier I acres were drilled may have been proven wrong. Technology can move tier two to tier one fairly quickly with some retrofitting. When you look at how many well bores have been put down in the previous 50 years, you start to understand the scope of the opportunities.

Mexico Tariff Standoff. This is the heart of Mexican Tariff discussions: The concern that China will flood the U.S. with cheap EVs with some “value add” in Mexico to qualify for no duties or tariffs. To reinforce this point is a recent poll on the issue: Investors and consumers are still debating whether protectionism and containment are a strategic automatic shield or a costly delay. Should the American Government welcome Chinese cars into the U.S.? Remember when Trump promised a “bloodbath” in Detroit if he didn’t get elected? It was, he said, because without him, China would flood the U.S. with $20 billion in EVs. “If they were allowed to be sold in the United States,” boasted one salesmen of the Chinese models, sold in Mexico, “they would destroy the American car market.”

Ice, Not Green. I would love to have Greenland. Strategically, it is very important to keep tabs on Russia and China in the Arctic. Moreover, there is the promise of oil. The Jameson Land Basin in East Greenland is a prolific, yet largely undrilled onshore hydrocarbon province covering approximately 2 million acres. Historically explored by Atlantic Richfield (ARCO) in the 1980s, the Basin is now the focus of a major 2026 exploration campaign led by the Greenland Energy Company. Reprocessed seismic data has identified over 50 distinct oil and gas leads and prospects, both structural and stratigraphic. An independent assessment by Sproule ERCE estimated a gross and proved recoverable oil resource of approximately 13 billion barrels (P10); Ranking it among the largest undeveloped onshore oil plays globally. Halliburton won the contract to drill two exploration wells this year to test that resource assessment. The opening up of Venezuela, Greenland and others are a clear positive for oilfield service businesses.

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.

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.