May 16, 2025
Things I Learned This Week Jetting Around Texas
Okay, I will admit it. It was only Dallas and Houston. And Houston was for only 15 hours. The real news wasn’t happening in either city. It was all in the Middle East. Airplane contracts, oilfield services contracts, AI contracts and refinery upgrade projects. Between the UAE and Saudi, there were deals being made that are said to be worth over $2.2 trillion. Of course, that is over ten years or so, but this is a monster political move as well. Saudi, which effectively runs OPEC, is partnered with Russia and Iran via OPEC+. It would appear that the “plus” members are getting jilted. It is just a function of mutual business interests, which need to be protected. This isn’t protecting a country, from which we buy 1.45% of our oil consumption, it is protecting U.S. business interests. But the importance of Saudi as an ally is greater than the 1.45%.
What Did We Give? Permission. Permission to buy our latest AI computer chips, permission to buy some of our advanced weaponry and permission to buy a quantum computer. It would be easy for us to deny these things to the Saudis. What did we get? President Trump said the two deals would create 3-4 million jobs in the U.S. A stretch, but the point is the same. And to condemn Saudi, even more to condemn the UAE, while supporting Palestinians? Tough. All wars are fought for economic reasons, whether for oil, the riches of being Pope, more land, better land. Even religious wars have economic disparity roots. This is an economic war that can be won without firing a shot. And as a New York City real estate developer for decades, you know a bit about economic warfare.
Point of Light. All of the bluster sidelined any real energy news. HAL, SLB, BKR, WFRD and others all got some economic gain, whether through scope, duration or margin. What is very interesting is the amount of money being spent by Saudi on AI, which is a segue into one of the few topics this week. Data Centers. Ergo the quantum computer, the agreements with Nvidia, Amazon, Exxon and others. Aramco has always been a leader in the adoption of technology. This should be fun.
Listen/Watch. The Oilfield 360 podcast that David de Roode and I did with Girish Saligram, the CEO of Weatherford, can be accessed by the link below or on any podcast provider. I have been a fan of Girish since I first met him. He has an amazing story and a perspective that is unique since he didn’t get into the oil and gas business until 2008. Life lessons, business lessons, leadership lessons. It is more than definitely worth the time. And I didn’t say much! We are releasing one podcast a week for the next couple of weeks. Stay tuned.
Oil Price. I am either too smart, or too stupid, to predict oil and gas prices, and there are many perspectives from those who try. At a dinner last night, a guy across the table said he is bullish on oil because the Saudis want $90 oil. I told him I want a billion dollars but I’m probably not getting it either. That number has been bouncing around for at least 15 years, regardless of where prices are in their cycle. My sources say the reverse is true. Not only is Trump pushing for lower oil prices, OPEC, or at least some members, want to keep oil around $50 for a bit. OPEC wants to gain market share, which they would be sure to do at those prices, especially since U.S. production has peaked or is close. They tried this once before, and it didn’t work as expected. Shale had a lower breakeven and a quicker payback, and OPEC lost money and market share to the U.S. Now is their chance to get it back. And it just so happens to coincide with the stated desires of the most powerful man in the world, who you also just inked a trillion dollar deal with? Maybe. I would most definitely not get greedy on selling or hedging. The momentum in the oil markets is going the wrong way. Of course it will reverse, but the focus is on mid-term elections in about 18 months, and during that time, prices could stay low.
BP or Oman? The rumor last week was that Shell was going to buy BP. It makes a lot of sense in many ways. Shell is ending its dual registration between the Netherlands and the UK, leaving the former. It makes for an easy set up. Then, the country of Oman announces that it is looking to sell $8 billion worth of natural gas assets. This is interesting on several fronts. Over the last several years, and through their last several acquisitions, Shell has tilted itself more and more toward natural gas and away from crude oil. And now this opportunity arises. Shell already has a significant presence in Oman and would be the most obvious and logical buyer at this point. BP, on the other hand, is big and focused on crude oil. A combined BP and Shell would dominate the Gulf of Mexico (America). It will be interesting to see which way Shell jumps, more gas or more oil. You have to believe the rumblings out there that suggest it will be one or the other.
Reason for a Deal? The U.S. and China tariffs have been partially rolled back. It was fun to watch on Monday. Much has been written about the why, and how, of all of this. One of the things I wasn’t really aware of was the impact of weather. It seems that China is in the midst of a terrible drought, and parts of their key crop growing areas are cooking. Much of China’s food is imported from the U.S. It’s easy to say I don’t need you when the rain is falling and your harvest looks good. It’s a little harder to say when some provinces have sent rockets at clouds to increase the chance of rain. You know people are getting desperate.
Timing is Everything. In conversations over the past couple of weeks with people in the oilfield services industry, the evolving timeframe of all this came up often. We know activity is down. We expected it to be down, but now it’s down a little bit more. Not good, but not the disaster of some of our previous downturns. All the OFS companies have said this too. I sometimes get asked when the stock prices will start to move on hope for the future. As I’ve noted before, analysts rarely, and actually never, lower earnings just once in a downturn. So, that tells me that the earnings estimates for at least the forward 12 months will continue to come down for these stocks. Again, that’s no particular surprise to anyone, other than to the people who thought it was going be a one-time adjustment to the outlook. The historical market discount window is about six months. Six months from now is definitely approaching the end of the year. So, where will we be in six months? The commentary below is based on analysis from Capital One, and is the first commentary I’ve seen that actually talks about the seasonality of this budget.
Potential Impact. In an analysis of an E&P company’s comments, with numbers around them, we looked at and extrapolated that for the industry. Granted, it is just one company, but their budget now implies a 68% to 32% weighting for the first half of the year to the second half of the year. This the math suggests that spending in the second half of the year could drop by 50%. As I say, many of the companies have warned of weakness in the second half, but few have appreciated the potential magnitude. This company could be the exception, but they are not the rule. It is definitely a variable we will keep track of. If activity or E&P spending drops by 50%, or even half of that, in the second half of this year, there is a good chance of continued downward earnings revisions. And back to the main point; who wouldn’t be anxious to buy stock in a company that is getting ready to take a step down of unknown magnitude, but with dramatic potential and very little explanation as to why that will change? We know oil and natural gas are depleting commodities. Maintaining production is going to be the primary objective of the U.S. oil and gas industry. I am most definitely not predicting this, and I certainly hope the drop isn’t very great at all. But at least it will aid in the decision process. I hope.
Consistency. Billions being spent on projects that have never been profitable without subsidies is not a good thing in a healthy economic environment, and most of us are against that. Unless we are one of the companies that have benefited from those subsidies. Then THOSE subsidies are good and should be kept but ALL THOSE OTHER ONES ARE BAD! “I don’t believe the government should give away free money, but if they’re going to, I want mine.” And since everyone in the oil and gas industry has been looking for ways to get in the way of that money, some of our brethren really like those subsidies. No surprise. I like free money too. But avoid being a hypocrite.
Economics 101. Minneapolis council to consider a new 2% fee on hotel rooms to boost tourism.
Not Just Oil. As we mentioned, having business arrangements with U.S. companies provides a level of support and security that exceeds pacts and promises. So, it was a good thing for both Ukraine and the U.S., when they signed two additional agreements to formally launch a Joint Reconstruction Investment Fund as part of the deal for Ukraine’s mineral resources. The agreement that was signed in April allows for special access to projects that involve Ukraine’s reserves of lithium, titanium and other critical minerals. If we have business and legal activity in one country, and another country threatens our interests, directly or indirectly, we are more likely to intervene than not. Cool.
Star Trek. How far have we taken automation? We wrote about this a while back, but now it is launched. While self-driving Ubers sound pretty amazing, check this out. The picture above is an uncrewed ship. No one is on board. It does subsea surveys, inspections, maintenance and repair work, among its other capabilities. It is 80 feet long and has a 25 foot beam. It is controlled from shore and will be an ROV mothership for the vessel it carries on board. Automation on the rig floor? Neat. Automation at sea and designed for severe weather? Very different.
PPHB U.S. Energy Market Highlights:
Commodity Prices: WTI crude oil is currently $62.68 per barrel (up ~7.9% week-over-week) and natural gas is $3.83 per MMBtu (down ~3.1% week-over-week).
Crude Oil Production: U.S. crude oil production is currently ~13.4 MM BOPD (up ~2.2% year-over-year).
Crude Oil Inventories: U.S. crude oil inventories increased by ~3.4 million barrels week-over-week vs. an estimated decrease of ~2.0 million barrels.
Frac Spread Count: There are currently 195 frac spreads operating in the U.S. (a decrease of 6 spreads week-over-week).
Onshore Drilling Rig Count: There are currently 564 drilling rigs operating in the U.S. (a decrease of 3 rigs week-over-week).
I Didn’t Know That. Today we export ~2.1mbd of liquified petroleum gas (LPG) from the Gulf Coast (out of 3.3mbd of total LPG production) and the Gulf Coast export terminals have been running at capacity in recent quarters. But ~1mbd of LPG export capacity is coming online by 2028, outpacing supply growth.
Headlines.
“Oil prices fall 4% after Trump raises hopes of a U.S. – Iran nuclear deal”
“Burberry to cut 1,700 jobs amid persisting luxury demand woes”
Santa Claus. What would you like for Christmas? How about for Memorial Day? Over the last couple of weeks, OFS CEOs have been called to Saudi. Some people thought that President Trump was bringing them along. I’m sure that the idea was to coordinate an overlap with the CEOs. The CEOs I’ve talked to have said it was a command performance. It turns out it was worth the plane ticket. Aramco signed agreements with oil and fuel services companies, including many U.S. companies, with a potential value of $90 billion. And to give you an indication as to what Saudi is thinking, some of the major companies involved were Exxon, Nvidia and Amazon. So much for this just being oil and gas. The Saudis entered into a 20-year agreement to buy U.S. LNG from NextDecade and they are going to help upgrade a refinery here in the states. Amazon, and others, are selling AI capabilities to Aramco. And remember that, while it hasn’t been delivered yet, Aramco was one of the first buyers of a quantum computer. It didn’t end there. SLB, HAL, BKR and WFRD all signed deals as well. All of these companies are currently working in Saudi, but additional worker extensions is what all of the companies have been working towards. Merry Christmas.
Everyone is Going Over. It isn’t just Mr. Trump announcing deals, we already have people chasing them. Kimmeridge and the Fortress Investment Group are opening offices in Abu Dhabi, with the sovereign wealth fund of the country, Mubadala Investment Co., being the target. Kimmeridge is known in the oil industry but has never really done much besides creating a presence in London. And now, the sale of a minority stake in Kimmeridge’s SoTex HoldCo to Mubadala Energy seals the deal. Both companies specialize in “alternative assets.” Kimmeridge has a couple billion invested and under management while Fortress has $49 billion in managed assets and $200 billion invested. Last month, Mubadala, who owns a significant stake in Fortress, announced a $1 billion strategic partnership for credit and co-investing in special situations. “Private credit continues to play an increasingly vital role in global capital markets, offering attractive risk-adjusted returns and providing flexible financing solutions for businesses,” said Mubadala. Kimmeridge is the newcomer.
Smart Guy and Great Data Points. “We estimate land driller guidance implies the U.S. rig count will be flat to down 25 rigs during 2Q. This is based on commentary from HP, PTEN, NBR, PDS and ESI CN. HP and PTEN offer the most cautious guidance, while PDS and ESI CN were the most positive. With the Baker Hughes U.S. land rig count already down 11 rigs since March 28th, we are biased to the lower end of the range. Land drillers acknowledge a slight downward trend in leading-edge dayrates. PDS sees stronger pricing in the Haynesville and Appalachian than in the Permian. We estimate the midpoint of HP’s guidance implies revenue per day declines of ~$1,000, PTEN is estimated to be ~$450 lower and NBR is estimated to be down only a couple hundred dollars. The NBR survey of 14 operators representing ~43% of rigs, implies 50 rigs drops from Mar 31st – Dec 31st.” Doug Becker, Capital One.
Getting Better. Another day, another announcement about the potential for new nuclear reactors to power AI and Big Tech’s data centers. I am going to push my son into nukes! This week, The Nuclear Development Company reached an agreement to develop three nuclear reactor sites, each of which will generate at least 600 megawatts of power. It is an interesting agreement.
Google will provide funding for permitting, securing interconnection rights to the transmission system and other “early-stage matters.” Google will have the option to buy the power once the sites are up and running. “Google is committed to catalyzing projects that strengthen the power grids where we operate, and advanced nuclear technology provides reliable, baseload, 24/7 energy.” Well fine, but who is actually trying to make a business out of this?
Power Play. Five Points Infrastructure, formerly known as “Five Points Energy” announced a $1 billion fund to invest in power, the hottest new buzzword in the industry today. PowerBridge will focus on “developing, building and managing gigawatt-scale data center campuses, associated power infrastructure and fiber network connectivity.” Five Points has invested $2.7 billion through five funds in its energy infrastructure business, with WaterBridge likely being the biggest, but WaterBridge risks being eclipsed quickly by the power push. The portfolio:
WaterBridge is an industry-leading midstream water management company.
Landbridge is a land management platform.
San Mateo Midstream provides natural gas gathering and processing, crude oil gathering and produced water gathering and disposal.
Northwind Midstream is an in-basin natural gas midstream business.
Deep Blue is a sustainable water management company.
Twin Eagle is a crude oil midstream, energy marketing and frac sand logistics business.
Desert Environmental is a safe, reliable and environmentally focused solids waste handling business.
A Lesson. As efficiency increases, the cost per barrel goes down. That is very good for the producer, but not good for the service providers, except possibly the provider of the technology that fostered that efficiency. But if you look at the huge efficiency boosts of seismic, few companies have been able to even survive, much less prosper from their provision of technology. Without the urgency implied by a growth mandate, more measured, more value oriented actions are likely to be taken. Charge for value.
Reality. Devon is dropping three rigs and Oxy is dropping two, all of which are in the Permian, but production won’t change. Apache is cutting two rigs in the basin and that will likely result in decreased production capacity with a declining rig count. Diamondback said it would drop three rigs in the Permian and said that 2026 production will likely decline with spending. They also made a very interesting point... Geologic depletion is outpacing technology advancements. We will see, but that is the best bullish case I have heard.
Scale Differences. TXO acquired White Rock’s Williston Basin assets for $350mm. No one has really heard of White Rock’s Williston assets, but the deal is larger than the market cap of all but the top 13 U.S. OFS companies including Ranger, Forum, KLX, NCS Multistage and many more.
How Quickly It Turns. It was interesting to read the WSJ the morning after the China tariff deal was struck. About one third of the articles, maybe less, included comments and revised forecasts. The other articles were a bit different.
“Apple Weighs Price Hikes”
“Little Relief Seen for West Coast, Cargo Drought”
“Concern of Tariffs Impacts Has Some Retailers Hitting Pause”
“Thrift Stores Thrive From Tariff Anxiety”
“Trade War Rattles Bond Market”
“Tariffs Leave Small Businesses With Few Options for Survival”
Priorities. Do people really pick their causes or are they just paid to protest? Several pictures were brought to my attention this week showing some of these strikes at detention centers and protests in different cities. They all make me look young. They looked like a bunch of retirees making a little extra income. That’s not a conspiracy theory, just a guess. Part of the reason is the selectiveness of causes, such as Gaza. In Burkina Faso, 100 people were killed by government forces, all of which were from one ethnic group and were accused by the government of backing Muslim militants. The remains of 30 people that were killed in Syria were just found in one of the many mass graves that have been uncovered. Sudan. Ethiopia. No money for protesters?
Power of Consolidation. NRG, the $30 billion power producer with 13 gigawatts of natural gas generation and a 6 gigawatt commercial and industrial virtual power plant, is buying six power generation facilities from a Texas-based private equity group called Rockland Capital. NRG gets 738 megawatts (MW) of natural gas-fired capacity, with one combined-cycle unit and five peaker units, which are ~50% hedged through 2028. The stock was up 26% on this announcement and good earnings. They raised the five-year adjusted EPS compound annual growth rate to 14%, a 40% increase to the base plan presented in February. Growth.
An E&P Equity Raise!!! TXO Partners is an MLP focused on the acquisition, development, optimization and exploitation of conventional oil, natural gas and natural gas liquid reserves in North America, with concentrations in the Permian Basin of West Texas and New Mexico and the San Juan Basin of New Mexico and Colorado. It went public two years ago and just raised $175 million to close a $350 million acquisition, which we actually mention elsewhere today. The equity markets have not actually been particularly open for E&P for a while, and one would think especially not know. What do we know? There is hope. Congratulations.
Minutiae. I guess all data is good data, but I was just struck this week while reading an article about OPEC and its crude oil demand and supply commentary. OPEC has always been overly optimistic. It expects the global economy to grow at 2.9% this year. A very, very slight change from previous expectations. OPEC expects 2026 growth to be 3.1%. That implies aggressive growth in the economies themselves and the oil needed to run them. OPEC expects U.S. growth to be 1.7% this year and 2.1% next year. Oil demand is expected to go up by 1.3% and increase by about the same magnitude in 2026, supported by strong air travel, general demand and healthy road mobility. I’m reading all of this and taking it with a grain of salt because, as I said, OPEC has traditionally been fairly optimistic. What struck me was the level of minutia. In April, OPEC crude production fell 62,000 barrels. Wow. That’s 0.23%. Such detail in an imperfect number.
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.
