May 9, 2025
Things I Learned This Week Visiting Houston
Meetings!! This was conference week in Houston. The Offshore Technology Conference, also known as “OTC,” was held this week. OTC is the granddaddy of oil conferences. The parties at the old Shamrock Hilton were of legend. But there were parties all over town and the city of Houston knew it. Of course, back then we had ~150 rigs drilling offshore, compared to only 25 today. And it shows. This was the most international I have ever seen it. We used to take investors on tours to learn about the latest technologies. A few things happened. Ten years ago, after scaling amazing heights, the offshore drilling business crashed. It is a much longer lead time business, so the OTC conference held up okay, then COVID hit. That broke any remaining momentum as conferences were cancelled, changed or held virtually. Now, offshore is coming back. Slowly. Very slowly. And so is attendance. The crowds were okay, but still small on a historical basis. But it was more “international” than I have seen it. There were regions of the conference floor dedicated to companies from Canada, France, Argentina, China and more. If it weren’t for the Chinese exhibitors, it would have been lonely. Anyone you met was likely to work in, or for, another country. Houston became an even more international city than it already is. But not many people from Houston were even aware of the event this year. The shift was obvious.
And More. Daniel Energy Partners held an Offshore Executive Series meeting this week too, which mirrored the OTC focus on offshore. It was well done and well attended and lots of interesting things were said. Well done guys.
The Market. During the month of April, U.S. oil and gas companies lost more than $280 billion in stock market value. Oil prices dropped 19% in April, bottoming out at $58.22. The top oilfield service companies saw their stock prices drop between 21% and 23% in April. All the reasons are known. Trump wants lower oil prices and this is what happens to oil stocks when oil prices go down. It’s all the usual reasons. Saudi Arabia is increasing production by 400,000 barrels this month. China was still depressed versus expectations, and the trade war only makes that worse. It’s the oil business. We are a highly cyclical business and we’re going to be at a low point in the cycle for a bit, and then it’ll get better. But the “better” means we are going to be a smaller, more technology focused and more efficient industry that focuses on improving financial returns while being a good steward of the environment and society. It’s an easy statement to make because it’s been proven true by our industry for decades.
Recording. David de Roode and I recorded some more Oilfield 360 podcasts this week. One was with Girish Saligram, the CEO of Weatherford. I have written about Weatherford a great deal over the last couple of years as I was very impressed with their potential and Girish’s potential. I’ve been proven right. Last year, Weatherford had higher EBITDA margins than Halliburton, SLB and Baker Hughes. Their debt ratio is 0.5. Bernard has been gone for nine years. Life has moved on, and moved on well, for Weatherford. Most of the people in the business, and many investors, have long memories, but their memories are of a company that doesn’t exist today, at least not in the form it once did. Girish didn’t get into the oil and gas business until 2008, and I credit that for part of his success. After 20 years at GE, a practical university for management skills, and a few years at a smaller, but still global, operating business, he brought a different perspective to his job. A few of the pithy points without spoiling the podcast, which will be out by the middle of next week:
Caution. Due to uncertainty, the U.S will continue to decline, and it was expected to, it is just at a steeper angle now. The 2nd half is likely to be weaker than the first half of the year.
Offshore looks very good for us for the next couple of years. There is no real urgency in offshore relative to onshore. 2024-25 should be the bottom, but you never see the dramatic volatility of ups and downs.
Mexico. Down 60%. Important country. They have a structural problem that doesn’t get solved quickly.
Production will do well. Artificial lift is big in the U.S. and all products come from outside the U.S., creating lots of questions about what happens next.
Intervention, well services and production optimization. These help drive more production at little or no capex. Well services, specifically rigless intervention, will be a big deal.
MPD, also known as “Managed Pressure Drilling,” is hitting its stride.
His closing statement on the podcast was my favorite. “I honestly believe from the bottom of my heart that there is no country on Earth that offers the opportunities the U.S. does and coming here as a 22-year-old from India and now being the CEO of an oilfield services company epitomizes the American dream.”
It’s Little Things. I read an article about how First Solar, an Arizona-based manufacturer of solar panels, was very much in favor of President Trump’s tariffs on China. They thought they were a good thing. Then China started shifting manufacturing to Thailand, Vietnam and Malaysia, and then sending the panels to the U.S. from there. But since First Solar uses a different technology that isn’t covered by the solar tariffs, they can still source some of their required modules from those three countries. Then President Trump put on the reciprocal tariffs. It turns out that India, Vietnam and Malaysia have tariffs on U.S. imports of 26%, 24% and 46%, respectively. Now, First Solar is complaining about the reciprocal tariffs while liking the original tariffs. Do you start to see a problem here? How about the idea that those three countries are charging us those amounts as import tariffs? Gavin Newsom of California was on TV complaining about how the Chinese tariffs need to end since 80% of the toys under his children’s Christmas tree were from China. That’s the complaint? You buy 80% of your children’s toys from China because they’re cheap and that’s a reason for U.S. exporters to continue to get screwed by foreign countries? Everybody’s reading the headlines and nobody’s reading the story.
War. It has come to my attention that we are at war. If you worked internationally in the field for the oil business, you have likely worked in, or traveled near, areas with ongoing wars and skirmishes for years. We are clearly having a trade war, which is proving our high level of dependency on China. We have been at war with Iran, through proxies, for the last several years in Yemen, Syria, Lebanon and others. We are at war with Russia, again through a proxy, but U.S.-made bullets and bombs are killing Russians. And North Korea is helping Russia with munitions and soldiers. There is a common thread - us. We are at war with China, Russia, Iran and North Korea, and they are working together to defeat us. Defeat is their word, not mine. We could be defeated in a limited war somewhere. We have been before. We would win a major war, but the collateral damage to even a limited war can be seen in Gaza today. It will primarily be an economic war. And it is already underway. Did Trump start the war? You could argue that he is leading a rebellion against the current economic world order, where we “subsidize” the rest of the world. In the U.S., we play the short game. Plans, promises and priorities change almost every four years. Longer-range thinking and planning? It won’t get you re-elected. China, Russia, Iran and North Korea don’t have that problem. As a result, they play the long game. The gradual encroachment. Gaddafi said Islam would win the war with Europe without firing a shot. “In 50 years, we will out-populate them.” But that is only a sample of one of the “axis of evil” countries. 100,000 Chinese men of military age have entered the country through the southern border in the last few years, many with identical black backpacks. Many want the appeasement of the past to continue. But appeasement never wins a war. The opposite, actually, according to history. And our response when our country asks us to endure hardships while the battle is fought? Complaints about more expensive guacamole and Modelo. Bordeaux and Burgundy would become (even) more expensive? Hardship in war? And since it’s not all over and done within three months, the whole effort was a waste, right? The last World War lasted 6 years. The Cold War lasted decades. The Vietnam war lasted 20 years. And it isn’t good having more global economic horsepower arrayed against us than ever before, especially when they are shouting, “death to America” in Iran, Afghanistan, Lebanon, Yemen, Iraq, Russia, Pakistan and North Korea. Death. We get so tied up in “local” news and sports that the global machinations of unrest and conflict never register. We are lulled into cheap comfort, forsaking all other allegiances for our own immediate gratification. Sounds like a movie.
Interview. I had the honor of doing a fireside chat with Scott Livingston, President of the Energy Products and Services segment at NOV. The topic was deepwater technology and equipment, which is about as wide open a topic as it’s possible to be. So, we talked about everything.
He expressed skepticism about the construction of new deepwater rigs due to low demand and high costs, though he noted recent upgrades to existing rigs. While short-term rig utilization may drop to around 70% by late 2025 and early 2026, he remains optimistic that it could rebound to 90% thanks to recent contract activity.
The downturn is attributed more to supply chain and cycle issues than oil prices. On the future of deepwater versus shale, Livingston believes U.S. shale is nearing its peak due to declining Tier 1 prospects, while deepwater projects remain viable with breakeven prices as low as $30–$40 per barrel.
He credits technological advancements, such as improved seismic imaging, standardized floating production and widespread use of managed pressure drilling, for boosting deepwater efficiency.
To conclude, Livingston stated the offshore industry is in its best shape ever.
MPD. I have mentioned managed pressure drilling a couple of times in this newsletter because it was mentioned so many times to me this week. A great deal of attention is now being focused on a technology that was developed more than a decade ago, but it is now going mainstream. All the rigs in the Gulf now require it on the rig, as do most of the floater tenders out there. Weatherford pioneered MPD and others have systems as well, but it did sit on the shelf for a bit. An overnight success in only 10-15 years!
Seismic. The geophysicist in me was thrilled by several presentations made at OTC. Seismic was mentioned as one of the most important tools in the industry’s toolbox today. As if you couldn’t tell that success from looking at the fortunes of several seismic companies over the past few years. TGS stand head and shoulders about the rest and #2 can be hard to pinpoint. But as a critical science in today’s oil and gas industry, several speakers left no doubt. We have always collected more data than we could process and analyze at the time, but as computer and software sophistication improves, that old data becomes increasingly valuable. I still have concerns about what AI will do to the headcount in the geosciences, especially after seeing what the early Landmark interpretation systems did to geophysical map making. But AI should have a similar effect in reducing dry holes, having a much better understanding of the subsurface and allowing for more risky wells with that risk being reduced by technology. We are back!!!
How to Make a Computer Chip. I saw this and was fascinated since our industry seems so technical.
Powerful lasers fire thousands of pulses per second at microscopic droplets of ultra-pure tin, generating a steady plasma that emits extreme ultraviolet (EUV) light with a wavelength of just 13.5 nanometers (nm).
That light is collected by an array of cutting-edge mirrors, each crafted with unprecedented precision, material science innovation and engineering complexity, and redirected to etch features smaller than 10 nm onto thinly sliced wafers of the world’s highest-quality polysilicon.
The machine is the size of a double decker bus, and one company, a Dutch company called ASML, has a virtual monopoly and a $270 billion market cap. All of a sudden, some of our technology seems pretty limp!
While All Eyes are on Ukraine…. Pakistan and India are firing missiles, and both countries have nuclear weapons. It seems India fired some missiles at suspected terrorist camps inside of Pakistan, and Pakistan didn’t like that. The defense minister said, “it will not go unanswered.” One problem is that India is primarily Hindu and Pakistan is primarily Muslim. Each control parts of Kashmir, but claim it in full and have fought three wars over the territory. The missiles were “answering” an attack by Muslims on Hindus that killed 26 people. To top it off, this is all occurring in the disputed region between the two countries. They are already firing heavy artillery back and forth. Wow! Pakistan promised to accelerate the tit-for-tat by saying their retaliation response will be greater. Out of sight, out of mind.
What Low Analyst Coverage Looks Like. “Flotek GAAP EPS of $0.17 beats by $0.11, revenue of $55.36 million beats by $10.86 million.” EPS was estimated at $0.06 and you get $0.17 and a 22% miss in revenues. Wow. Someone is not paying attention.
Green Money. A group of 31 shareholders in Barclays Plc pushed to call the bank to set an explicit funding number for renewable energy (more than $1 trillion) as shareholders get greener than the politicians themselves. They headed to the annual meeting to make their point. A group of shareholders of Standard Chartered Bank did the same thing, basically asking the bank to increase its capital allocation to “clean energy.” HSBC shareholders did it last week, urging the bank to reaffirm its commitment to achieving net-zero. All this is coming at a point in time where many of the politicians are lightening up on “going green” as energy costs go through the roof and blackouts occur due to the lack of reliability with renewables. Since they are shareholders, this reminds me of striking an effort from the inside rather than out on the streets. But the realities of energy production and the future demand, especially in specific areas and geographies make the push by the shareholders seem very uninformed. That hasn’t stopped anyone in the past.
From Boysie. “A good woman stays by her husband during bad times to tell him that none of this would have happened if he would have just listened to her.” Amen.
Major Snippets.
XOM: Exxon tops Q1 earnings estimates, lifted by strong Guyana and Permian production.
As Africa’s top producer, Exxon plans to invest $1.5 billion in a deepwater oil field in Nigeria within the next two years, reviving production in the Usan field.
Chevron’s CEO warns of global oil demand slowdown amidst record U.S. production.
Adamant!! “Look, we had the most qualified person who'd run for president in the country's history at the top of the ticket. That in itself should have got this thing won.” – Tim Walz.
All Tariffs are Bad? Ford is complaining about the tariff and the trade war, saying it will do damage at home. They suspended all financial guidance due to uncertainty. The company said Trump’s tariffs could reduce 2025 adjusted operating earnings by about $1.5 billion on a net basis this year. Ford’s pickup trucks, particularly the F-Series, have played a crucial role in the company’s profitability. In 2023, Ford sold approximately 751,000 F-Series trucks. While exact profit per vehicle isn’t reported, most industry estimates for operating profit per truck are between $10,000 and $20,000. This implies that the F-Series alone could have contributed at least $7.5 billion in operating profit. Last year, the company had $10 billion in adjusted operating profit and a $4.7 billion loss on electric vehicles. The U.S. has had a 25% tariff on imported pickup trucks, a protectionist policy that has obviously helped U.S. auto makers. The tariff has been in place for 60 years. Now, your opinion on all tariffs??
A Hard Ouch! In an interesting move, an OFS company’s stock ran up 13% in one day and then dropped 50% over the following week. It announced earnings today and the stock is down another 11%. Management did say that there would be a slight drop in volumes/revenues for Q2, which should be offset by positive pricing in logistics (mostly sand). The Haynesville was singled out as the potential growth market. “Capex is being reduced by $70 to $100 million while maintaining service quality.” The outlook was very similar, and maybe a little more optimistic, than others. Maybe it was the drop in capex. Usually that is seen as a good thing if it’s small and brief, but declining capex implies lower revenues/growth going forward, regardless of how capital intensive your business is. Just a guess. But it isn’t just ACDC (Profrac) that has been hit. PUMP (ProPetro) is down to $5 from $11 since the beginning of the year. LBRT (Liberty) is $11, down from $22 and they have been focusing hard on power, as has PUMP. The thrill is gone??
PPHB U.S. Energy Market Highlights:
Commodity Prices: WTI crude oil is currently $58.07 per barrel (down ~0.2% week-over-week) and natural gas is $3.95 per MMBtu (up ~8.6% week-over-week).
Crude Oil Production: U.S. crude oil production is currently ~13.4 MM BOPD (up ~2.0% year-over-year).
Crude Oil Inventories: U.S. crude oil inventories decreased by ~2.0 million barrels week-over-week vs. an estimated decrease of ~1.7 million barrels.
Frac Spread Count: There are currently 201 frac spreads operating in the U.S. (a decrease of 4 spreads week-over-week).
Onshore Drilling Rig Count: There are currently 567 drilling rigs operating in the U.S. (a decrease of 4 rigs week-over-week).
De-Fanged. Diamondback Energy made the news this week with a letter to shareholders in which it was rather up-front. As we have noted, lots of people are slowing down. Their update for 2025 below:
I. Industry & Market Outlook:
a. The U.S. oil and gas sector is under pressure due to weaker global demand and expected OPEC+ supply increases, pushing oil prices down and increasing market volatility.
b. U.S. oil production costs have risen, and current oil prices are near historic lows (adjusted for inflation), prompting concerns that domestic production may decline.
c. Frac crew and rig counts have dropped significantly, especially in the Permian Basin, indicating slowing activity and a likely peak in U.S. onshore oil production.
II. Strategic Response:
a. Diamondback is prioritizing capital efficiency and free cash flow over production growth.
b. The company is reducing its 2025 capital budget by ~$400 million to $3.4–$3.8 billion.
c. Drilling and completion plans have been scaled back (3 rigs and 1 completion crew dropped).
d. Updated oil production guidance for 2025 is slightly reduced (480–495 MBO/d), but capital efficiency is expected to improve ~10%.
In the Olden Days. 13,000 acres are worth $608 million. Wow. I feel like my father talking about 5 cent movies, but still…. Permian Resources (PR) is buying Apache’s North Delaware acreage in New Mexico. PR has been the consensus next takeover candidate in the E&P space for a while. So, what do they get for $608 million? 13,320 net acres and 8,700 net royalty acres in New Mexico, near some of Permian Resources’ core operating areas. Production is expected to average 12,400 BOE/d (46% oil) in 2025, according to Apache. The hook? Permian Resources has identified over 100 gross operated, 2-mile drilling locations. Even though we are drilling 4-mile laterals these days, not all leases can accommodate. This is why contiguous acreage has been in such high demand. Vertical depth is not an issue, but in a world of 4-mile laterals, not all leases have the breadth to allow it, dropping the value to all except contiguous acreage holders. It makes M&A easier to understand and identify.
Cutting Back. Diamondback issued a letter to shareholders this week (see below) noting their activity slowdown and now Coterra Energy is dropping 3 of its 10 Permian Basin rigs and is “prepared for this to last a while.” None of this is a surprise. Since activity and spending was expected to be down 5% or so when the oil price was $10-$15 higher than it is now, we are not surprised to see downward revisions in numbers. Major oil companies typically drill based on established capital budgets and rarely change during the year, almost regardless of commodity prices. E&P companies, however, have “budgets” that are basically expectations of cash flow, and if commodity prices go down, cash flow goes down and spending goes down, unless the E&P companies want to leverage up. And that would not go over well at all with shareholders. The CEO of Coterra was asked where he could cut more and he said, “if we were seriously looking at a price below $50, you’d see our tipping point.” Hunker down and wait it out.
Living Example. It is becoming increasingly clear that AI is becoming part of our lives, often without us even knowing it. I was impressed by one website’s analysis of a company’s earnings report. But like many college papers, it was too good. So, I did some sleuthing. First, someone asked me the other day if AI would replace analysts on Wall Street. So, I took the ProFrac transcript and asked one of the AI LLM’s to summarize it for me. The answer to the question about replacing analysts? Other than an opinion at the bottom, summarizing quarterly earnings should get easier.
I. Executive Chairman Matt Wilks’ Remarks.
a. Q1 2025 Highlights:
i. Revenue: $600M (↑32% QoQ)
ii. Adjusted EBITDA: $130M (↑83% QoQ)
iii. Record pumping hours and fleet redeployment
iv. Strengths: vertical integration, asset management platform, in-house R&D
b. Technology & Innovation:
i. Launch of ProPilot (auto-frac platform)
ii. Zero manual startup
iii. Extends equipment life and reduces failures
iv. Enhances gas substitution and job design compliance
v. Successful deployment in South Texas; next in West Texas
c. Flotek Transaction:
i. Sale of mobile power generation solutions
ii. Supports gas quality assurance and asset integrity
iii. Adjacent market opportunities identified (e.g., compression, refining)
d. Profit Segment:
i. Significant volume gains in Q1
ii. Q2 volumes expected to slightly decline
iii. Potential price and logistics offsets
iv. Opportunity for upside in Haynesville
e. Live Wire Power:
i. Progress since Q4 launch
ii. Supports internal ops and positions for growth
f. Market Environment & Strategy:
i. Economic headwinds: tariffs, OPEC production increase
ii. Uncertainty affecting activity and spending
iii. Natural gas market strong: AI-driven power demand, LNG strength
iv. Active cost management and capital allocation strategy
II. CEO Ladd Wilks’ Remarks.
a. Pressure Pumping Business:
i. Six fleets returned to service in Q1
ii. Strongest activity in Eagle Ford and Permian
iii. Natural gas equipment in higher demand than diesel
iv. Delays and inefficiencies due to macro uncertainty
b. Outlook & Preparedness:
i. Quick resumption potential of D&C programs
ii. Well-positioned fleet for rapid activity ramp-up
c. Haynesville Opportunity:
i. Anticipated natural gas activity growth
ii. Holds three in-basin mines (8.2M tons annual capacity)
d. Profit Segment Performance:
i. Jan volumes ↑45% vs. Dec
ii. Early quarter weighed by ramp-up and improvements
iii. Segment volumes may decline slightly in Q2
e. Flotek Transaction Details:
i. $105M deal with six-year leaseback
ii. ESD and NGD units improve gas integrity
iii. Key tech: JP3 analyzer for real-time gas composition adjustment
f. Capital Allocation & Tariffs:
i. $70–$100M CapEx reduction identified
ii. Efficient fleet management to preserve service quality
iii. Proactive supply chain strategies mitigating tariff impact
III. CFO Austin Harbour’s Financial Summary.
a. Financial Results:
i. Q1 Revenue: $600M (vs. $455M in Q4)
ii. Adjusted EBITDA: $130M (22% margin)
iii. Free Cash Flow: -$14M (due to working capital investments)
b. Segment Performance:
i. Stimulation Services:
1. Revenue: $525M (vs. $384M in Q4)
2. EBITDA: $105M (20% margin)
3. Flotek supply shortfall cost: $8M
ii. Proppant Production:
1. Revenue: $67M (vs. $47M)
2. Volumes ↑53%, EBITDA: $18M (margin ↓ to 27%)
iii. Manufacturing:
1. Revenue: $66M (↑6%), mostly intercompany
2. EBITDA: $4M
c. SG&A and CapEx:
i. SG&A: $54M (↑ from $48M)
ii. CapEx: $53M (↓ from $63M)
d. Liquidity and Debt:
i. Cash: $16M; Liquidity: $76M
ii. Total debt: $1.15B (most due 2029)
iii. $43M of long-term debt repaid in Q1
e. Flotek Deal Financials:
i. Warrants for 6M Flotek shares
ii. Offset shortfall payments
iii. $40M seller note (5-year, 10% interest)
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.
