November 7, 2025
Things I Learned This Week on the Oceans
So, it turns out that Halloween on Bourbon Street in New Orleans is a hoot. I was dressed as a fisherman since I had been fishing offshore all day. No one blinked. Some of the most amazing outfits ever. There was an “Event Parking” sign in front of our hotel, and I asked a gentleman, “What is the event?” He looked at me like I was stupid and said, “Halloween.” It is obviously a bigger deal than handing out candy at home. Then I had to see another ocean, so my golf group, where I am clearly the worst golfer, held our November event in Mexico. Thanks, Mike. A great group of guys and very little one can talk about, but fun nonetheless. But the industry is not having quite as much fun.
A Great Point. As someone who lives on his iPad, I saw this the other day and it spoke to me for many reasons. I often marvel at how I can travel, work and play more seamlessly than I could have imagined. “Sitting on a plane, using my iPad to connect to the plane’s Wi-Fi (delivered via Starlink satellite) to use ChatGPT to check earnings results released while I was in the air. Literally incomprehensible 30 years ago. Where are we gonna be in another 5 years?!?!” It summed up my experience and sense of wonder beautifully. Thank you, Dan Pickering.
Surprisingly Strong. I was looking at the E&P sector earnings and was surprised. I had already listened to several compression conference calls, and compression is one of the hottest subsectors of the OFS world and has been for a couple of years. What is surprising is that for the 20 years before that, compression didn’t know how to spell “special.” But as strong as compression margins can be, the E&P margins surprised me. It helps to understand relative popularity. Last year, the big four OFS companies saw EBITDA margins in the 22% - 23% range, explaining a lot about relative valuation. An example:
He is Right. Focus on the data. Demand for every form of energy continues to grow across every market. ADNOC CEO Dr. Sultan Al Jaber called for energy reinforcement, not replacement, urging industry leaders to tune out the noise and track the signal. With oil demand expected to stay above 100 million barrels per day beyond 2040, we are balancing cost discipline with capital investment to support global energy security. These statements are from the ADIPEC conference last week.
Going, Going, Gone. Consolidation is not limited to E&P, though the number of deals would make you think so. This week, Plains All American Pipeline, a pure-play crude oil stock, and one I currently own, announced the $1.3 billion acquisition of EPIC Pipeline.
Build Up. In case anyone still thinks the Strategic Petroleum Reserve is still low after being drained by President Biden, check the following chart.
Rode Hard. I have been traveling a great deal recently, but as we get into the holiday season, that will slow down. Why? Because on my most recent golf trip, I was told that I looked “rode hard and put away wet.” I’ve owned horses. It wasn’t a compliment. So my travel is going to slow down, just in case.
Restructurings Continue. Transocean and Nabors are two drilling contractors that became overextended in the last upcycle and are continuing to whittle down their debt levels. There is a school of thought that both companies should have entered bankruptcy, resetting the value of their assets and enabling them to generate a higher ROIC than companies emerging from restructuring often can. These two, however, decided to ride it out. Nabors sold Quail Oil Tools, which it had acquired in the Parker Drilling acquisition, to Superior. A move that helped. This week, Nabors priced $700 million in senior priority guaranteed notes due 2032, with the deal being upsized from the $550 million notes announced earlier the same day. The notes will bear interest at an annual rate of 7.625% and will be used to redeem 7.375% senior priority guaranteed notes due 2027. On a positive operating note, Nabors' Saudi JV has resumed operations for two suspended rigs. The company still carries about $1.9 billion in debt with a market cap of roughly $700 million.
No, Really? If you had said in 2008 that completions, both exploration and development, would be down 66%, yet global production would still reach record highs, they would have told you that you were a fool.
Moving North. Ovintiv has been a U.S. shale player until it decided to move north to Canada. The company is going to sell its Anadarko acreage to help pay for the $2.3 billion acquisition of Paramount Resources, a Montney Shale player. The Montney is a very prolific play, and the relative valuations made for a compelling argument. The Anadarko is popular, with Conoco selling $1.3 billion of acreage there earlier this year. One of Elliott Assets’ portfolio companies has invested more than $3 billion in the Anadarko in the last 18 months. In case Ovintiv doesn’t ring a bell, they were Encana until 2020 when they moved their headquarters to Denver. We expect more activity in both basins.
Bubblelicious. I am not going to spend a great deal of time this week on AI Data Centers, since there has been more written about them over the last six months than has been written about everything else in the world combined (myself included!). The stock market sold the AI stocks off last week, concerned about valuations. Now? Where have you been? The other issue is whether or not we are creating a bubble. The answer is…YES! That is just what we do. Boom and bust. But the other concern that is creeping up is all the cross-investments being made. I give you $100 to build me a wagon and you give me $100 for the material. $200 worth of commerce or just swapping $100 bills? Check out the chart below.
PPHB U.S. Energy Market Highlights:
Commodity Prices: WTI crude oil is currently $59.43 per barrel (down ~2.5% week-over-week) and natural gas is $4.57 per MMBtu (up 4.6% week-over-week).
Crude Oil Production: U.S. crude oil production is currently ~ 13.7 MM BOPD (up ~1.1% year-over-year).
Crude Oil Inventories: U.S. crude oil inventories increased by ~5.2 million barrels week-over-week vs. an estimated decrease of ~2.5 million barrels.
Frac Spread Count: There are currently 175 frac spreads operating in the U.S. (a decrease of 3 spreads week-over-week).
Onshore Drilling Rig Count: There are currently 525 drilling rigs operating in the U.S. (a decrease of 2 rig week-over-week).
More on the Beach. Sand. Atlas, the dominant sand company in the Permian Basin, made headlines when it opened its long-awaited conveyor to move sand more efficiently and effectively and over long distances for a conveyor. Now the company is expanding its power business. Why? The stock traded down 16% when they reported earnings. EBITDA was guided lower for 2026. Q4 guidance went from $45 million to $25 million. Management expressed caution on an activity recovery in 2026 but expects to take share as the low-cost provider of Permian frac sand. Thank goodness for power. Atlas plans to take delivery of 260 MW of power generation, 60 units, late next year and have 400 MW in the field in 2027. They are also working on 10 year contracts for their equipment. Synergy with sand? Not really, but if the market is paying for power, get power. They aren’t picking up the bill quite yet, the current core business has to improve too.
Power Rangers. Power is the buzz word of the year, and it will probably be for the next several years. Whether the data centers will use the grid and whether the grid can handle increases in demand, which even independent of data centers continues to be an issue. And what will it cost? The chart below shows what electricity costs have done recently, and it gives an indication of the future.
Pivot. Liberty was the first, or among the first. ProPetro was paying attention and was early too. Just water was not good enough for Aris, so they made the transition and then got bought. Halliburton was there early too but just developed an internal business. Atlas now has another focus besides the conveyor. Others have followed suit and more will. So do pigs fly now (do what)? Many are pivoting from pressure pumping, water, sand and several other traditional OFS subsectors and are embracing power generation. And it is paying off. We all know about the huge power needs of these AI hyper-scaled data centers. Old news. How to deliver it? Still up for grabs. Big natural gas turbines are backlogged for 18 to 24 months. The big three turbine makers have 75% of the market and are generally doubling capacity. So, a big ramp up in activity resulting in a shortage of equipment; all while manufacturers increase capacity. What could go wrong?
Power. More specifically, electricity. No one wants to pay much for traditional OFS businesses. But say “power for data centers”, and the money comes flying. Our industry's ability to pivot is being seen. And I grant you that there are long contracts being signed. But as soon as companies can get large and start focusing solely on natural gas powered turbines, the demand for “just anything” will dry up. We all know contracts have a 30 day out, and I don’t know if “take or pay” contracts are still around. It puts at risk the lower end generation that is the de jour today. If one generator is 5 megawatts, a minimum of 22 units are needed for its recently won 110 MW contract. Now, imagine how many are needed for the 1 GW first phase of the project. And then there is the redundancy factor. That are 2 or 3 large gas fired turbines. My concern is that in the long term these generation units are going to be marginalized in just a couple of years. I realize that there is a backlog right now, but I think of the level of supply as the three main players ramp up production. I wish all these companies success in their pivot. There is little question that the market is rewarding power with a much better multiple than traditional OFS. Beware of the pitfalls of entering a business that is very different. If you don’t have a cadre of mechanics, if you don’t normally repair equipment in remote locations, think twice.
What We Are Up Against. The top 25 anti-hydrocarbon, anti-nuclear groups in the U.S. have annual revenues of about $4.5 billion. Indiana University’s Lilly Family School of Philanthropy found that U.S. NGOs are now spending as much as $9.2 billion annually on “programs and activities that address climate change.” Of that sum, about “49% was disbursed for mitigation, 14% for adaptation and 15% was regranted to other organizations.” This is the battle we fight.
On the Block. One of the largest private offshore oil and gas companies appears to be on the block. LLOG Exploration, a Covington, Louisiana company, was founded in 1976 by Gerald Boelte who died last year and whose family still controls the company. $3 billion is the expected price, but you have to keep the LLOG name, headquarters and staff. A foreign buyer or a U.S. major? I go with the former.
Home on the Range. As an analyst, banker and hedge fund guy, I have spent a great deal of time in New York City. Home of the U.S. financial services business, right? Well, it seems the tables have turned. This is before the new mayor of the city starts making changes which will increase the flight of people, and capital to better areas. Such as Texas. Don’t agree? Check this out.
Spin Baby Spin. With all the excitement about AI data centers, there is the primary issue of power. This is why the data centers are signing up small 4MW power plants to try and run multiple gigawatt projects. Three companies have historically supplied the turbines needed for natural gas powered gas plants: GE Vernova, Siemens Energy and Mitsubishi Power. They supply about 75% percent of all projects under construction. The AI demand boom for turbines has led each of these companies to report extended delivery timelines. Mitsubishi states that turbines ordered today will not be delivered until 2028–2030. Siemens reports a record backlog of $148 billion. And GE Vernova has announced new turbines will not be available until late 2028 at the earliest. It is going to be a cat fight. But think of what 2030 will bring when all these turbines are generating power, relative to the 4MW units being supplied now? Great question.
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.
