October 10, 2025
Things I Learned This Week in Dallas
It is no longer 97 degrees every day. It has cooled down to a balmy 88 degrees and is heading south, eventually. My neighbors have been wondering why I’ve been picking up my newspaper this week, so I had to reintroduce myself to a few of them. But not to worry. Fishing in Idaho is the plan for the weekend. Next week brings the State Fair of Texas and Fletcher’s Corny Dogs. Earnings season begins, ceasefires emerge, and while oil prices are not exactly inspiring, we remain a resilient industry. One day, before I go, I would really like one small dose of good old days though.
We Are Good. U.S. oil production set another record at 13.6 million barrels per day in July, the latest reported month, even though the drilling rig count has been declining for more than a year and the DUCs (drilled but uncompleted wells) don’t seem to be a major factor. Earlier expectations that the U.S. would add another 1 million barrels over the next year have been tossed out the window. However, the rest of the world is expected to increase production by approximately 2.9 million barrels per day, while demand is expected to rise by only about 1.3 million barrels per day. Add that to the OPEC+ production increases of 547,000 bbl/d in September and another 137,000 bbl/d in October, and you have an oversupplied market. While I understand that OPEC+ production targets are overstated compared to actual production capacity, the discussion now centers on the degree of oversupply rather than whether it exists at all.
Not Helping. The EIA released its oil price forecasts, and the outlook isn’t encouraging. The agency lowered its previous prediction by about 25%, now expecting WTI to average around $49 per barrel next year. It is becoming increasingly difficult to remain optimistic about crude oil prices given the state of the global economy and our growing efficiency in optimizing production. WTI futures expect $63 oil prices for next year, making it hard to argue for much upside for now.
Light at the End of the Tunnel. It appears a cease fire and peace deal between Hamas and Israel is about to take place. This is considered Phase 1. Hostages will be freed and bodies returned, around 2,000 Palestinians will be released and Israel will withdraw its forces to a certain point. Aid to Gaza will be allowed. However, even the UN admits that about 85% of the aid sent to Gaza has been commandeered by Hamas. The continuing issues remain Hamas disarmament and the governance of Gaza. Keep your fingers crossed.
Targets. Diamondback and Permian Resources are the only pure-play public E&Ps in the Permian Basin. According to its CEO, Diamondback has arguably the highest-quality drilling inventory and lowest cost structure of any producer in the Permian. He said that if Diamondback were acquired, the winning bidder would “gain the best remaining inventory in North America” and the “longest duration in what we think is the best basin in the world.” The company’s market cap is around $44 billion, so there are very few companies that could afford such a move, but larger companies have been very active over the last few years, and no one believes the M&A wave is over.
Very Interesting Point. “Flush with billions in fresh capital, EnCap and NGP are finding that in today’s tight energy market, even the biggest private equity players are struggling to buy what’s left of the best oil and gas assets.” – Hart Energy
And Continuing M&A. “People familiar with the matter are at it again. Bloomberg reporting last night that SM Energy and Civitas Resources are considering a merger of equals in a combination that is understood to be structured without a premium. The strategic combination, if consummated, would create a significant mid-cap Permian-focused entity with a combined enterprise value of ~$14B, marking it as one of the largest US E&P deals of the year.” – Capital One.
Another AI Number. McKinsey estimates that global data center capacity demand will require up to $7 trillion in capital expenditures by 2030, with AI workloads accounting for a large portion (potentially 70% of the total demand by 2030). To meet this need, global data center capacity could more than triple by 2030, driven by a compound annual growth rate of about 22%. Approximately $5.2 trillion of that spending is for AI-processing data centers, while $1.5 trillion is for traditional IT applications.
The Winner is… Natural gas-related E&P equities continue to outperform. In the past week, gas-focused stocks were up 5%, with the natural gas forward 12-month strip up 6%. Over the past month, those same stocks gained 11%, compared to only a 1% increase for oil-weighted E7P stocks. The biggest natural gas movers during that period include CRK (+37%), EXE (+14%), CNX (+14%), RRC (+13%), EQT (+11%) and GPOR (+9%). Meanwhile, higher-liquids producers lagged, with AR up 4%, CTRA up 2% and INR down 4%.
For Background. According to analysts, the U.S. natural gas market remains approximately 1.6 Bcf/d undersupplied compared to the five-year average on a weather-adjusted basis. The U.S. gas production trailing seven-day average declined by about 0.7 Bcf/d week over week to about 108.1 Bcf/d.
More AI. OpenAI announced a multibillion-dollar deal with AMD that significantly boosted AMD’s stock price. OpenAI plans to acquire up to 6 gigawatts of AMD’s Instinct AI modules over several years, with one gigawatt as the initial target. But what does that mean? To put that in perspective, 6 gigawatts equals the peak power demand of the entire city of London. One gigawatt of AMD GPUs (graphic processing units) is now the standard measure used to describe the power required to run these GPU clusters. And it isn’t just about the chips themselves but also the entire supporting infrastructure, which includes facilities to house the equipment, cooling systems to manage the large amounts of heat generated, as well as the networking equipment, power distribution units, memory and storage. One gigawatt is needed to run more than 700,000 GPUs, meaning 6 gigawatts will power over 4 million of the GPUs shown below. The racks, cooling and power requirements all come at an additional cost. More to come on this topic.
For perspective, a single gigawatt is comparable to the output of a nuclear power plant.
Hedge Funding. Citadel, a hedge fund founded in 1990 by Ken Griffin, manages nearly $70 billion assets under management. Earlier this year, Citadel paid $1.2 billion to acquire Haynesville producer Paloma Natural Gas, so it is no surprise that the firm is now looking to acquire additional Haynesville acreage and production, this time from Comstock Resources. A Miami-based fund aggressively entering the E&P business is unsual, as many hedge funds have invested in E&P but few have spent billions building their own oil and gas company. Comstock hired Bank of America to market about 38,000 acres of non-core Haynesville properties that produce about 150 million cubic feet of natural gas per day across East Texas and Louisiana, and it looks like they may have a buyer. Comstock said that they aren’t in conversations with anyone regarding the potential sale, which is what most companies says right before they announce the buyer. It is rumored to be a $500 million package. Citadel has long been active in oil, gas and commodities trading, but this move marks a new strategic direction that began with the purchase of Paloma. Citadel Securities is also one of the founding members of the new Texas Stock Exchange, signaling that the firm is firmly planting both feet in oil and gas territory.
OPEC+ raised its production targets for next month, as shown in the chart below.
PPHB U.S. Energy Market Highlights:
Commodity Prices: WTI crude oil is currently $61.03 per barrel (up ~1.4% week-over-week) and natural gas is $4.24 per MMBtu (up ~23.1% week-over-week).
Crude Oil Production: U.S. crude oil production is currently ~13.6 MM BOPD (up ~1.7% year-over-year).
Crude Oil Inventories: U.S. crude oil inventories increased by ~3.8 million barrels week-over-week vs. an estimated increase of ~2.3 million barrels.
Frac Spread Count: There are currently 179 frac spreads operating in the U.S. (no change in spreads week-over-week).
Onshore Drilling Rig Count: There are currently 531 drilling rigs operating in the U.S. (a decrease of 1 rig week-over-week).
Recycling. SpaceX is now recovering its booster rocket and reusing them. Not from the ocean, but rather from its original launchpad. Reusing capital equipment makes significant economic sense in any industry, but when you look at the video and the chart below, the magnitude of the effort can be fully appreciated. While NASA is far from being replaced, SpaceX is now the delivery contractor for the space station and satellite launches. Their Houston location has been rapidly growing and is busier than ever. Landing on the Moon and Mars is a complex task and both NASA and SpaceX are working together well.
SpaceX's Starship Launch and Recovery of Super Heavy Booster Rocket.
Car Loans Crash. We have written about the problems in sub-prime auto lending, with big companies as well as auto suppliers going bankrupt. To put this into perspective, see the chart below. Defaults are mounting at a rapid pace.
Earnings Season Question. It is usually on the Q3 conference calls that the companies begin to look forward into the next year, at least as far as investors go. As a result, we’re all primed with the expectations for both E&P and oilfield services in 2026. For the last 30 years I’ve had people tell me they don’t have a crystal ball. I would respond that none of us do, but that doesn’t alleviate us from the responsibility of making plans. The plans that you put into motion have to be based on some expectations. Most years like this one, the E&P companies defer making any projections until well into the following year, capitalizing on the uncertainty of commodity prices. Of course, that uncertainty always exists. With the recent announcements of oil price projections, it’s very difficult to be wildly optimistic for 2026. But one shop with a good analyst had some comments and shared his thoughts on Q3 earnings for the OFS sector:
Movers and Shakers: FTI and RIG move up in our forced ranking; SLB and HAL down.
FTI orders for LNG facilities continue to march up and LNG has momentum, as does subsea production equipment in deepwater.
RIG did a dilutive equity offering, but the interest savings pushes it to neutral which will have a positive impact on their balance sheet and deepwater momentum.
SLB numbers may be below consensus, and people are focusing on their digital businesses, which they have been growing larger for the past few years.
HAL is now our lowest ranked overweight stock. While pressure pumping stocks have rallied a bit lately, there is little panache in HAL’s story right now.
Tough Road Now. I’ll be honest, I never understood the economics behind the direct air capture efforts. OXY has been the most visible, though they have also said that without government support, the projects probably wouldn’t go ahead. The amount of energy it takes to suck in enough atmosphere and strip out a minuscule portion of CO2 is simply too expensive. I’m not alone, or at least not in the eyes of the government now. One direct air capture project in Louisiana, Heirloom, is seeing their funding cut. Climworks is saying it’s still pursuing projects in Canada, the UK and Saudi, but with less government support. Even Exxon got $300 million cut from capture projects they were doing. It’s not just direct air capture. Hydrogen seems to be on the block as well. Hydrogen embrittlement has been a problem in our industry for decades. As a result, to move and store hydrogen, piping infrastructure that we currently use for natural gas would have to be replaced by different metallurgy to ensure safety. The Biden administration was setting up several regional hydrogen hubs, but the EPA decided that hydrogen would not be considered for a credit in the power plant emissions rules passed last year, which frankly put a huge dent in the future demand for hydrogen. Every new piece of pipe, valve, meter or any other equipment that comes into contact with hydrogen has to be replaced. The cost would be astronomical, but now demand looks to be coming down. So what is the government to do? The Energy Department now says they are cutting $24 billion, covering over 600 different projects tied primarily to direct air capture and hydrogen. I’m always a fan of free money, but I’ve yet to actually see where the “free” comes from. I congratulate Oxy for doing pioneering technology development, but projects that rely on government subsidies are a problem as being seen now. A change in administration can mean a change in funding. And for investment groups, putting billions of dollars at risk on these projects with this level of uncertainty poses a real issue. And when that funding goes away, that real issue hits home. We’re not going to discuss wind and solar in this particular piece. They are getting to the point of being almost standalone economically, especially solar. That means economic without subsidies. But the direct air capture and the billion spent on each hydrogen hub made little sense to many.
Now What? Chart Industries shareholders approved the $13.6 billion acquisition by Baker Hughes. Now the question is what will Baker do with its Oilfield Service businesses, which do not seem to fit well into the continuing strategy of the company. Especially when considering the drag on valuation multiples it has on its stock. Anti-trust concerns exist on the bigger OFS companies, especially after the Halliburton/Baker fiasco. Adnoc in Abu Dhabi has potential, especially since they have been very aggressive at M&A in the sector. They can IPO the business, but the same low multiple issue remains. Most likely is that enterprising OFS companies scour Baker’s OFS businesses to figure out what they would like to own, and approach Baker on that basis. Who knows. They may keep it, but I will take the under on that bet. So, if any OFS companies have not already started working on what pieces they would like, get cracking.
Debasing. Like oil, gold is denominated globally in U.S. dollars. As a result, when the dollar drops, gold rises and vice versa. The current move into gold is seen as a debasement trade on the U.S. dollar. $36 trillion in debt doesn’t inspire confidence in people looking to “buy” dollars. The emergence of the BRICS and their effort to undermine the strength of the U.S. economy globally doesn’t help. So, it’s an inverse correlation. And there is no real correlation between gold and oil prices, in part because gold can be re-shaped but sticks around whereas oil is consumed and is dependent more on the global supply and demand rather than reliance on a currency.
Found money. In the UK the office for national statistics, the group that provides the data used by the government seems to have made a mistake. Inaccurate figures on receipts from the tax agency were the issue. The UK found $4 billion it didn’t know it had. And at a time when any financial support in the UK is sorely needed. We’ve written about how the U.S. may very well need to bail out both France and the UK in the next few years because of their financial issues. This discovery puts the UK ahead of the race to avoid restructuring, leaving France to its own devices. I’m going to go check all my suit pockets for my windfall.
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.
