The journal entries below are excerpted from recent installments of James Wicklund’s “Things I Learned…” newsletter.
Anyone Care? A central topic [at a recent industry luncheon] was how the OFS companies survive—with consolidation winning that category—and thrive—a goal that no one seemed to have an answer for. The rig companies spend millions of dollars on technologies and capabilities that allow them to work less than half the number of days they did before. A 21-day well is now a 5-day well. That is great if you are the oil company, but the rig operator just lost 75 percent of his revenues. Three-D seismic changed the world from both technical and economic perspectives, yet virtually all have gone broke. The E&P guys just kind of shuffled their feet and said that they have budgets to meet as well. As long as the job gets done as cheaply as possible. That is the mantra, and if you go under, well, that is your fault.
Directions. The oil and gas business continues to drift along. Power, midstream, anything energy infrastructure related are all doing well and in demand by investors in the broad sector. E&P can do well even in a lower oil price environment as long as it deploys technology that can bring down expenses at a faster rate. Oilfield service is once again the end of the whip. “Doing more with less” has become a common phrase but the oil and gas industry has adopted it with a vengeance. We can set new liquids product records even with a falling rig count and what had been considered “anemic” oil prices. The 15-year average oil price is $69, not adjusted for inflation. We are at the long-term average. Those who say that prices will move up and up have not been right for over a decade. Oil companies can take advantage of the spread between cost and price with OFS technology. The OFS companies, however, don’t normally get paid for the value they bring. That has been a true statement for most of the last 50 years…. Without performance-based contracts, the OFS companies should change course and apply their technologies directly. Halliburton, SLB, and the rest have been drilling wells for years but keeping it under wraps. Maybe we should either get paid for performance or compete using our technology.
Ready for a Bounce?? The stocks shown in this table were singled out [in December] as particularly weak performers [for 2024] and [it was noted that] the selloff was likely overdone and might be ready for a bounce. Their lips to God’s ears. The percentages shown represent their YTD stock price performance.
The IEA. In 2015, the IEA stated that “The golden age of coal in China seems to be over,” and then predicted global coal demand would fall to 5.5 billion tons by 2020. Two years later, it declared that “China remains a towering presence in coal markets, but our projections suggest that coal use peaked in 2013 and is set to decline by almost 15 percent over the period to 2040.” Updated in 2020, it was “Looking ahead to 2025, coal demand is expected to flatten.” And “Unless there are unforeseen developments that significantly boost coal demand in emerging Asian economies and China, it is likely that global coal demand peaked in 2013 at just over 8B tons.” Last year’s numbers will set a new all-time record for coal consumption at 8.77 billion tons. Thanks Robert Bryce. “Prediction is very difficult, especially if it’s about the future.” —Niels Bohr, physicist
Guest Editorial. “Why All Americans Should Support Repurposing and Plugging of Hydrocarbon Wells.” That was the title of an excellent paper by Phil Cruver. It eventually has to happen. “The U.S. faces significant environmental, economic and energy challenges in the 21st century. Among these is the pressing issue of idle hydrocarbon wells, millions of which lie abandoned or underutilized, emitting harmful gases and contributing to ecological degradation. However, these wells also present a tremendous opportunity. By repurposing and plugging them, we can mitigate pollution, fulfill financial obligations, and strengthen America’s energy future.”
Friend’s Observation. The problem with acceptance of nuclear power today isn’t Three Mile Island or anything else. It is just that most people today got their education on the industry from watching The Simpsons. Damn.
—Jim
Subscribe to Jim Wicklund’s full e-newsletter, “Things I Learned This Week at…,” distributed weekly via email, by signing up for free at this webpage: https://www.pphb.com/newsletters. Jim is Managing Director / Client Relations and Business Development for investment banking firm PPHB. Leveraging deep industry knowledge and experience, Houston-based 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.
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