Crystal Ball. Morgan Stanley put out their overview [late November] of the U.S. Oil and Natural Gas outlook in reference to 2026 intentions and activities. Some of their comments:
- Preliminary 2026 messaging from U.S. E&Ps points to flat oil production for –2 percent lower spending year over year, reflecting further efficiency gains, while majors continue to plan for growth.
- Alongside 3Q results, many E&Ps raised ’25 production guidance slightly with the same or lower capex, supported by efficiency gains.
- Our ’26 FCF forecasts are rising ~2 percent on avg (at flat commodities prices). Oil E&Ps offer a median FCF yield of 10 percent in ’26 ($60 WTI), U.S. gas E&Ps ~11 percent ($4.20 Henry Hub).
- Intrinsically, oil E&Ps reflect ~$58 long-run WTI, near the 12-month strip. Gas stocks are pricing in ~$3.80 Henry Hub, 8 percent below the 12-month forward price.
Surprisingly Strong. I was looking at the E&P sector’s 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 percent to 23 percent range, explaining a lot about relative valuation. (See accompanying chart.)
Nov. 14:
Midland. [Spending time at] Punta Mita and enjoying golf with friends was excellent. It is amazing how long shrimp tacos and margaritas can go without getting old. But this week was a huge dietary switch. From Mexican seafood to West Texas BBQ. Midland? BBQ? Yes, it was the Daniel Energy Annual Midland oil and gas industry BBQ, and it was nothing short of amazing. Just a little gathering. Over 100 companies competed in the BBQ contest. The best job being the judges of the wild game and cocktails competition. I didn’t officially judge, but… [Meanwhile], 6,200 people. John, I hope this is accurate or close. Well done. To say there was a crowd is a severe understatement. And there were many more field people than white collar management which added a different dimension to the event. Thanks John and Team. Fabulous job. Shameless Plug: My firm PPHB sponsored the program for the BBQ and Merit Advisors supplied the lanyards. We had seven PPHB personnel at the event. Staying current and ahead.
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. (See related chart.)
—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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