Energy Prospectus

From HFI Research 5-15-2025

It's time for a comprehensive update on what our latest views are on oil, natural gas, and energy equities. It's an appropriate time to do this given that there are some new developments we are seeing that have slightly altered the way we are thinking about things.

But some big themes in the energy landscape aren't changing:

1. Natural gas will be the biggest beneficiary of the recent oil price downturn. In the near term, we expect prices to pull back further, but we expect summer natural gas prices to meaningfully move higher. < I agree, the stage is set for a mid-Q3 "Bidding War" for supply in the futures market like we saw in August 2022 when HH NYMEX futures spiked to over $9.00/MMBtu. A heat wave in June that causes electricity demand to spike is all that's needed.

2. US shale oil production is slowing, and the incoming decline will be larger than the consensus forecast. Today we have the opposite of "Drill Baby Drill". When declining U.S. oil production is confirmed, it will be a significant Paradigm Shift.

3. Global oil demand will continue to grow in the years to come, so any supply losses we see in the next 12-24 months will only sow the seeds for the inevitable oil bull market. < An Absolute Truth is "Low oil prices lead to lower supply, which leads to higher oil prices."

With that said, here is the action/game plan.

Energy Equities
In recent weeks, Jon has done extensive research on offshore drillers, and he concludes that if our conclusion is right about the incoming oil bull market, offshore drillers are life-changing opportunities.

Transocean Ltd. (RIG) has officially commenced operations for British energy major BP p.l.c. BP in the Gulf of America (formerly the U.S. Gulf of Mexico). This milestone marks the beginning of a significant ultra-deepwater drilling project to further tap into the region’s hydrocarbon potential.

Helmerich & Payne, Inc. (NYSE: HP) is also a first class drilling company.

HP pays a nice dividend of 5.5% or $1.00 per share.
Since early February, the stock has suffered a 43% drop.

When compared to OIH which is currently down 18% over the same period, HP is seriously undervalued. Technically it still looks weak. The stock price has returned to mid 2020 COVID lows, down about 70% from 2022 highs.

SLB and HAL both look much stronger.

I suspect the acquisition of KCA Deutag for $2B in Jan and a related credit rating downgrade are scaring folks away. Once drilling perks up, I expect HP to make a strong comeback.

Looking for the bottom.

Kevin Gardiner

HP has world class rigs. 49 years ago, I started working at Arthur Anderson and the first company I worked on was HP. I was on the tax staff, and I prepared the tax returns for three members on the founding family, and I worked on the HP audit.