Energy Equipment & Services
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CVX $157
GEV $382 20 Jan 2025 |
Chevron and GE Vernova will team up to power AI data centers
There has been much talk recently about the incredible amount of power which will be needed to fuel the AI revolution; specifically, electricity for the enormous data centers slated to be built. Penn member Chevron (CVX $157) has just announced it is teaming up with GE Vernova (GEV $382)—the power generation unit spun off from General Electric—to help feed these plants with natural gas-fueled electricity. Engine No. 1, a private investment house which "builds and invests in companies that are driving reindustrialization of the United States," is also a partner in the enterprise. The initial objective of the undertaking is lofty: To deliver 4 gigawatts of electricity for data centers by the end of 2027. To put that in perspective, this level of energy would power around 3.5 million homes (or nearly four time-traveling DeLoreans from "Back to the Future"). Chevron, a $300 billion energy conglomerate, will provide most of the gas for the plants, while GE Vernova will build the powerful turbines needed to convert this liquid gas into electricity. This novel approach places these power plants adjacent to the data centers, negating the need to connect to nearby electricity grids (which could drain needed power from local homes and businesses). While specific locations have yet to be announced, the group expects the first "power foundries" to be built in the Southeast, Midwest, and western parts of the US. As for emissions, newer technologies will be deployed to capture the carbon and store it underground. This approach is different—and arguably easier to complete—than the micro nuclear reactor approach many of the big AI tech titans have been pursuing. We cannot think of a more powerful combination than these two great American companies. Investment potential? Chevron continues to be one of our strongest-conviction stocks, and the shares remain in the buy range. We have wanted to pull the trigger on GE Vernova since its massive DeepSeek-hastened price drop (from $420 to $327 literally overnight), but the 77 multiple still seems a bit rich. That said, the shares have spiked back to $382 since. |
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HAL
SLB MDR |
With oil prices back up to $70/barrel, why is Halliburton falling? (23 Jul 2018) Halliburton (HAL $38-$41-$58) is the world's second-largest oilfield services provider. Crude is sitting near $70 per barrel, up from $40 per barrel last year. So why did shares of the company plummet 8% in early trading this week? It has everything to do with takeaway capacity: the extent to which oil can be removed from a region by pipeline, rail, and truck. For HAL, Q2 numbers looked solid: revenue rose 24% from the same quarter last year (to $6.15B), and net income rose to $511 million (from $28M in Q2 of 2017, though the company took a $262M charge in that quarter). But CEO Jeff Miller warned that the restricted takeaway capacity in the company's lucrative Marcellus shale and Permian basins would have a big impact on profits going forward. There is simply not enough pipeline capacity to remove the oil from the area. Additionally, chief competitor Schlumberger (SLB $61-$66-$80) is moving additional resources into the Permian region. Who do we like in the industry? Small-cap ($3B market cap) player McDermott International (MDR $16-$17-$27), which designs, builds, and installs fixed and floating rate facilities, pipelines, and subsea systems for oil and gas companies. MDR has a p/e ratio of 9 and a free cash flow of $50 million TTM.
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SDRL
XOM TOT |
Seadrill, once an oil and gas juggernaut, will file for bankruptcy
(24 Aug 2017) In 2013, Seadrill (SDRL $0.15-$0.19-$5) was a vibrant, $22 billion supplier to the offshore drilling industry. Today, with a market cap of $94 million, the company is seeking bankruptcy protection, with shares trading down 99% from their highs. Most disconcerting is that the company is still such an active player, with 68 rigs and drillships being used by customers such as Exxon Mobil (XOM) and Total (TOT). The company has about $10 billion in debt it needs to restructure, and it will do so if the bankruptcy approves its Chapter 11 reorganization. It will continue to operate throughout the proceedings, but this case is a microcosm of how rapidly the external environment can change. Always be prepared for the unexpected by using proper asset allocation and sector weightings. Don’t get caught up in the media hype or the so-called “new paradigm” baloney. |
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ATW
ESV |
(30 May 2017) Atwood Oceanics spikes 28% on the open on takeover news. Well, that's one way to make your stock price grow. A few years ago, when oil was hovering north of $100 per barrel, offshore drilling contractor Atwood Oceanics (ATW $6-$10-$15) was selling for over $50 per share. After a drawn-out decline in oil prices and much consolidation in the industry, ATW is a battered, $829 million small-cap. After being thrown a lifeline by competitor Ensco plc (ESV $7-$7-$12) however, in the form of a takeover bid, Atwood spiked 28% Tuesday morning. Under the all-stock deal, the combined company would be valued at $6.9 billion, and Atwood shareholders would receive 1.6 shares of Ensco, valued at $10.72 per Atwood share. Ensco, headquartered in London, has a fleet of 41 offshore jackup rigs, 8 drillships, and 12 semisubmersible drilling rigs, making it one of the world's largest dedicated offshore and well drilling companies. (Photo: ENSCO 5005 semisubmersible offshore drilling rig)
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RIG
BHI |
(20 Mar 2017) Transocean to sell off 15 rigs to raise capital. Oil and gas drilling player Transocean (RIG $8-$12-$17) announced that it will sell its entire fleet of jack-up rigs for $1.35 billion—not a bad haul for a $4.5 billion company. Here's the detective work: is this a strategic move to crystallize focus, or is it a move of desperation? About half of the world's global rig fleet is now idle, hopefully the end of a long decline that began with oil prices well above $100 back in 2008. RIG, which will sell the equipment to a Norwegian oil services group, currently controls a fleet of around 60 rigs. Twenty-seven of those are in cold stack (think of the aircraft "boneyard" at Davis Monthan AFB in Tucson), four are idle, and the 15 jack-ups will be sold, leaving only about 20 rigs among the 110 or so currently in use (5 of the jack-ups being sold are still under construction). We wouldn't touch the company right now. Baker Hughes (BHI $38-$60-$69) looks like a stronger bet, and is on our radar screen for a possible buy in the Intrepid. Members will be updated if we purchase.
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