Pickering Prognosticates 2025 Political Winds and Shale M&A

As unofficial oracle of oil and soothsayer of shale, Dan Pickering bought the boom as a co-founder of Tudor, Pickering, Holt & Co. in 2004, tracking and investing in the evolution of the shale revolution.

Now, as the founder and chief investment officer of the Pickering Energy Partners financial services firm, he’s focused on the maturing next era of the domestic oil and gas boom and everything that comes with it.

But, apart from the lateral lengths and frac intensity, the industry’s future is just as tied to U.S. policy, global geopolitical tensions and the rapid wave of industry consolidation.

Before and during Hart Energy’s DUG Executive Oil Conference in Midland, Pickering chatted with Oil and Gas Investor’s Editor-in-Chief Deon Daugherty and Executive Editor-at-Large Nissa Darbonne about dealmaking, the upcoming Trump administration, global pricing and political trends.

(These interviews were edited for clarity and length)

Deon Daugherty: How might the new Trump administration shape energy policy, given what we know now?

Dan Pickering: Energy has a broad definition, right? We’re getting some hints already for … what’s overarching beyond probably less regulation and more access for the traditional energy companies. That probably translates to things like LNG. The LNG permit halt that is in place probably gets undone, right? We probably see LNG stuff move ahead, easier-to-do things like pipelines and new projects. I think that better access and faster permit approvals are going to be two obvious things in the oil and gas space.

It’s probably tougher in the decarbonization space. They’ve kind of floated this concept that they were going to remove the EV tax credit. They didn’t say anything about wind and solar production tax credits or investment tax credits. Maybe wind and solar are a little safer. They didn’t say anything about carbon capture. Maybe it’s a little safer. I think what you’re going to see is the subsidies to green energy are going to be tougher.

The other question that is lurking is what happens with the FTC (Federal Trade Commission), and does that change how dealmaking in the space is approached? It would probably make it easier for larger transactions to happen. All we saw from Exxon [Mobil]-Pioneer [Natural Resources] was [former Pioneer CEO] Scott Sheffield couldn’t go on the board. All we saw from Hess [Corp.]-Chevron was [Hess CEO] John Hess couldn’t go on the board. But, does a friendlier FTC make for really big deals? Chevron for Conoco[Phillips]? Exxon for EOG [Resources]? I’m just throwing those out as examples of big transactions. Does that make them more palatable or less risky than they would’ve been under a different administration?

DD: Second requests did come more frequently than on pre-Biden administration E&P deals.

DP: I think Trump wants to be friendly to business. I do think we’re going to have a kind of a new FTC. Remember, a lot of the work gets done by staffers who are there regardless of the political climate. I think things might go a little faster, and they might be a little bit more lenient.

DD: Are there deals that were on hold, waiting to see what happened in the 2024 presidential election?

DP: Well, it’s probably not a coincidence that we didn’t see really any meaningful announcements in the oil patch for the six or eight weeks in front of the election. We saw two in the 10 days after (Coterra Energy acquiring Franklin Mountain Energy and Avant Natural Resources; Ovintiv buying Montney Shale assets from Paramount Resources and selling its Uinta Basin position to FourPoint Resources). I think it does generally give some confidence to the industry. It’s not just the Trump administration; it was a pretty sweeping process. Republicans have the House, the Senate and the [White House]. I think that it provides more comfort to the industry that there’s a decent chance of favorable treatment or, at a minimum, not negative treatment. I think that builds confidence.

Remember, a bunch of folks have just completed things or are still in the process of completing things. The election results probably give those companies more confidence to take another bite at the apple once they’ve finished integrating the deals that they’ve done in the past year. I think that it’s going to be easier to transact in 2025 than it might’ve been in 2024.

Nissa Darbonne: Permian inventory remains a concern. Where are we with Permian Basin “next” inventory? What do we have and where are we going?

DP: It’s kind of “the question” right now. So, if you look, I think we’ve seen a ton of M&A over the last two years, and I think there are three or four factors. Inventory, first and foremost; size and scale—companies want to be bigger; and then value: things are pretty inexpensive. The real driver here [is] inventory, though. Folks are getting concerned that they might not have enough kind of core acreage, and we wouldn’t see the acquisitions and the M&A if that weren’t the case, right? People are speaking with their actions. Talk to folks and the view is, at $70/bbl oil, you’ve got three to seven years worth of inventory in the basin.

I think the companies are trying to shore up and make sure they’re above average, not below average. That’s driven a lot of activity. I think the basin is maturing. We’ve got a lot of wells left to drill. There may be an upward creep of costs, which is probably going to translate to an upward creep in pricing over time. But inventory, I think, is on the mind of every energy executive these days out in the Permian.

ND: Let’s just take the Wolfcamp, for example. Have we really settled in on what’s the optimal spacing and numbers of laterals in different formations? Could we probably put a lot more laterals in the Wolfcamp in each drilling spacing unit?

DP: I think the industry’s continuing to learn and get more efficient. It kind of amazes me how effective the industry’s been. The rig count has trended lower and production has trended higher, so we’re getting better every day. That answer, the optimum answer, is probably changing on an ongoing basis. At this stage of maturity for an existing [target] formation like the Wolfcamp, there are pretty good rules of thumb on what it’s going to take. There are more wells to drill there at higher prices. It’s all a function of price. I think that we’re not going to downspace in some of these mature benches unless you’ve got triple-digit oil prices, and I think that’s still a ways away, sustainably. I think folks have settled in on a pretty good recipe, plus or minus 10%. The error bars aren’t big right now.

ND: For the natural gas basins—particularly the Haynesville and Appalachia—clearly, they’re not running out of inventory. What are you seeing in terms of potential for M&A?

DP: For gas, step back and do the big picture. There’s a lot more oil M&A than gas M&A in the last two or three years. Folks view oil prices as pretty much in the zone, $70/bbl plus or minus. Gas has this upward sloping price curve, $2.75/MMBtu now, $3.75 in the future. Who wants to be the seller today? I think that, as we get closer to turning on these new LNG projects, we’ll see a more normal and flattish gas curve. When we do, we’ll see more M&A.

The Haynesville is the hottest spot in the country because it’s so close to all of the export capacity that’s coming online. I think we’ll see a lot of drilling in the Haynesville as the LNG projects start to turn on. Then, you go to Appalachia. Fabulous economics up there, [but] capacity-constrained in terms of getting gas out of the basin. Maybe the new administration’s going to make it easier to [transport] gas out of the Marcellus. But the Haynesville continues to be, I think, a focus area for the industry just because of access to those waterborne export [facilities].

DD: Speaking of exports, there’s a lot of speculation about what may or may not happen with regard to Trump’s tariff threats. These might end up as negotiating tactics, but there could be trade wars and trickle-down effects and problems in the industry. What do you think?

DP: Tariffs probably translate to a stronger dollar. Historically, oil has done better in weaker dollar environments. It makes oil more expensive globally when the dollar’s strong and oil is priced in dollars. There are two ways that it might have an impact on the demand side. One is a stronger dollar, and the other is just on China. Generally, they’re the second-biggest consumer in the world. Their consumption has been at much slower growth than it had been historically. If they do tariffs and it hurts China, then that’s not great news for oil demand. The ripple-through effects are really around demand implications.

DD: China and all of Asia, in general, is the largest demand center for LNG, but how might tariffs affect Asia’s interest in buying U.S. LNG when other places can provide it, too?

DP: What we’ve seen is that energy access has been more important than most other geopolitical issues. Almost everybody from around the globe has been more interested in relatively inexpensive oil prices as opposed to punishing bad actors. Russia’s production is making its way to the market, no problem. Iran has produced a lot of barrels, even though they’re bad guys. Nobody’s bombing oil infrastructure in the Middle East. I bring that up to say that I think the economic importance of energy sort of transcends some of this potential trade war stuff. I would say the Asians are going to be no less interested in our LNG than with or without tariffs because access to energy continues to be really important.

DD: Do U.S. producers even want to support a “drill, baby, drill” kind of policy when it can negatively impact prices?

DP: I’m glad you asked that. This is the area where I’m very skeptical that “drill, baby, drill” will get any sort of traction with the industry. It wasn’t those words, but Biden asked for that when oil was in the $100s (per barrel). And the industry didn’t respond. If you step forward to today, the supply-demand dynamics are more tenuous than they were a few years ago. OPEC has 3 million-plus barrels a day off the market, and investors have demanded capital discipline from the oil and gas companies. To see them accelerate and shoot themselves in the foot with additional supply and potentially lower prices, just because somebody says, “drill, baby drill,” I’m skeptical of that. I think we’re going to have a more conducive environment to deploy the capital, but I don’t think it’s going to be “drill, baby drill.”

DD: What do you make of the energy stock rally immediately after the election?

DP: I think that you had two very different reactions. You had oil and gas companies outperform and you had clean energy companies underperform. I think it’s directly reflective of the fact that, on the margin, the oil and gas business got better, and the clean energy business got worse. Fewer subsidies, harder to do business in clean energy. And less interference, fewer regulations and better access for oil and gas. I think it was reflective of the sort of directional shift in both of the businesses. At the same time, I think it’s relatively transitory. The fact that it was such a resounding message from the voters, I think, added fuel to any “Trump trade,” if you will, in both directions. It’s like, “Holy cow, the mandate is strong.” If you thought there was a 50% chance of something happening, now it has to be 60% or 70%. I think the market rally was a reflection of the improved prospects for oil and gas and, on the margin, the tougher prospects for clean energy. But I don’t think the election was transformational. I think it was incremental, not transformational.

DD: There’s been a general slowdown in the momentum of the ESG movement. How does that factor in with the election outcome?

DP: There are really two pieces to the ESG movement. There’s the social and governance piece, and then you have the decarbonization piece, and they’ve kind of been linked together, but they should be different. I think that we moved to peak wokeness and moved away from that. The election probably just reinforces that. As it relates to the industry, I think the industry has done a pretty good job of making smart, measured, appropriate investments on the environmental side. So, I don’t see this making a huge difference other than it goes back to maybe some of the regulations that might’ve been imposed in a Harris administration that won’t be imposed in a Trump administration.

DD: Before we wrap up, what are we overlooking?

DP: The biggest issues that I think the energy patch is going to face in 2025 and 2026? It’s not going to be who’s president. It is going to be supply and demand. Is the economy OK? Does China pick back up? What does OPEC try to do? There’s zero room for more barrels from OPEC, in my opinion. While we’re all thinking about what the implications of energy policy might be, the supply-and-demand dynamic is really the one we’ve got to keep our eye on. I think OPEC is super important on the oil side.

And how does [U.S.] foreign policy wind up influencing the energy market? Trump has the strongest foreign policy hand as it relates to energy that any president has had in 50 years. We’re producing so much oil and gas that we’re not beholden to the Middle East or Saudi Arabia or anyone. If Iranian sanctions come on the table, we can manage that better than almost anybody. Let’s keep our eye on how that translates to what happens in the Middle East, what happens with Russia [and] Ukraine, etc. The other component of this election is, how does foreign policy get adjusted? We have one of the three biggest producers in the world, Russia, that’s in the middle of a war that maybe something happens with. We have Iran in the middle of this conflict in the Middle East and with nuclear aspirations. What do we do there? Because that will matter to the oil and gas markets, also.

DD: I’m glad you brought up policy. Trump has a better relationship than most it would seem with people like Vladimir Putin and Saudi Crown Prince Mohammed bin Salman (MBS). Will he have any sort of influence on OPEC+?

DP: Look, the president of the United States is a damn powerful position. And, you’re right, Trump isn’t afraid to pick up the phone and talk to these folks. Could we see a situation where we indicate sanctions on Iran and 2 [million] or 3 million of their barrels come off the market? And we ask and get from Saudi and OPEC offsetting volumes? Nobody, no elected official wants to see the equivalent of $5 a gallon gasoline in the U.S. You know what I mean? Biden didn’t want to see it. Trump doesn’t want to see it. You’ve heard him say “drill, baby drill.” Why? Because he likes low oil prices, which means consumers get cheap gasoline prices. I think that wielding that influence again, with a pretty strong energy hand in his back pocket, does he have the ability to get Russia and Ukraine to calm down? If he does, then, Russia’s ability to be in the market more freely, does that bring oil prices down a little bit? Certainly might. I think it matters. We just don’t know how yet.