The Offshore Oil & Gas Industry: A Structural Change 20 Years in the Making

“Bad luck, it floats around. I was in the path of the tornado, I just did not expect it to last this long” Andy Dufresne, Shawshank Redemption, 1994

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Throughout my investment career I have encountered a myriad of FO’s and HNWI with the majority running multiple businesses and some having sold businesses and are in a phase where they simply want to enjoy the fruits of their labor by traveling and enjoying their families.

It goes without saying that the last thing many of these people want to do is read 10K’s and deal with studying the dynamics of idiosyncratic investment opportunities. This is where we step in. Our firm takes the need for individual company research off your plate entirely.

The service we provide is predicated on transferring the conviction we have earned through laborious bottoms up research to you, the client. Through that process clients will receive written investment thesis’s, maintenance research on a go forward basis on all ideas, periodic letters on where and how we are thinking about current market opportunities, and quarterly group calls where we discuss our current book and answer any/all client questions.

As a part of the product, we are also going to be inviting clients to join us annually for an investment conference that we attend together, paid for as a piece of the annual compensation to the firm.

An example of a conference we would attend is the Graham Conference in Toronto Canada.

Below you will find an example blurb of one of our foundations letters that went out to clients last month.

If this is a service you are interesting in learning more about, please email us at info.willettinvestementpartners@gmail.com

Conviction is not something you gain and have it is built and then earned. Conviction on an investment idea comes from understanding the critical drivers of the investment case that over shadow short term market fluctuations. Cyclical businesses in recovery do not do so in a straight line hence Tidewaters run from $120 back to $38 in a matter of months while fundamentals remained strong. While we can afford to wait for the Tidewater thirty cent dollar to turn into a dollar, we are not sure that it will take that long to manifest. Twelve-twenty four month lags from Final Investment Decisions (FID) point to increased activity in the back half of this year and into 2027.

In addition, this is not a story we believe ends simply at replacement cost economics. We think that Tidewater and the OSV supply base will remain structurally advantaged in terms of day rate/utilization for a long time to come. While free cash flow and earnings are not a linear story, cumulatively we think they will far exceed to current market cap of the firm and more importantly, this management team will do interesting things with the cash to create more value.

Tidewater 1-Pager

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American Coastal Insurance (ACIC) continues to impress year after year. While the market reacted poorly to the report, we were pleased with the numbers and will discuss these briefly.

Rather than copy and paste numbers anyone can read on their own, I would rather spend time giving you our take on the current earnings, the opportunity we see in the business longer term.

To date we have been wrong on the name in terms of stock price appreciation but have been directionally correct in the operations of the business and the financial results the business has churned out.

By the Numbers

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Tidewater

Tidewater reported strong Q1 2026 earnings and described a constructive market for offshore activity in the coming 1-3 years. In 2025 the business had some one time cash inflows from their delinquent payments from PEMEX in Mexico which they described in Q1 2025 as follows:

“Our primary customer in Mexico has an aggregate outstanding receivable balance of $35.1 million, of which $25.5 million is over 90 days past due, and which represents approximately 11.2% of our total trade and other receivables balance at March 31, 2025. The amounts are not in dispute but we have not had a payment from this customer since May 2024. We have not historically had, and we do not expect to have any material write-offs due to the collectability of these receivables.”.

What is far more interesting to us than the numbers they reported is the momentum toward an inflection in activity in the coming 18-24 months. It is clear looking through the back logs of companies like Technip or Subsea7 that activity is in the pipeline and is simply slow to move as these are multiyear, highly capital-intensive projects.

Rather than bore you with numbers that you can very easily read on your own there are a few notes I would hit on that are value add from my Q/A with the business post the earnings call.

Edge in Continued M&A: On the call Kneen discussed that having established a presence in every major market M&A would be more focused on establishing an edge or leveraging an edge within an existing market that Tidewater serves. We think this is interesting and opens the door for Tidewater to focus on their current markets and do deals based on a valuation first approach. They are in no rush to add vessels and really do think about acquiring vessels like investors with valuation front of mind.

Contract Duration: Tidewater operates in a fundamentally different way than its European/Greek counter parts. Tidewater focuses on maximum earnings power for its vessels and shareholders while many of the European players want long back log to be able to sell the vessel at some point in the future. This is a differentiator for Tidewater and shows up in how they contract vessels. OSV’s benefit from increasing offshore activity but as the market tightens they enjoy a shorter contract duration than their offshore drilling counterparties and can rachet up day rates by rolling off contracts quick and repricing. We think Tidewater is unlikely to tie up vessels on a 3-5 year basis until they have clear visibility on earning their cost of capital which is far from where we are at today.

Driller Activity: There have has been a meaningful uptick in contracting activity for UDWs both in existing extensions and new work. Tidewater is essentially agnostic to what day rate the drillers are getting and for this business what matters is the vessels are contracted and working. Below is a snap shot of the current UDW market out to 2031.

Size of Fleet: At our meeting with the company in Houston last fall we discussed the onshore infrastructure in place and how many vessels Tidewater could reasonably operate. The number thrown out was roughly 300 and anything above that would cause Tidewater to begin competing with its own vessels for contracts, a phenomenon they would prefer to avoid. We still think Harvey Gulf would be an attractive edition to the fleet.

Hornbeck & Helix Merger: We think the Helix acquisition of Hornbeck is a welcome thing that helps Tidewater in its efforts to role the industry up further. It is unclear how this might change Hornbecks competitive position give the difference in regional scale vs world scale that is fundamentally different in Hornbeck vs Helix. We estimate the transaction assumed roughly $28M per vessel for Hornbeck’s fleet which is an indication of the markets slow recognition that these values are worth significantly more their public market prices indicate.

New Build Commentary: Day rates remain meaningfully below new build incentives and as such, under 5% of the global fleet is on order and that is a gross figure, meaning, this does not account for the annual attrition older vessels are experiencing. In 2026 there are an expected 36 PSVs and 32 small ATHS being delivered and shipyard pricing is beginning to grind higher. I was estimated in 2025 that large PSVs and AHTS increased by 21% for new build pricing.

Cashflow/PEMEX Impact: Free cash flow was $34M for the quarter which is a function of the typically seasonality of the firm on top of some working capital releases in 2025 that did not recur this quarter. PEMEM in Mexico began repaying Tidewater in October of 2025 (the first time since summer 2024) in the amount of $7.4M but for the full year the PEMEX balance declined by roughly $40M according to management and substantiated by the “trade and other receivables” line on the cash flow statement.

“cash collections related to our largest customer in Mexico, whose overall receivable balance decreased by more than $40,000,000" - Tidewater CFO Q42025 Commentary

Conclusion: To wrap we are very happy with the way Tidewater is performing and think the next 18-24 months will be very good for all things offshore services. Tightness in supply, renewed balance sheets, and the clear demand for offshore development are massive tailwinds to Tidewater. The other piece worth noting is gas projects are exceptionally economic and for the first time in the offshore cycle are treated as such. In past cycles oil offshore was the only project that got attention or mattered - today, gas projects are economic and massively important to domestic energy security and provides an extra layer of demand that was missing in past cycles.

This week a few companies we follow close reported earnings, and I want to take the time to walk through how we are thinking about the earnings of each firm. Before we get to this though I want to talk about a few “state of the market” type topics that I noticed these last few weeks.

The piece of news that got folks on X fired up and talking was an interview with Paul Tudor Jones. For those that do not know Jones is a multi-billionaire who made his money trading interest rates and currencies.

I am only speaking of Jones because it seems to be of interest to the general market participant that is interacting with me on X. The most compelling point Jones makes is not the note on S&P500 pricing – the fact is many people are calling for overvaluation and there is no more signal in Jones saying it than anyone else with a long-dated investment track record. At the same time, people like Steve Eisman say they have no issue with the market and think things are fine.

What I would point to in Jones talk is not his opinions on market valuation or Bitcoin being an inflationary hedge but rather his story of Bunker Hunt in 1976 and his front row seat to the entire debacle. Jones was a trader in the commodity pits at the time and did some trading on behalf of the Hunts. Hunt loaded up at $3.50 Silver and from 1976-1979 saw Silver prices run to $35 before buying 20M ounces more and watching prices spike to $50.

Jones notes that at this time Hunt was worth something like $11B and was 5-6x richer than the next closest person. After watching Silver pricing balloon it proceeds to fall from $50 to $10 in a matter of 8-9 weeks and Jones describes Bunker Hunt as “essentially bankrupt”. The part that drew my attention was Jones own personal conclusion and influence that came from this.

Jones says that having a front row seat to the Hunt Family wealth destruction influenced him against buy and hold and in favor of a trading framework. That is so curious to me. This then led Jones to be openly hostile and critical of Buffet who he claims was simply in the right place at the right time.

While Jones retracted some of his criticism in the interview I am certain that his aversion for value in favor of trading led to some serious behavioral biases – biases that in the same interview Jones admits openly. This leads us to the second interesting point that Jones makes – knowing where you have and edge and where you do not.

While I am not a particular fan of Jones, it is admirable that he points to his own emotional ineptitude at being a value-type investor which goes to show that being honest with yourself on what you are, and are not capable of doing is more important in some cases as what you are capable of.

Had Jones decided he was value through and through and fooled himself into sticking with the strategy it is likely he would not have had the level of success he had with his trading career.

The third and final point I would highlight from the interview was the note on Trends. Though Jones gives credence to Value as a strategy and admits the genius of Buffet’s understanding of compounding interest from a young age, Jones concludes that all success in markets comes from the same thing – riding the biggest trend for the longest time.

This I fundamentally disagree with. While we incorporate macro analysis in our framework for idea generation to get a sense of what industries might be advantaged in the next 7-10 years, the bottoms up approach to business valuation and investment is a widely successful and repeatable that is not a trend at all.

I struggle with Jones conclusion here and I think it is convenient as a trader to have that world view. With that said, the conversation was a hot topic this week and some interesting points were made that I felt were value add to highlight.

To wrap up on the interview our basic conclusions with the first being that extra vivid examples heavily influence decision making for much longer than I think the average person would assume. The second is knowing what you do not know is in some ways more important than what you do as self-delusion is part and parcel of the human condition. Finally, the idea that market narratives and trends drive outperformance in equities seems to me to be more a sign of the times comment rather than a well thought out bottoms up approach. Buffet did not outperform because he simply rode a trend, he did so because he made superior decisions and had better judgement.

Now, lets get to earnings & Oil.

Builders First Source

Builders First Source is a piece of our book and a business we think highly of. The companies position in its market, the quality of the management team and the macro backdrop in housing shortages is constructive for Builders over the 3–5-year view. Not only is Builders cheap in our estimation, but the business is in the process of a fundamental shift.

In the short term we think the recovery in new home building will be value add for the firm and this current lull is allowing the business to make value add M&A, buyback cheap stock, and take market share for the eventual recovery in the business. The longer term view that we think the market is fundamentally missing is the move to more offsite construction activity. Offsite construction is proven to be cheaper, more efficient in materials and energy and in time to dry-in.

Builders through its infrastructure in place has both the foot print to be a leader in offsite but also through its digital solutions and Paradigm which is a really interesting technology drive opportunity that presents a lot of value add for the home builders.

The final piece to Builders is the BMC acquisition was done in 2021 and real business change does take time. There are reasons for slower adoption for some of the offsite solutions that are structural to home building industry that remains heavily fragmented across regions but the Ready Frame solution, for example, is an incredible product that we believe is simply too good of an offering to be ignored in the long term as we battle housing affordability.

The Numbers

I am not going to copy and paste numbers off an earnings report – anyone can do this and it is not value add for you. My general take based on these figures are the business is operating in a tough macro environment but reported better numbers than I would have assumed.

It is hard for me to call these tough times when the business generated $43M of FCF and bought back $300M of stock. The balance sheet remains in tact though leverage ratios are elevated from a cyclically depressed period of profitability.

Builders sees a muted and declining starts environment which includes SFH starts down low single digits, MFH starts down low single digits and R&R down 1%. On top of this the company estimates $390-$410 mbf for lumber which we would note is roughly $100 cheaper than the break even price needed for profitability for the sawmill operators in North America.

The difference in the $875M in FCF last year vs $450M~ estimated for 2026 was the result of a working capital release that they were only able to do because of the muted outlook for home building in the back half of last year. The company is now in a period of building working capital as they are expecting to need it in 2H 2026 as an uptick in demand is expected.

We would note that the day before Builders reported the starts figure was up roughly 3% which was a welcome surprise for us. The timing of new starts to Builders involvement is roughly 3 months so there is some lag in starts numbers vs Builders bottom line impact.

The build in working capital shown above is inclusive of $116M of AR release plus another $66M of acquired AR from the Alpine and OC acquisitions on top of another $117M of inventory destock plus an additional $81M of inventory release picked up in acquisitions. In periods of lull the company will do this but is in the process of rebuilding working capital so that roughly $300M of capital release will turn into $180M of build for the 2H26 demand uptick vs the previous year.

All in all the earnings were fine, nothing to be alarmed about but it is clear the starts environment is in a tough spot. It is our belief that lower rates, higher rates, or anywhere in between really will not matter as new homes need built or affordability will remain an issue.

There is a hesitancy cited by many credible sources that people are reluctant to purchase a home because they are “waiting for prices to fall”. In other words, the public has been conditioned that 2-3% mortgage rates are the normal and are waiting for this to come back – unfortunately that is not going to happen.

LSB Industries

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“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”- Adam Smith

The American dream is rooted in the ability of the average man to purchase and own his own slice of this country via home ownership. In this way, homeownership is not just a financial milestone but is culturally and psychologically important. As it turns out, people who own homes and feel they are “in” the system, tend to act differently than those who are forced to be lifelong renters. It should be surprising to no one that we are seeing the social consequences of the home affordability crisis show up in the election of people like Zohran Mamdani in New York as well as a general interest in things like Socialism.

After all, this upcoming generation of 20-something’s have grown up in a system where Capitalism and greedy billionaires have used their wealth and influence to “keep them down” and therefore if that system blocks you from obtaining the material goods you have been told are required for a stable, successful life does it not stand to reason it should be torn to the ground the rebuilt a-new?

This is the attitude of many in my peer group and as it turns out financial turmoil has major social implications. While I do understand the frustration of my peers and their feelings of being priced out of home ownership, I disagree with their conclusions. At the same time, the home affordability crisis is just that, a major crisis that needs to be dealt with. The average first time home buyer in 1980-1990 was 28-29 years old, ticking up slightly to 30 in 2000 and today, is closer to 40 years old according to National Association of Relator Data.

There are a myriad of systematic issues that have driven home affordability to near all time lows that include the kind of homes we build, how we build them and the mystique of the Federal Reserve. The combination of these factors has left the US in what is estimated to be a 4-5M home deficit accumulated since the 2008 Financial Crisis. From 2009-2019 we built roughly 1M homes a year but normalized levels representing the true needs of the country would have been more like 1.5-1.7M homes per year. As the years went on, this gap compounded.

The deficit we find ourselves in today is one of supply, not demand issues. Demand for housing is massive and if affordable homes existed they would be purchased. The problem is bringing on new supply is bottle necked in a handful of meaningful ways that we will discuss in detail in the piece to follow.

It is our view that home building in this country is on the precipice of a massive resurgence that will likely come in the form of more offsite construction especially in the early stages of the home building cycle say, the first 6-8 weeks of construction. This is not a popular opinion and the consensus is that there is no near term catalyst for home starts to increase meaningfully and public equities adjacent to this trend are communicating this. The only companies worth owning in the minds of the market are large cap builders that own mortgage companies and can buy down rate for their customer base. We would disagree with that sentiment. It is often we get involved with businesses when no identifiable catalyst is discussed because that is often the time stocks trade at their most disconnected levels.

The truth is that popular sentiment is interest rates need to be cut in a meaningful way for home building demand to increase and that Trump’s appointee after Powell exits will be the one to deliver such cuts. Perhaps this is the case, but the truth of the matter is a cutting of interest rates does not bring a single new home to market and many of the structural forces depressing new home building have nothing to do with what the rate of interest is.

We hope that this piece is an honest, multifaceted take on the current state of housing that is differentiated from what you hear from Wall Street talking heads or X accounts that live and die by forecasting the new stimulative event of the Trump Administration or the Fed. We do not take the other side of this argument for the sake of being contrarian, but because valuation and sentiment have become so poor in this space that it warranted a deeper discussion – our aim is to enlighten you with the piece that follows and hopefully provide a narrative that is both intellectually stimulating and useful to our readers.

The State of Housing

“If you do not change direction, you may end up where you are heading.” – Lao Tzu

Today’s new home construction is a major political and social issue and is between the proverbial rock and hard place. From 1959 to 2025 the average new home start figure was 1.03M SFH per year. From 2000 to 2025 the average was 1.01M and from 2009 to 2025 the average is 781K. If we assume 1M home starts is the right number (some sources argue 1.5-1.7M is more normalized) that is an average of 210K~ in short fall per year compounded for 17 years. I have seen no one that argues less than 1M homes a year is the normalized number in the US and I see some sources as high as 1.7M so assuming that number is somewhere in the middle lets assume 1.35M is the right normalized home start number. Under that scenario the underbuilt figure is more like 9.6M homes vs the 3.7M we reach when assuming 1M is the proper figure.

The problem has compounded in our minds due to two intimately related factors. The first is the artificial suppression of the rate of interest coupled with the death of the starter home. These problems are compounded by dynamics like real wages growing significantly slower than the average rent and home prices in America. Not only have wages stagnated but we would argue this, and the fall off in the affordable “starter” housing stock are a direct consequence of the Fed’s decision to keep interest rates artificially low for too long. While no one can fault the Fed for the rapid rated cutting post the 2008 housing crash, the decision to continue this same policy can not be forgiven.

To ensure we are speaking the same language, when I say starter home I am speaking of houses that are 1,800sqft and below. In 1970 we built roughly 418K starter homes per year by 1980 it was 314K and today it is only 65K which is only a slight recovery from the 55K trough during the GFC. There are structural and economic reasons for the refusal or disinterest in building start SFH’s with the first being, if I am going to build a house and the rate of interest is nothing why would I not build “more” house? On top of this, we have all but made the building of small SFH’s illegal in this country. Standards for construction are regional with the city of Seattle alone possessing 38 different home zoning areas vs the entire country of Japan (125M pop) having just 12. Regulatory standards require things like minimum lot sizes, parking space minimums, SFH only zoning laws, impact fees and development fees, and an ever-changing building code requirement that add costs. All told, in many cases it is uneconomic to the home builder to even consider a home that is say, 1400sqft.

The National Home Building Association estimates that government regulation adds roughly $93K in cost for the average SFH built in this country. The interesting part of this is that the consumer is interested in these kinds of homes. A survey in 2023 found that 22% of home buyers wanted a 1600sqft home with only 16% of homes built in that same year being 1600sqft while 22% of new homes are 3,000sqft or larger where only 14% of new home buyers were interested I a home of this size.

Comparing this to other times in US history, 1980 saw average SFH square footage of 1,595, in 1999 37% of new homes built were under 1800sqft and by 2014 only 17% of new homes built were 1,800sqft or less with 33% being larger than 3,000sqft. In the US today the average SFH built is 2,150sqft, roughly 20% larger than what the average first time buyer actually desires or could afford. As a final quantifying data point, 1970 saw 40% of new homes built classified as entry level falling to roughly 7% in 2026.

On top of this, capital has been misallocated for nearly 2 decades on the back of artificially low interest rates from the fed. The mystique of the Federal Reserve is amusing to me. It is our contention that the fed is basically ineffective and has made a massive mistake, achieving none of its economic goals since the GFC. While the goal of the federal reserve was the stimulate the economy post the GFC the only thing that happened was massive financial inflation in assets like stocks, real estate etc. The actual economic results were abysmal. From 1960-1970 average GDP grew 4.4%, 1970-1980 3.2%, 1980-1990 3.1%, 1990-2000 3.4%, 2000-2010 1.8%, 2010-2020 2.3%. The result from a GDP perspective was an epic failure and in the meantime, all the market cares about as it relates to investment of any kind and housing in particular is the feds next move. Apparently, we have no learned our lesson on putting our fate into the hands of the fed.

We will discuss the investment themes in the section below but I want to preface this section by saying the narrative from Wall Street and the populous at large is Trump will appoint a fed chair, likely Kevin Hassett and interest rates will fall. On the other side of falling interest rates housing demand will pick up and the housing related stocks will all perform well and as a side note, PE & PC will also be bailed out. Perhaps this is true, but perhaps not. In the following section I will discuss the differentiated view we have of investing in the housing market in 2026 and beyond.

Investment Themes

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Everyone that I come in contact with be it my father-in-law, or investment professionals talks about the “K-Shaped” economy. The question on the mind of many is what is the true health of the consumer? There is a feeling out there that unaffordability and inflationary pressures threaten to tip the economy into recession. The problem with the notion that consumers suffering means a recession is coming implies that the market is representative of the citizenry and the economic demographics itself.

The stock market has become decoupled from the economy and that is why GDP growth or declines is not what actually determines the recessionary standard - everything is tied to the price of stocks. It used to be that if the economy slowed and GDP contracted, that recession would trickle down to financial assets and we would have a correction. To show just how decoupled the economy is from the stock market itself lets look at 2022. In 2022 GDP growth exploded and stocks had one of their worst single years on record.

GDP growth or contraction is no longer a KPI for decision makers and if we are honest, the growth in GDP really is unattractive to many policy makers. With all this said, for those who still believe it is important to understand the consumer there are a few industries we will be watching this year. The first are banks/financials, followed by the home builders and consumer staples type businesses.

In this piece, we will explore the financial industry results, talk a bit about valuations and performance and what banks are telling us in Q1 2026 thus far. Banks are truly a read through to the entire economy and these large investment banks are not just tied to the everyday “Mainstreeter” through credit cards and personal lending but they also tell us about business activity through IPOs, M&A, and other asset management trends.

The big story around banking is what will come of the regulatory environment? Post the GFC Basell III & Dodd-Frank required the banking industry to significantly tighten lending standards and capital requirements and it appears the current administration has an interest in cutting this red tape.

The current proposal focuses on the Basell III language and in aggregate would decrease CET1 requirements for Cat 1 & 2 banks by roughly 5%. The regulation is cut on Regional, Super Regional and Community banks as well. The discussion of if this is a good idea or not has already been had, and it appears to be coming. This is obviously a huge change and on top of that, tax cuts and large amounts of home equity pave the way for huge potential consumer stimulus in the coming years.

JP Morgan

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In 1929 Jesse Livermore, son of a poor farmer in Massachusetts ran away to Boston to join the ranks of a stock brokerage office. As time went on he moved from writing stock prices on a chalk board to making small bucket trades.

Livermore got so good at this that most of the bucket shops he frequented banned him outright. Livermore’s success at “trading” built him a reputation as a young prodigy, someone who had a natural ability to feel the flow of prices and read the tape like no one before him could.

By the time he was in his late 20s he had already made and lost a fortune and by his late 30s, early 40s he was one of the most famous traders on Wall Street. This relationship to the street allowed him access to massive amounts of capital by which to trade.

His most famous trade would come in 1929 when he bet the house that the stock market would crash and was proven correct. All told Livermore earned profits in excess of $100M which inflation adjusted would be roughly $2B in 2026 dollars.

This trade would cement his legacy and allow him to live large post the 1929 Crash. The issue for Livermore is he did not know when the fold em’. Livermore would take massive bets in the market throughout the 1930s suffering heavy losses that would bankrupt him by the late 1930s.

In 1940 having lost his fortune compounded with serious personal issues he ended his own life in a New York City hotel.

I tell this story mostly because we all like a good story about the stock market but the practical reason is, just as Livermore believed he was gifted and “different” from the general public in his stock market capabilities, how would Private Credit and Private Equity investors not feel the same way?

Private Credit has been a massive success by any standard and participants in the funds have made massive fortunes. Private Credit is the fastest growing segment of the asset management industry growing by 20% CAGR from 2017 to 2022 and since the 2007 housing bubble burst it has grown ten-fold.

In terms of the number of funds 2011 saw just 100 before 2023 when there were 1,080. The growth has been impressive, but the market is forecasting better days ahead. It is estimated private credit will grow to $3.5T by 2028 which would make it larger than the US leveraged, and high yield debt markets combined.

While we will dive further into the PC market below, my question to you, the intelligent practical investor is what has allowed such breakneck growth in PC? It is our belief in house that assets that do well do so because the economic environment allows for it. What has advantaged the PC market in the last 46 years since the inception in 1980? How are those dynamics liable to change?

We explore this, and many other credit related topics in the piece to follow, enjoy and we truly hope this piece is engaging and adds value to you, our readers.

Private Credit

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As allocators be it in our own personal accounts or on behalf of our clients two questions that cannot be ignored are where should capital be deployed and where should I avoid?

While these are questions all of us in the investment business wrestle with how we determine what is attractive and what is risky is a mosaic and, in our view, does not have a single “correct” answer.

When it comes to where we at TDC want to deploy capital it is in businesses trading for significant discounts to replacement cost, with no known catalyst for a turn in the underlying business. This typically manifests itself by getting involved with companies that are losing money, potentially overleveraged, or just recently emerging from a bankruptcy.

This process guides what we invest in but not where we hunt for ideas. What I mean by that is we let the opportunity set drive where we hunt for value, not a mandated sector or industry for the sake of it. Our process since 2019 has led us to the tangible world focused on commodity/industrial businesses that have underearned their asset base for a long period of time with many losing money and losing investor attention entirely.

In 2019 we identified industries like oil services as attractive places to deploy capital and watched the majority of the industry go through Chapter 11 over the next two years. During that time, we got excited.

The question we ask ourselves is not what is hated today, but what is being totally ignored. By definition, the investment wins of tomorrow are not being identified by the masses today for if they were, prices of the underlying equity would be substantially higher.

The goal of this piece is to lay out three completely ignored/ forgotten about industries that we are finding value in today that are off the radar of even the value commodity people we speak with regularly.

This is not going to be a piece on oil related equities as we feel the shift in the narrative has already begun and while the equities are still dirt cheap, most folks have already formed opinions on oil. In addition, this will not be focused on Gold, Copper, or Silver as again, plenty of investor attention has been spent on these industries.

What we will instead point you two are three industries that have all of the attributes you want in an investment opportunity which include, cheap entry prices, consolidating industry, consolidating capacity to right size supply with demand and a critical product that is not able be substituted.

The next part of this thesis will be focused on where we see the biggest pockets of risk in the market today. Areas of the market where capital has flocked too for far too long that will end in tears, as all of these things do.

It is important to note that when we point out risk in the market/industry we are not saying there are no businesses or pockets of the larger asset class that will not perform well - what we are simply saying is the risk is high and a simple appeal to the base rate leads us to believe that mean reverting activity will destroy a lot of investor capital in the next decade.

The themes that were tailwinds for a number of these risk exposed asset classes are beginning to reverse, and a significant amount of capital has been misallocated predicated on backward looking projections of a changing world that is shaping up to look much different tomorrow than it does today.

We think there are major political incentivizes to keep this current cycle going with no president in recent memory being interested at all in growing actual GDP. The last time we saw real GDP growth in this country was 2022 and inflationary pressures were high, stocks were pounded and commodities went gangbusters.

It seems obvious to us that the only way to get back to a more normalized environment in equity markets is going to have to come from a shock in the global system - coupled with investors being slow to adjust to the reality of what happens on the other side of this crack in the foundation.

When we talk about a shock, we are aware that there have been shocks to the system post 2008. These include things like interest rate hikes in 2022-2023, Russia/Ukraine War, Covid-19, Israel & Gaza, US & Israel v Iran today etc. The difference we are pointing out is that when these events occurred the prevailing narrative is that these are events to be “faded”.

If oil spikes, we fade it because it will be temporary, if inflation spikes, we fade it because it will be transitory, and if it isn’t we will just inject liquidity and backstop the system to make it so. We think this has sucked a lot of people including very thoughtful market analysts into assuming a back stop to nearly any event that moves us from the norm which is, low inflation coupled with large cap outperformance and passive flows dominating the market.

We believe that a structural shift is underway and what asset classes are attractive today and which have the greatest downside risk is an exercise we think is value add to our readers. With that said, lets dig in.

The Unloved Among the Unloved

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Navigator Gas has been a core holding of ours for a long time now. It is our belief that the niche the company serves, coupled with the quality of their assets and critical nature of their service makes this a competitively advantaged business.

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“Chevron is deeply concerned and strongly opposes the California Air Resources Board (CARB) proposed amendments to the Cap-and-Invest (C&I) regulation. The proposed regulation will cripple the survivability of the states remaining refineries, which will result in California losing the entire industry to this misguided program. This regulation will increase transportation and aviation fuel prices for consumers. It will risk significant job losses, including many high-paying union jobs, while reducing funding for essential public services. It will upend California’s fuels market and threaten critical energy and national security assets” – Andy Walz, Chevron Corporation, President, Downstream, Midstream & Chemicals (Walz Letter Link) March 2026

“We proved we can actually beat Big Oil…“What are they going to do? Spend some of their billions of dollars, try to go after us, try to demean us, try to lie to you, try to manipulate,” he told reporters. “That’s status quo here. Give me a break. I’m just sick and tired of those guys…. Gavin Newsom, March 2023 (Link to Source)

“We are all the beneficiaries of oil and gas. No one’s naive about that so it’s always been about finding a just transition,”… Gavin Newsom, September 2025, (Link to Source)

Introduction

“The future is not one with fossil fuels. We should be prioritizing the health, safety, and pollution reductions over the profits of oil and gas companies,” - Assemblymember Tasha Boerner, San Diego, 9/2025

It is an intellectually lazy activity to take moral high ground against any US politician at this point in our country. We know they all lie, we know they are all greedy and back handed. The question is never if, it is why. When Gavin Newsom and elected officials in California so obviously contradict themselves the question we should be asking is why might they do this – what is the incentive? As much as I dislike Newsom and his misguided stance on energy that is boring to poor out on paper one because it is so easy to do and two because it does not actual offer a unique perspective in what is shaping up to be a total energy collapse in one of the largest states in our union.

When Newsom or Assembly members say things like “the future is one without fossil fuels” I used to get incredibly frustrated by their lack of basic energetic understanding but now, being a bit wiser and a bit more seasoned I try to peel back the onion on why a politician might seemingly be acting so far against what looks to be their constituents and their own interests. While I often receive that statement that “well, the rich coastal homeowners do not care about high price energy” that can not be the beginning and the end of the discussion. California is not comprised of only lunatics who spend everyday cutting of their nose to spite their face.

Instead, what I would like to do in this piece is given an honest view of the situation at hand, one that is quickly spiraling for the state for certain but neighboring states and our military preparedness if we do not reverse course. California has a right to run its state the way it sees fit, and I do not dislike environmentalists and what they stand for on principle. It is extremely important that we are taking care of our planet and environmentalists have done much good for our country as a whole that have left our natural environment more preserved, and have literally saved lives. There was a time in our country where we had no regulation around what kind of waste was dumped in our communities, where we drilled, what sort of working environment our men and women in the oil industry enjoyed, etc.

The problem I have with the environmentalist group is now it has gone too far. What happens with activism broadly is there is a well meaning uprising that is needed and solves a major environmental/ humanitarian crisis. As the success grows and more folks get interested the money starts to flow from governments, charities etc and once that happens it no longer becomes a question of advocating for social change or environmental change and if it is needed and at what scale, the movement becomes a victim of its own success and when the major problems have been solved too much money is now invested in these schemes for them to be reasonably winded down or sized down.

What happens then is we get an environmental movement that is based on misinformation and fear. Almost religious in nature the environmental movement sounds good and morally it is easy to find high ground because well, it is our planet after all? That then leads to the warping of the brains of the populous that we actually do not need hydrocarbons in our societies and more than that we vilify the men and women working in these industries who work every day to raise our standards of living, keep our homes warm in the winter and cool in the summer, on top of a list too long to name of other benefits. Newsom himself admits as much.

As is the case with all things there is a grey area that must be explored but when the unsilent “fringe” minority on either side controls the narrative all grey is lost and the line that has been drawn is you can either protect the planet from fossil fuels and be on the good side, or you can publicly deny that there is any threat to the environment now or ever in the past and this has all been a hoax. Neither of these perspectives are rational but these are the voices that ultimately get propped up and unfortunately win elections.

Since Newsom has taken office the oil and gas industry as a whole has been decimated. Jobs have been permanently destroyed, affordability is nonexistent in the state unless you enjoy the lifestyle of the elite, and public education on energy remains piss poor. The majority of our population knows more about their iPhone than they do about the basic energetic realities that they interact with the survive and thrive on a daily basis.

California, as we detailed in our piece The Barrel and the Ballot published October of 2025 we laid out in great detail the energetic collapse that the state was facing. Highly exposed refinery capacity to seismic activity, low stock piles of fuel (14 days), high taxes on producers and refiners, refinery closures, all pointed to a collision course with energetic reality at some point. We also wrote this piece in the backdrop of the Martinez fire that shut down on of the states largest refineries and luckily caused only minor damage.

Since then not only has Phillips 66 Los Angles based refinery closed, Benicia owned by Valero is also closing.

Canada O&G Letters – State Responses to CARB

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1. Introduction

2. Industry Consolidation & Bankruptcy Cycle

3. Industry Sentiment

4. Project Landscape 2026 & Beyond

5. Offshore Capex Trends

6. Concluding Thoughts

Introduction

If I had to assign an anthem to the current commodity market broadly and the offshore project landscape in particular it would be Waiting a classic by Tom Petty & The Heartbreakers. The progress made since the COVID-19 trough and bankruptcy cycle has been substantial, largely kicked off by Russia’s invasion of Ukraine where the world was reminded of the importance of domestic sources of hydrocarbon. Since then offshore capital expenditure has increased every year from a low in 2021 of $206B to a projected $323B for the full year 2026. As we come off of what can best be described as a lull in the energy landscape broadly, there is a looming threat of an oil glut that dominates popular news outlets but has largely failed to materialize. In addition, the fear of lower oil prices has the market believing offshore capex spending will be muted and extended to some future date when there is a strong underlying commodity price.

At any moment in time there are three relevant narratives that are worth keeping in context. There is what the market thinks, what the industry thinks, and what is actually showing up in the data. My goal for this piece is to give a wholistic view of where we actually are – not because I am so smart and know more than any of the other brilliant folks that follow this space but because I have yet to see someone attempt to tie together the full story of offshore energy to date. Each analyst group tends to focus on their own sector be it onshore vs offshore, deep water or shelf, upstream or downstream, the list goes on.

Just as Munger applies an interdisciplinary approach to decision making and rationality I think one must look through the entirety of the energy landscape to get a true sense of where we are from a fundamental view. The other partially conflicting piece of my belief that we should form an opinion on where we are at in the market at any given time is also as irrelevant in the industry as it has ever been. In past cycles when companies were levered to the gills and a waterfall of new capacity laid in wait, it mattered for the purpose of solvency where the market stood at any given time. For the first time in decades consolidation and a significant bankruptcy cycle have positioned the energy complex and the offshore drilling market in particular in as strong of a position as it has ever been in.

In addition to the drilling market and the onshore majors/super majors the equipment manufacturing and installation market is as strong as it has ever been with massive backlogs and consolidation, most notably Saipem & Subsea7 merging to create an industry leader. While narratives tend to drive stock price fluctuations, we are attempting to take a step back and look at the industry broadly which for us includes three exercises. The first is an overview of industry commentary and what is being said by the executives leading these companies alongside their actual data, followed by project specific data for 2026 and finally capex spending offshore. We hope you enjoy this piece as much as we enjoyed compiling it for you – our hope is that in a world full of folks making decisions hour to hour, day to day, quarter to quarter that this piece offers a refreshing holistic view of the landscape for offshore projects.

Industry Consolidation + Bankruptcy Cycle

On the back of a declining commodity price, poor utilization rates stemming from too much supply, the entire industry went through a bankruptcy cycle of epic proportion. On the back of these bankruptcies and supply being paired back to meet the nonexistent demand for oil at the time, the company balance sheets from overearning in 2022 and Chapter 11 proceedings changed the economics coming out of the crash for the better.

From 2021 to the present day there have been a myriad of mega mergers that have occurred throughout the entire energy complex. Be it offshore drillers, EPC, oil fields services, or E&Ps themselves the markets have consolidated and became stronger on the other end of the downturn we experienced from 2016 to 2021 which has reappeared in some ways in the period of 2023-2025 with many calling for a glut to form. Below is a list of the most notable deals over the last handful of years, followed by our comments on the rationality behind doing them.

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“We think the M&A market, though different from the market where Tidewater bought Swire or Solstad, still represents attractive pricing to consolidate the global fleet further. If Tidewater is able to pay $15-$20M per vessel ($0.37/$0.50 on the dollar) for a good fleet with the ability to slash G&A and improve their market share we think that is a net benefit that should not be ignored.” – TheDailyCompounder 11/19/2025

Full Thesis Here

Tidewater Management Conversation 1/2026 Here

Introduction

Tidewater and the OSV business broadly have been considered on par with the auto industry in terms of its high capital requirements, cyclical earnings profile and a general lack of discipline. Prior to 2021 we would have echoed the same sentiment. Since Tidewater merged with Gulfmark in 2018 this narrative has been slowly eroded in part through cyclical forces as offshore capex increased post the COVID era troughing and partly from industry consolidation led by Tidewater.

Tidewater has proven itself a leader in the OSV space not just by its market share and fleet size but in the discipline it has introduced to contract structure and value add M&A. With Tidewater and Gulfmark’s balance sheet post their Chapter 11 restructuring they very well could have done what Valaris has done in the drillship market, namely, take subpar contract terms simply because the newly restructured balance sheet allows for it.

Rather than lock up vessels at unattractive rates Tidewater has pushed leading day rates and shortened the contract timeline to allow for constant contract roll off and repricing as day rates continue to inflect higher. In 2023 Tidewater acquired Solstad & Swire Pacific which were done at a fraction of the assets true value and associated earnings power.

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Revenue: $335,400,000

Core Income: $106,837,000

Combined Ratio: 61.5%

Core Return on Equity: 33.6%

Total Retention to Equity: 6.12x

See our full thesis on American Coastal Insurance Here

Performance & Balance Sheet

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It is a tall task to make a living investing in commodity and industrial businesses. Each industry within the “cyclicals” umbrella presents the investment community with a unique and nuanced set of challenges.

Some cyclicals are short cycle and move from euphoria to hopelessness every few years, some are supply/demand cycles, some are capital cycles, some are a bit of both and take a longer time to play out.

While we own businesses exposed to many cyclical forces when I think of the offshore drilling industry the trait specific to this business is the painfully slow nature of the recovery. It makes sense logically that these cycles take longer to play out as you have 2-3 pieces of $1B+ equipment, being developed hundreds of miles offshore, in tough water conditions.

In addition to that, a lot of the capex can drift to the right especially with infill activity that is in no rush to spend money at poor commodity prices. While it is easy to become frustrated with this cycle broadly, it is important to keep in mind how far the industry has come and how the industry has positioned itself for the inevitable recovery.

The most important dynamic of the current industry is the financial positions of these companies post the 2020-2021 bankruptcy cycle. All the businesses outside of Transocean ran for Chapter 11 protection and as Noble and Valaris spun out of bankruptcy, the narrative around Transocean was that the solvency of the business was in question making it largely uninvestible.

While Transocean did not seek Chapter 11 protections, we think that the companies prudent leverage reduction strategy as well as their recently announced merger with Valaris has removed the question around the business’s solvency.

In the meantime, as the industry has been consolidated mostly by Noble with now Transocean doing its part, the combined industries financial position is such that a movement to the right in the cycle while disappointing, does not threaten the operators in the way it once did.

The market seemed to be waiting for one more consolidation event but I think most were focused on who would buy Seadrill for the access to UDW tonnage - as someone who follows this market close I can say honestly it was surprising that it was Transocean x Valaris but it might just be the best thing that could have happened to the industry as we will explain below.

We continue to see the offshore energy services market as a multi-year (likely decade long) recovery story that is in the very early innings. As shale oil production continues to languish and the economic considerations between onshore and offshore production moves in favor of deep and shallow water basins, we believe the stage is set for strong risk adjusted returns.

Noble Earnings

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In addition to the fund Gary manages, he runs a high value add Substack page and recently launched a paid product to help investment professionals on the behavioral and process components of their investment process.

To get in contact with Gary or to learn more about him follow the links below.

Silver Ring Value Partners

Substack

LinkedIn

Our Thoughts on Olin Entering 2026

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In this conversation we talk about:

1) Founding of the Company

2) Company product, Customers & Competitive Advantages

3) New Excess and Surplus Businesses

4) Skyway MGA business

5) Profitability of the Core insurance company

6) Reinsurance Stack

7) Importance of Reinsurance to AmCo

8) Valuation

ACIC Contact Info:

Email: investorrelations@amcoastal.com AND/OR

kdaly@equityny.com / jhellman@theequitygroup.com