Five interesting things that Hodges Capital research analysts discovered this week...

#1 CRYPTO RESERVES: According to the Dallas Morning News, the Texas House of Representatives has approved a state bitcoin reserve bill, sending the year’s most high-profile piece of crypto-related legislation to the governor’s desk for a likely signature. Senate Bill 21 would establish a framework for the Lone Star State to hold a reserve of bitcoin—and potentially other cryptocurrencies—with oversight of the reserve’s management, including buying and selling, falling under the state comptroller’s purview. It remains unclear how much public funding will be allocated to crypto: the bill does not specify an amount, though language in the Senate budget could enable funding in the coming weeks or months. While New Hampshire was the first state to establish a crypto reserve, Texas could become the first to actually fund one. 

#2 SURVEY SAYS: Piper Sandler recently surveyed bank CFOs to gauge their current perspectives on a range of issues. While net interest margins appear to be nearing a bottom, funding pressure remains a top concern among chief financial officers. They are cautiously optimistic on credit and, in general, do not feel compelled to sell troubled loans. Although negative marks on securities portfolios remain significant, few CFOs are considering restructuring their securities books.

#3 BUILDING DREAMS: According to Bloomberg and Barron’s, OPEC+ members are discussing a potential third consecutive oil production increase for July. The cartel has contributed to falling crude prices after announcing 411,000-barrel-per-day hikes for May and June. The push to maximize production and revenue comes as Saudi Arabia prepares to host the Asian Soccer Cup in 2027, the Winter World Games in 2029, and the FIFA World Cup in 2034. The country plans to build five stadiums for the Asian Cup and 15 for the World Cup.

#4 PEAK SHALE OIL: Over the past decade, the cost of supply for the average barrel of oil produced in the United States has risen. The shale revolution has progressed from its early "proof of concept" stage (outspending cash flow to prove up basins) to a "manufacturing" phase marked by significant growth and is now entering a mature stage focused on free cash flow generation and capital returns. Today, geological challenges outweigh the benefits of continued technological and operational improvements. As crude prices have declined over the past month, activity is expected to slow, leading to a drop in production. We estimate that the U.S. frac crew count is down approximately 15% year-to-date, with the Permian Basin down about 20% from its January peak. Both are expected to decline further. Additionally, we anticipate a nearly 10% decrease in the U.S. oil-directed rig count by the end of Q2, with further reductions in Q3. As a result of these cuts, it is likely that U.S. onshore oil production has peaked and will begin to decline this quarter.
— Travis D. Stice, Chairman and CEO, Diamondback Energy

#5 NOT ALL MW ARE CREATED EQUAL: In a recent investor presentation, Vistra Energy noted that powering 200,000 homes would require either 1,000 megawatts (MW) of modern natural gas generation or 9,000 MW of renewables. This translates to nine times the installed capacity, 1,300 times the land requirement, and ten times the investment to produce the same power. The land needed for 9,000 MW of installed renewable energy would be approximately 1.7 times the size of Philadelphia. 

 HCM is an Investment Advisory Firm registered with the Securities and Exchange Commission (“SEC”), is a wholly owned subsidiary of Hodges Capital Holdings and serves as investment advisor to the Hodges Funds. HCM is affiliated with First Dallas Securities, Inc, a broker-dealer, and investment advisor registered with the SEC.

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