Key Takeaways

1. Near-Term Softness, Long-Term Confidence: E&P operators are largely holding production flat and waiting for clearer demand signals, while OFS providers report softer short-cycle activity. Still, companies view the slowdown as cyclical rather than structural, maintaining discipline as they prepare for stronger demand tied to gas, offshore, and international development.
2. Structural Growth Platforms Continue to Strengthen: Natural-gas-linked demand from LNG and data centers, resurging offshore investment, and expanding water midstream infrastructure all featured prominently. Companies like Antero, NOV, and Select Water highlighted durable multi-year tailwinds that are increasingly shaping capital allocation and strategic focus.
3. Free Cash Flow and Efficiency Lead Capital Priorities: Across E&P and OFS, management teams reiterated a commitment to free cash flow generation, disciplined buybacks, and infrastructure-style returns. NOV, CNX, and Select Water all emphasized strong cash conversion, margin stability, and long-term contracts as key levers of value in a constrained activity environment.

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Commentary from both exploration and production (“E&P”) and oilfield services (“OFS”) companies in the third quarter of 2025 continued a pattern we’ve seen in recent quarters: a softer near-term operating backdrop layered over increasingly confident long-term demand narratives. Looking into the earnings calls from our OFS providers and E&P companies, natural gas linked demand growth, offshore and international opportunity sets, and infrastructure-style cash flows featured prominently this quarter.

Across the value chain, three themes stood out: cautious activity and “maintenance mode” in the near term, a continued pivot toward structural growth platforms (LNG, data centers, offshore, and water midstream), and an emphasis on free cash flow with efficiency as the primary levers of value.

Cautious Near-Term Activity, “Maintenance Mode” for Many

E&P management teams framed 2025 as a year of discipline rather than growth, with activity largely geared around holding base production flat while waiting for clearer demand signals and pricing. CNX explicitly characterized its stance as “maintenance mode,” noting that any deviation would require better visibility on long-term gas demand.

“Maintenance mode” is being paired with strict capital allocation thresholds. CNX reiterated that any external deal must outperform simply buying back its own shares: “Our threshold is acquiring ourselves… unless there’s an opportunity that outcompetes that opportunity, you won’t see us do anything.”

On the services side, NOV described “softening oilfield activity” and a likely seasonal slowdown in North American short-cycle oil activity into the fourth quarter. NOV’s Energy Products and Services segment saw lower activity internationally and pricing pressure in North America, particularly in shorter-cycle, activity-driven businesses.

Select Water Solutions also acknowledged a weaker completions environment, especially in its Water Services segment, where revenues declined sequentially and are expected to see “typical fourth quarter seasonality” layered on top of already lower activity levels.

Despite this caution, management teams generally portrayed the current softness as cyclical and manageable rather than structural, with portfolio repositioning and cost discipline designed to bridge to a stronger demand environment later in the decade.

• “Generally, I would expect to see maintenance mode… We need to see some of these longer-term calls on gas develop before you’d be thinking about doing anything other than that.”
  — Alan K. Shepard, President & CFO, CNX Resource.
• “NOV executed well in the third quarter. Revenues of $2.2 billion were down just slightly… despite a challenging macro environment and softening oilfield activity.”
  — Clay C. Williams, Chairman & CEO, NOV.
• “Segment revenue… decreased 15% year-over-year in international markets due to some activity declines in the Middle East and Latin America.”
  — Rodney C. Reed, Senior VP & CFO, NOV.
• “While the current activity environment may present some challenges for more of our completions-oriented offerings in water services and chemical technologies, we believe our market-leading positions… will allow us to outperform the market.”
  — John D. Schmitz, President, CEO & Chairman, Select Water Solutions

Structural Demand Story: LNG, Data Centers, Offshore, and International Shales

Even as rig counts and the number of completions stay subdued, E&P and OFS management teams continue to emphasize structural demand growth, particularly for natural gas and offshore, as the anchor for medium-to long-term planning.

Antero framed the current period as “an exciting time… for the natural gas market,” highlighting “a visible step change in demand” from rising U.S. LNG exports and “a surge in natural gas power generation… from the build-out of new data centers.” The company positioned its Marcellus footprint as leveraged to those trends.

NOV drew a similar long-view for oil, pointing to two structural shifts: the “globalization of unconventional shale development” and the “reemergence of deepwater and offshore development.” Management argued that international shales will benefit from decades of North American learning but currently lack sufficient tools and equipment, a gap NOV intends to fill.

On the offshore side, NOV believes deepwater has now “brought marginal costs below North American shales,” shifting capital allocation back toward deepwater and floating LNG. NOV expects offshore investment decisions and a “meaningful exploration and development drilling ramp” beginning in late 2026, supported by rising offshore production forecasts and growing bookings tied to offshore development.

Select Water Solutions is seeing its own structural demand story in produced water. Management noted that “produced water challenges… continue to grow,” with pore space and seismicity concerns pushing the operator toward “recycle first solutions” and long-term commercial water midstream arrangements. Select is already recycling “nearly 1 million barrels of water per day in the Permian Basin,” with expectations for “strong growth into 2026” supported by an active infrastructure backlog.

• “We are entering an exciting time period for the natural gas market. Rarely have we witnessed such a visible step change in demand… driven by increasing U.S. LNG exports, combined with a surge in natural gas power generation… from the build-out of new data centers.”
  — Michael N. Kennedy, CEO, President & Director, Antero Resources
• “After years of second place finishes… deepwater is back to winning… deepwater broadly has brought marginal costs below North American shales, and it is now winning the marginal cost horse race.”
  — Clay C. Williams, Chairman & CEO, NOV
• “These same technologies are now being deployed at scale internationally because international E&Ps see opportunity to develop lower marginal cost sources of oil and gas elsewhere… since prosecuting a successful unconventional shale play requires pretty much everything NOV makes, we’re pretty excited about this.”
  — Clay C. Williams, Chairman & CEO, NOV
• “The produced water challenges our customers face continue to grow… Pore space availability and seismicity-based curtailments remain a concern… driving tailwinds behind the continued demand for Select’s recycle first solutions.”
  — John D. Schmitz, President, CEO & Chairman, Select Water Solutions 

Free Cash Flow, Capital Returns, and Infrastructure-Like Margins

Across both E&P and OFS, management teams continued to emphasize free cash flow and disciplined capital returns over production growth. CNX and NOV were explicit in tying capital allocation decisions to intrinsic value and free cash flow conversion, while Select Water highlighted infrastructure-style margins and long-term contracts.

CNX described itself as “a significant free cash flow generator” and reiterated that its “underlying process” for weighing buybacks versus other uses of capital “hasn’t changed,” with an emphasis on the attractive valuation of its own equity.

NOV reported free cash flow of $245 million in the quarter, converting 95% of EBITDA and 53% year-to-date, and reminded investors it expects to “significantly exceed” its minimum threshold of returning 50% of excess free cash flow to shareholders in 2025. The company has been returning capital through both dividends and share repurchases.

Select’s Water Infrastructure segment continues to resemble a midstream-like business, with third-quarter gross margins before depreciation and amortization of 53% and expectations to keep them “consistently above 50%” into 2026. Management guided to approximately 10% sequential growth in Q4 and “more than 20% annual growth in 2026” for the segment, underpinned by long-term contracts and a sizable construction backlog.

At the consolidated level, Select Water generated operating cash flow of $72 million in the quarter, “meaningfully exceeding… adjusted EBITDA,” and expects elevated growth capex in 2025 to set up a more durable infrastructure-driven cash flow profile going forward.

• “Over the last 9 months, NOV converted 53% of EBITDA to free cash flow and achieved a 95% conversion rate during the quarter… We repurchased 6.2 million shares for $80 million and paid dividends of $28 million… During 2025, we expect to significantly exceed our minimum threshold of returning 50% of excess free cash flow to our shareholders.”
  — Rodney C. Reed, Senior VP & CFO, NOV
• “I think the primary driver was a significant free cash flow generator in terms of what we were able to do for the quarter. Our underlying process for evaluating whether or not we’re doing buybacks versus other capital allocation opportunities hasn’t changed. We continue to view the business valuation very attractive relative to its intrinsic value.”
  — Alan K. Shepard, President & CFO, CNX Resources
• “Water Infrastructure revenue decreased 2.5% with margins of 53%… we expect continued growth well into next year, driving more than 20% annual growth in 2026… We expect to maintain gross margins before D&A consistently above 50% in both Q4 and throughout 2026.”
  — Christopher K. George, EVP & CFO, Select Water Solutions

Conclusion

Mercer Capital has its finger on the pulse of both the upstream market and the oilfield service space. As the oil and gas industry evolves through these pivotal times, we take a holistic perspective to bring you thoughtful analysis and commentary regarding the full hydrocarbon stream. This includes E&P operators, mineral aggregators, and ancillary service companies crucial to starting and maintaining the stream’s flow. For more targeted energy sector analysis to meet your valuation needs, please contact the Mercer Capital Oil & Gas Team for further assistance.