Newsletter No. 169
Good afternoon,
This week’s energy headlines point to a market under growing pressure from both global supply risk and rising demand for reliable energy. From concerns over the Strait of Hormuz and tightening oil inventories to natural gas price volatility and accelerating LNG disruptions, the market continues to show how quickly geopolitical events can impact energy prices and supply security. At the same time, renewed capital interest in fossil fuels, growing non-op investment activity, and the power demands of the data center boom all reinforce the continued need for dependable energy infrastructure.
In this week’s issue of The Upside, we look at the forces shaping today’s energy market, from potential oil price spikes and global supply disruptions to rising capital flows, non-op deal activity, and the expanding role of reliable energy in powering future demand. We also recognize a special milestone for The Jay Young Show with the release of its 250th episode.
This Week's Headlines
Oil and Gas News
- Natural Gas Jumps as Middle East Conflict Disrupts LNG Supply
- Oil Futures May Be Underpricing a Major Supply Shock
- Banks Pour $906B Into Fossil Fuels Despite Climate Pressure
What's Happening at King
- 250th Episode of The Jay Young Show: Elvis Andrus on Faith, Baseball, Family & Finding Purpose
- Don't Miss an Episode of the Oil & Gas Rundown LIVE!
Energy Market Perspective
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Data Center Boom Shifts Power Financing Into the Spotlight
- Ask the "Tax Guy"
Move to Watch
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Weatherford Expands Completions Tech with NCS Acquisition
Oil and Gas News
Natural Gas Rises as Middle East Conflict Keeps LNG Markets on Edge
U.S. natural gas prices remain supported by global LNG concerns, hotter weather forecasts, and continued uncertainty around Middle East shipping routes. While Henry Hub remains near the low-$3/MMBtu range, international gas markets continue to reflect risk tied to disrupted Gulf energy flows and reduced Qatari LNG capacity following earlier attacks.
At the same time, regional U.S. pricing remains under pressure. Waha Hub in West Texas has continued to show the strain of Permian pipeline constraints, with prices trading negative for a record stretch earlier this year. The disconnect shows the challenge facing U.S. producers: strong supply and growing LNG demand, but limited takeaway capacity in key producing regions.
Oil Futures May Be Underpricing a Major Supply Shock
Oil prices have pulled back on hopes that tensions in the Middle East may ease, but the physical market remains tight. Disruptions around the Strait of Hormuz continue to create risk for global oil and LNG flows, and inventories have been drawn down as refiners and governments work to fill supply gaps.
The key concern is that futures prices may be reacting more to ceasefire headlines than to the physical supply picture. Even if shipping routes normalize, cargo delays, inventory draws, and summer demand could keep upward pressure on crude and refined products.
Banks Pour $906B Into Fossil Fuels Despite Climate Pressure
The world’s 65 largest banks committed $906 billion in financing to fossil fuel companies in 2025, up nearly 8% from the prior year, according to the annual Banking on Climate Chaos report. JPMorgan Chase led all banks with $58 billion in fossil fuel financing, followed by Bank of America, MUFG, Mizuho Financial, and Citigroup.
Researchers said the increase shows major financial institutions are still backing coal, oil, and gas expansion despite global climate targets. Since the 2015 Paris Agreement, the largest banks have provided $8.7 trillion to the fossil fuel industry. The report also found that fossil fuel lending is becoming more concentrated, with just a few of the banks responsible for 40% of all industry funding.
Bank representatives defended the financing, arguing that energy reliability, affordability, and security remain important while supporting the transition to lower-carbon energy. Environmental groups countered that voluntary climate commitments have failed and called for stronger action from regulators and policymakers.
Happening at King
250th Episode of The Jay Young Show: Elvis Andrus on Faith, Baseball, Family & Finding Purpose
In this milestone 250th episode of The Jay Young Show, my co-host Jordan Soto and I were honored to sit down with Texas Rangers legend Elvis Andrus and Pastor Jack Graham for a powerful conversation about faith, baseball, family, leadership and purpose.
Elvis shares his journey from growing up in Venezuela to making it to Major League Baseball, the mindset that helped him push through challenges, and the role faith plays in his life today. The conversation also includes stories from the Texas Rangers clubhouse, lessons from teammates and mentors, and reflections on staying grounded through success, failure, and change.
Watch it on Rumble and YouTube (@JayRYoungOfficial).
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Don't Miss an Episode of Oil & Gas Rundown LIVE
Join us live every Wednesday at 2 p.m. CT for Oil & Gas Rundown LIVE, where we break down the latest headlines, market moves, and industry developments shaping oil and gas in real time. It’s a chance to stay current on up-to-the-minute energy news, hear sharp insights on what matters most, and get a clearer view of where the market may be headed. Whether you follow the industry closely or just want a smart, timely update each week, this is a conversation you won’t want to miss.
YouTube: @JayRYoungOfficial
LinkedIn: jayr-young
Energy Market Perspective
Data Center Boom Shifts Power Financing Into the Spotlight
The rapid buildout of data centers is creating a major new source of demand for power infrastructure, but financing remains highly dependent on certainty around electricity access. At Hart Energy’s 2026 Energy Capital Conference, panelists said early-stage projects are still funded mostly with sponsor equity because lenders are reluctant to take on permitting, zoning, interconnection, and development risk.
From an energy market perspective, the key issue is not just who builds the data centers, but who can secure reliable power fast enough to support them. Investors are prioritizing long-term power contracts, strong hyperscaler counterparties, interconnection visibility, transmission access, and fuel supply agreements before committing capital. Once those pieces are in place, lenders are more willing to finance projects backed by experienced teams.
The boom is also exposing constraints across the power sector. Developers face long lead times for specialized electrical equipment, complex plant design requirements, and a shortage of experienced project teams. As data center demand accelerates, capital is likely to flow toward companies that can deliver power reliably, navigate utilities, and solve transmission and interconnection bottlenecks.
Ask the "Tax Guy"
As investors evaluate alternative investments such as oil and gas, the conversation often centers on potential cash flow, asset-backed growth, and portfolio diversification. However, one area that may deserve closer attention is how these investments can create potential tax mitigation opportunities. Specifically, could favorable economic performance in oil and gas investments also open the door to benefits such as the Qualified Business Income Deduction? This week, we want our EVP of Tax, Rex Gifford, to break down an important topic for investors.
Q. For favorable economic performance for alternative investments such as oil and gas yield possible overlooked tax mitigation opportunities, specifically Qualified Business Income Deduction?
A: For alternative investments in oil and gas, many accredited investors are familiar with the deductions for intangible drilling costs and tangible drilling costs. However, once the business model for the oil and gas working interest has been successfully implemented and the Limited Partnership is allocating net taxable income, this net taxable income qualifies as Qualified Business Income (“QBI”) per IRC Section 199A. A deduction equal to up to 20% of Qualified Business Income may be claimed.
This aligns well with the favorable economics of oil/gas working interests (active income treatment under IRC Section 469(c)(3)(a), IDC deductions, depletion, etc.), especially post-OBBBA (One Big Beautiful Bill Act) changes that made §199A permanent. It is important to note that per IRC Section 469(c)(3)(b), once a General Partner Partnership interest is acquired, in subsequent tax years, the character of the Partnership allocated taxable income remains as active, even if a conversion from a General Partner interest to a Limited Partner interest has occurred.
Key Eligibility for Oil & Gas Working Interests
- Qualified Trade or Business: Oil and gas extraction/development/production generally qualifies as a trade or business under §162 (not a Specified Service Trade or Business or SSTB like health, law, consulting, or investment management). Working interests involve active operations, costs, risks, and decision-making, unlike passive royalties (which often do not qualify).
- Pass-Through Structure: Income/losses flow through partnerships (or S corps, sole props). As a general partner (GP) in a limited partnership owning working interests, your distributive share of net QBI from the activity is typically eligible. K-1s should report relevant amounts (Box 20, Code Z or similar for QBI info).
- Active vs. Passive: The GP working interest status helps establish it as non-passive, supporting QBI qualification alongside loss offset benefits.
Royalties or pure investment interests are more likely excluded — focus on working interest participation.
How the Deduction Works (2026 Rules)
The deduction is generally the lesser of:
- 20% of your QBI (from the oil/gas trade or business), or
- The greater of: (a) 50% of W-2 wages paid by the business, or (b) 25% of W-2 wages + 2.5% of UBIA (unadjusted basis immediately after acquisition) of qualified property.Income.
Thresholds (2026, inflation-adjusted):
Full deduction available below ~$203,000 taxable income (single) or ~$406,000 (MFJ).
Wider phase-in ranges leading to higher income thresholds
The most noticeable change is a 50% increase in the phase-in and phase-out ranges. This change raises the income limits for when restrictions apply.
Beginning in 2026 (for tax years starting after December 31, 2025), the following changes take effect:
Phase-in ranges (for both the wage/property limitation and the specified service trade or business (“SSTB”) rules):
- Joint filers: increases from a $100,000 range over the threshold amount to $150,000
- All other filers: increases from a $50,000 range over the threshold amount to $75,000
Phase-in thresholds (formerly the “taxable income threshold”):
What this means in practice:
- Taxpayers with taxable income below the new thresholds are not subject to W-2 wage or property basis limits, and SSTB income is fully eligible.
- Those above the thresholds won’t fall under the full limitation immediately. The larger phase-in window helps more taxpayers keep a bigger deduction. This happens before wage or property caps, or SSTB restrictions, fully apply.
These thresholds are also subject to future adjustments for inflation.Overall limit: Deduction cannot exceed 20% of (taxable income minus net capital gain).
The Qualified business income deduction is claimed on the individual return (for 2025, Form 1040, line 13a and amount of the deduction is computed on Form 8995 or 8995-A). This deduction reduces taxable income, however, it is not an above-the-line deduction for Adjusted Gross Income (“AGI”) purposes. For high-bracket taxpayers, this can effectively reduce the marginal federal income tax rate on qualifying net income by up to approximately 7.4 percentage points (20% × 37% top rate).
Tax mitigation benefits and features for profitable Oil and Gas Partnerships owning working interest, the General Partners of the Partnership benefit from
1.) depletion deductions (the greater of percentage or cost depletion) per IRC Sections 611 through 613A.
2.) Qualified Business Income Deductions.
Have a tax question you’d like covered in a future issue? Email it to theupside@kingoperating.com.
DISCLOSURE: For educational purposes only. Not tax, legal or accounting advice. Please consult your tax professional before making any investment or tax-related decisions.
Move to Watch
Non-Op Oil and Gas Investing Gains Momentum
Non-operated oil and gas investing is drawing more capital as deal flow accelerates across the upstream sector. Panelists at Hart Energy’s 2026 Energy Capital Conference said investors are increasingly attracted to non-op structures because they provide exposure to high-quality assets and Tier 1 drilling inventory without requiring daily operational control.
The strategy is becoming a larger part of the market as institutional capital returns to oil and gas, driving more acquisition activity and fund formation. Firms are seeing more inbound opportunities from operators and investment banks, but panelists emphasized that success depends on disciplined underwriting, strong data analysis, and careful operator selection.
While non-op interests typically trade at a discount because investors lack control over development timing, firms manage that risk through diversification across basins, operators, wells, and commodities. The model is also expanding beyond traditional U.S. shale opportunities, with growing interest in Canada, Argentina, and the Middle East, though some investors remain focused on core U.S. basins.
If you'd like to talk to someone about King and are an accredited investor, you can fill out your information here or schedule a Zoom conversation with one of our SVPs here and someone will reach out.
All the best,
Jay
