B (7:31)

I do find it fascinating. They've kind of crammed 50 years worth of sort of Capex cycles and innovation cycles and into like know, a decade.

A (7:39)

It's like really 13 years or something. It's fascinating.

B (7:42)

And just a couple of data points to pick out. You know, one is just from our shared notes that the, I mean you've gone from break evens of, you know, the high 40s a couple of years ago to 40 bucks last year, which again points to all of those factors you're talking about. Also what I just, I was kind of just fascinated. Production continues to, to climb, but what is dramatic is that rig counts have almost halved during the last decade. And are we using, you know, the old sort of metric of, you know, shale growth and all the rest of it was rig count? I guess in that world of going from 2 miles to 4 miles, rig count and the consolidation we've seen, rig count is no longer a good proxy for the health of shale. Is that a fair comment?

A (8:31)

Yes, I, you know, I hate to, I hate to simplify it that much though because what we haven't seen enough data set on yet is how like what does the decline curve look like, for example, on a 4 mile lateral? You know, so do you, do you eventually see some of that rollover require more rigs? Maybe you do. But what I, what I also think is interesting is just the drill spacing unit, the DSU design is so much more, this cubing of your, of your inventory is allowing you to complete so many zones at the same time. And, and I think that's really trying, I think what producers are really trying to do is drive as much recovery as they can out of a spacing unit in the first go round. And so I, you know, I, I, I guess there's a little bit TBD on that question, but I, but I do think for, for certain you don't need as many rigs to generate the same type of production as you, as you historically have. So there's going to be some element of that that is permanent, which I

B (9:38)

guess is also a function of having large producers control large areas. Right. As well.

A (9:43)

Right.

B (9:44)

You can optimize rate counter same. Okay, we're going to talk about bottlenecks and the unlocking of some of those and the remaining of some of those because obviously that's a key opportunity for investors. But the next of call is going to be demand and particularly staying sort of on the, on this, on the shale and obviously AI but if, if we were to assume that there was no energy transition and demand was infinite, are we still looking at the shale, shale production in the United States having a short shelf life compared to say the Saudi or offshore production? I mean like, or is there a sense now that actually there's vastly more than we, we know about. Our gains through productivity, gains through efficiency means that we can get more out of what we know does exist. And actually shale is a, an ongoing resource from all intents and purposes for the United States. Where are we at in that?

A (10:39)

That's the $64,000 question, as they say. I think, you know, we were running analysis that would suggest the big surprise that's coming from shale is that, you know, as we are learning how to drill more efficiently and produce more efficiently through technology and by the way, they're just scratching the surface on how AI is going to be used. And again, I think it's Going to be a big part of the cost equation, managing costs, managing trips to the field and things like that. So anything you can do to lower loes, lowers, break even, again, get you in a position to drill, you know, tier two or even tier three inventory, that, that, that may have not been economic at $65 and 10 years may be economic at a much, you know, at a much lower break even. And so, and so I, I, I, I would, I would be very hesitant to rule US shale as out of the market and kind of rolling over. I, I don't think that's, I don't think that's right. And I, and I certainly don't think it's taking in, you know, into consideration the real time technological and operational, you know, discoveries and improvements that are, that are being made.

B (11:58)

Yeah, and we, like you have, we've done a number of episodes on kind of that trilemma of cost sustainability and security. And I know you guys talk about is cost, functionality and externalities. We probably can't get into that today. But in a world where you know, cost and functionality, security override other elements, you know, having a domestic source of sub 40 break even hydrocarbons is a pretty, pretty powerful element. And it's obviously all heightened at the moment given we're recording this on day four of military operations in Iran. As you know, I guess just a word on demand and again these are, I always find your perspective, this perspective fascinating because you're having to make live calls on this one. It's not just sort of the economic theory of the case, it's the, the outcomes of the case. Demand in general. We've just had Rystad on. We know energy demand in general is growing. The kind of the God of the gap in many ways is AI. And you know, and we've, we've done a number of episodes on AI and obviously what's driving sort of their energy requirements. And again you come back to this cost efficiency and sustainability equation and there the efficiency piece is obviously, you know, and you can't have interruptions in most cases most of the time. Where is your thesis on AI? What energy sources are they going to use and what is that going to do to the Overall demand for U.S. energy?

A (13:33)

Yeah, it's a really, really good question. And on some level it's obviously, I think there are a lot of people watching it very carefully because if you just look at announced projects you get to this sort of quagmire of what is the real, what is the real gigawatt demand factor. That's coming from data centers. How much of this is double counting or even triple counting as people are just trying to find locations where they can connect to the grid. It's a mad scratch scramble that has real political implications because in theory you're directly competing with human beings, right. And so your political constituents as a, as a member of Congress is now gotten involved in energy in a very different way than it has in a long time. This sort of direct conflict with technological evolution. And so clearly in our opinion, there is a solution that makes a ton of sense, especially when you figure in sort of this, this cost and function equation which is that economics matter. So people are going to be looking for solutions that are reasonably priced and they are going to be looking for reliability, right? They're going to be looking for ways to get access and make sure that power is ratable and can be there when they need it because of the way they sell these electrons. Like it's a fascinating business model, right? They're taking, they're taking a kilowatt hour and selling it for somewhere between buy it for 14 cents and sell it for $3 and 50 cents. It's an, it's an incredible margin profile on what they're really doing with, with large language model learning and the agent code that goes on top of that. But it doesn't work if it's not running. So we do not see a way for natural gas to not be a big part of that solution for at least a decade, if not multiple decades. The constraints in that model are going to be not supply of gas. We think we have ample gas and multiple areas. The constraints are probably either A regulatory or B quite frankly supply chain of combined cycle gas fired power. But even that can happen faster than nuclear in our opinion and in likely cases happen faster than grid interconnects. So and it's interesting to see. Well, let me back up Paul. All of the above is what's going to be required to solve the problem. But if you want to get to real cost effective and reliability, you know, natural gas is probably the fastest and cheapest way to get there with the least amount of political friction, whether that's whether that's Congress or not in my backyard, you know, permitting factors. Right. So, and then on the, I'll go back to crude oil too. I know it's not as AI related in some markets. Externally it is, it won't be here, but you could see it in other markets. But there's one thing that it's a very elastic market. So let's Say we get through this geopolitical price premium that we have in crude right now and we go back to mid-60s, you know, on an inflation adjusted basis oil is as cheap as it's ever been. And that's hugely bullish relative to creating demand and providing for a cost competitive advantage for the United States relative to powering the industry around what we do. And as a result, it doesn't surprise us when we look at the IEA specifically. They've been a million to a million and a half barrels short on their demand projections I think every year for the last nine years. I mean they just consistently get demand wrong. So we think over time you're going to see the prices are going to trend upward. But we think that, you know, again, taking political risk, I mean geopolitical risk premiums out, that's probably happening at a ratable pace that's still relatively cheap when inflation adjusted. And you know, and we feel like the United States is really well positioned to either provide for our own internal energy needs or export that to our global trading partners that are, you know, our allies that want surety of supply. So it's a really exciting time if you think about structural demand pull. So your AI power demand plus lng export to supply other people's power needs globally puts a huge structural demand implication on U.S. natural gas production that we haven't seen in a long time. It's been much more supply push oriented and now you're getting this demand pull which is really exciting because it's a longer duration that's less price sensitive. And what we're seeing is most of our counterparties are as good, if not better credit rated than the average producer in the oil patch. So it's a great time to be in US Energy. In our opinion, the energy and resources sector is experiencing unprecedented change. To help navigate this change and capture its opportunities, HC Group launched Enco Insights, a global advisory network dedicated to the sector providing senior advisors and subject matter experts to investment and infrastructure funds, law firms and corporates. Enco Insights leverages HC Group's 20 years of connections in energy and commodities to give clients the expertise they need when the stakes are high and insight matters.

B (19:07)

Learn more@encoinsights.com it does seem like there's a bit of a, we had Jeff Curry on talking about this sort of a repricing a big shift towards sticks in the ground. I mean if you step back, all of these AI firms have gone from spending zero on assets to, or you know, they were sort of infinitely scalable. And as Jeff would say, to now having to put all this money into data centers, you know, and sort of a recognition that actually, you know, real world assets matter and energy is a key part of that. And you've got multiple sources of demand. And I think, you know, there's a recognition out there that there's sort of this potential short term glut, although some of that is just seeing lots of oil on the water and most of that oil on the water is sanctioned, but certainly kind of a longer term gap given the lack of investment that's gone in, in general into replacing, you know, reserves that are being used up. I guess to get your take on it, the pushback on AI goes something like this, right, which is actually cost of data. Well, multiple factors. One is the cost of computer continues to decline. These are going to be very expensive assets. There's also a, obviously your most expensive cost in that equation is chips and energy. Therefore markets will solve for that and definitely solve for energy. Um, so we might see massive gains in efficiency that would offset the need for all this energy. And then finally, and I don't necessarily see this one as it was probably the weakest of the arguments, which is that AI is, is an imitation game, not a thinking game. And actually we're going to sort of eventually, once we've knocked out sort of all the boilerplate language in legal contracts, you know, and a few other things, you know, is it's going to settle down in terms of demand. And you're right, there's this sort of, you look out there and if you took a, you know, open AI out of the equation, you get a lot of, you know, contracts sort of, there's a compounding effect, I should say is, you know, where does that figure in sort of the risk management of some of the bets that are going to be made. And I completely agree with you that sort of, you know, the approach of controlling your own energy sources is probably a smart one.

A (21:16)

You know, my instinct is so, so this is a, this is a great question. I think this is also, if we can, if we knew the answer to this, we, you and Paul, you and I would be able to quit our day jobs. But the, the, the challenge is again, and this is where, you know, this is where it's really hard to estimate. So we just looked at a piece of information from a great research house that's called Thundersaid. Don't know if you've ever seen it, but they've got a great wedge for U.S. gas demand for the next 10 years. And it basically says we're going to do about 30 bcf more a day by 2035. And that wedge has 20 bcf of growth associated with LNG export. And quite frankly a bunch of that is, is actually under construction. So you can, you can underwrite it pretty critically. Now the question that's in the market is how much of that is merchant versus contracted, you know, and is there some risk to that demand? But fundamentally it's astonishing. Growth over what will become a 20 year period, you know, 10 years ago was zero. Today we're doing 17 BCF a day of export. We're the largest exporter of gas in the world. And that's supposed to grow another somewhere between 15 and 30 bcf a day. So you got that. Then you have electric growth that is being predicted to grow at about 6bcf. Some of that's electric vehicles, some of that's sort of industrial usage. And about 2.7 of that under this guy's prediction was AI. Well, you know, Middle Market Tailwater has three companies that are working on LOI projects. You know, so under letter of intent exclusive to deliver gas to supply behind the meter power that combined equal about 3 BCF when fully up and operating. So that's not day one, that's probably day or year, year one, that's probably year three, but maybe year five. But that, but his projection was on 10 years from now. So I would wager that that number is vastly understated relative to all the other projects I know that are also under contract. So the question then becomes, really, I don't think it's today. I think it's 10 years from today when those contracts are rolling off and we're, and we're redoing them, you know, how much real demand materialized because all these guys are signing, you know, guaranteed contracts. And the reason we get comfortable with that is because the, you know, the power side of the equation is actually the rounding error and their cost of goods sold, believe it or not. So it's, it's not, it's not, that's not the problem. It's, it's, you know, it's, to your point, it's the chips and the, and the actual infrastructure that's the big.

B (24:13)

That's fascinating. Sorry. So the actual, the cost of energy for these is a rounding error because you, I mean, like, you know, yeah, it would seem to be in all my travels and conversations they're sitting there sort of staring at saying we think the price of chips is going to go down, but we think the price of energy is like going to be the key factors. Whether we turn the, turn the key

A (24:32)

or not depends on where you're getting that energy and when you contract it. Right. So if, if you're buying it at market from the grid, you, you could be in trouble. If you're going to build a behind the meter system and you can, you're going to go anchor all your gas supply at a fixed rate to run that power, it's probably around in here. And the reason I say that is turn around and look at. I guess the question would be so here's the, here's my what keeps you up at night question is what are they actually selling the computing power for?

B (25:06)

Yeah. Is it just all of us doing smarter Google search, is it actually going to have a meaningful productivity curve to it that's not offset by lost jobs

A (25:14)

and all the rest of it today? Just for context, if you just look at Meta, Google, Microsoft, Oracle, their credit ratings and market caps compared to the largest domestic EMP, Exxon, I think, right.

B (25:34)

They're all, they're all at 150 PE ratios versus Exxon at poor or 10 or whatever it is at 17. Right. There's a, there's a lot of work to be done from those firms to justify.

A (25:43)

Well, they're also 500, 400, 300 billion dollar market cap businesses. So you know, you know, and Exxon's by the way, not our, not, not the market's average customer onshore us. Right. So the scale and, and you know, and again if you look at Microsoft, I mean they, they've got a cash machine that's not AI oriented. So it's been a really interesting dynamic. But what, what I get worried about is so what we won't do, let me say it this way is we won't build, we're not going to supply gas to someone without a contract that's guaranteed and we're not going to build power behind the meter without a contract that's guaranteed. And that's not unusual for a midstream or a energy infrastructure player. It's just that our counterparty today if we do those two things has gone from you know, a producer, you know, a either private equity, middle market, public or large cap, public producer to you know, now some of the largest companies in the world that are all technology companies. So it's a, it's an interesting change. But, but what, what bet I don't want to make? I'm not trying to, I'm not trying to pick winners and losers. I only want to be with a real project that's getting done with a real customer that signs a long term contract. The flip side of it is I do think it's really important where you're supporting these data centers. So and what I mean by that is let's take we're lucky again being in Texas. Texas is predicted to grow like at 15% on power gen requirements. So it's like 36% of the total US power growth is estimated to come from the state of Texas. But, but what's, what's even more interesting to US is about 50% of the industrial power demand is predicted to grow from Texas. Non AI power demand is coming from the state of Texas. And so if you're going to build a power generator, even if it's behind the meter, plus we have, we're supposed to double the population. So we've got a, we've got three ways to win. If you're playing your cards right, you just want to make sure you're, you know, you know you've got the right counterparty, you got a good structure and then you've got grid interconnection so that you can sell that power back to the grid if, if you have spare capacity. And so I don't think all locations are equal.

B (28:17)

There's a lot of conversations out there about this we ourselves are doing in conjunction with the Financial Times in preparation for the Global Commodity Summit in Lausanne in April. A survey of leadership in commodity trading, how AI is being deployed today and what the expectations of the future are. Because again I think there's, you know, it's trying to divine and understand what exactly the use cases are and obviously are they, are they more leaning into lowering costs I using agentic AI to remove some of those tasks and roles in the mid and back office or are they leaning into predictive markets and all the rest of it and trying to. Because obviously everyone with that sort of strange moment again where we know where the world's heading, we just don't know how far, how fast and what the potential implications could be. But you certainly can't afford to not be looking at it. So I find it fascinating. But so just taking I guess the third leg to this stool of, of supply and demand. But then is is the interesting bit in some ways which is just taking that, whatever incredible amount that was, that sort of 50 bcf of increased demand in natural gas from LNG from just ongoing growth and then obviously AI does that and where does that create significant bottlenecks in the midstream to obviously to that need, need building and that and are a great space for I guess our sector.

A (29:44)

Yeah, I think clearly there's going to be some last mile bottleneck implications. Well let's just go from the wellhead. So as you grow some of that gas growth is clearly going to come from the Permian, some is going to come from the Haynesville, some's going to come from the Mid Continent. Obviously the, the Marcellus Utica, they're constrained anyway so and then, and then even the Eagle Ford there's some, some opportunities for specifically some dry grass at the right price. And so the good news is that the one thing we didn't say about the shale revolution that I, that I meant to say was we've gone from ex explore. Right Ian the E of E and P to really it's manufacturing. Right. The onshore US Oil and gas industry, the, the EMP players are now really manufacturers and they are running their businesses that way and they are trying to get more efficient and more focused on process and optimization than at any time in their history. And, and so we know where the gas is and it's just a function of making sure we are drilling it at a price that makes the economics work. And I don't think that's a, the good news for onshore US Gas is that that's not a ten dollar gas price. That's a you know, four dollars to four to five dollar gas price. Call it four to five dollar is a generally speaking a healthy rate of return for pretty much every gas shale gas basin in the US and, and, and, and, and the sticks are there and the supplies there. But, but to go to, to take LNG export for example up 20bcf, that is going to take some, some material infrastructure in and around those basins and the last mile it's going to take some big storage infrastructure because you can't run those facilities without associated operating storage. Right. My guesstimate is at some point in the future the citizens of Pennsylvania and New York may prevail around the opportunity to exploit the reserves that they have there for their own consumption and actually build some pipelines to you know, the major city hubs in the Northeast. But we'll see. But that, that could, you know, I think Boston's still importing a BCF a day that doesn't make any sense. And so you know it would be great if that happened because you, you could build some LNG export capacity on, on the east coast instead of just the Gulf coast. But we're seeing bottlenecks sort of all across that. And again I'm, I'm focusing on middle market whereas you know, maybe the larger publics are focusing on the, you know and some of the bigger infrastructure players are focusing on the you know, larger takeaway capacity that that might be intra basin or sorry, interbasin and, and you know, so that's not really our cup of tea but some of that's going to have to happen. But you're talking about some, some big volume movements to hit hit that gas growth. And it's interesting because we have a little slide in our annual, you know, meeting that was coming up next week. And I will tell you that historically, you know there, the, the public company threshold in midstream was pretty interesting. So when, when you went from 05 to 2015 we had about 23 and a half bcf of gas growth. We had 39 go to 76 public companies which was an increase of about 300 billion in market cap collectively. And then from 15 to 25 we had another 40 bcf of supply growth and we, we added about 300 billion of market cap but we shrunk from 76 to 31 public companies. The massive consolidation, I was going to

B (34:00)

say that consolidation on the, so the producer side has also mirrored on the midstream piece as well, right as SC has wrought its own, you know, challenges and opportunities. Is that so? And, and just so does that mean that the midstream, those midstreamers, those you know are also having to step down into sort of the mid cap world as well, you know, to, to solve some of these bottlenecks. And also can you just give us a little bit of word on, on that LNG export capacity, you know, is where are we at on that? You know it's been a proliferation of projects and an acceleration of those projects.

A (34:39)

Yeah, that's a great question. So I actually think the larger publics are going to focus on, they have announced projects right now for infrastructure backlog backlog of around 20 billion by our calculation. I think for, for us to handle that the next 30bcf of growth is probably going to take more capex than that. And so my, I would posit that the larger projects for the most part with a couple probably being handled either by large infrastructure private equity or these specialty privates like Whitewater. But the rest is going to be in my opinion an opportunity for, for private midstream companies to come in and help solve some of this debottlenecking. And so I don't know that if that means we'll see IPOs again in midstream. I hope, I would, hope we would, because I think that would be healthy for the market. But I do think that the big guys are going to focus on, you know, doing a big construction project is, takes as much time and manpower as a smaller construction project. And so you got to focus on bang for your buck if you're going to do greenfield construction. And so I, I believe the, that the, the publics are going to try to do it that way, but I think it's a great opportunity for private equity to fill that gap. On the LNG export side, I mean, we are sitting at 17 BCF today. We have announced projects that I think take us to approximately 27 bcf that, excuse me, under construction projects. And then on top of that there's probably another 10 bcf of various, you know, stages of the FID process. And so I would tell you that what's under construction is, you know, virtually 100% likely to be completed. So that we think, you know, kind of, you know, we're growing by call it another 10 BCF minimum, maybe, maybe as much as, as 20. And you know, Thunder said says 20. You know, we see 17 going to 27 pretty easily. And you know, again, what's under construction would suggest it's more like, you know, 32. So I think that happens. And then we look at the forward curve on historical, you know, or the LNG arbitrage between US Gas prices and really, you know, Europe and Japan. And that forward curve is, you know, sitting right at about, before again, this geopolitical breakout was, was sitting right at about $8. So the margin's still there for US producers to, to sell into that contracted structure. Obviously today, you know, that, that pricing is blowing out because of, you know, because of, you know, the, the Iran war. And so we feel pretty comfortable that that's, that's a real solution. And so again, when you look at this, what does the US have? It's a great example of what the US has that some of the other solutions don't. We saw what happened with Ukraine and Russia and the, you know, the gas supply used as a threat to Europe. We're seeing now Qatar's the second largest LNG exporter behind the United States and they are now shut in because the straight is closed straight. So we don't have those risks. So if you, if you, if you think about it, the geopolitics of that and the, and, and you know, obviously the, you know, the contract protections and things you have in the United States, you know, legal system. Having some or a large portion of your future gas supply coming from a long term contract in the United States in our opinion makes a ton of sense. So we, we do believe that, that LNG capacity gets utilized and, and the United States, you know, is, is, you know, maintains a leadership position in supplying the world, you know, affordable natural gas. So the real question is how much bigger does it really get? So how much more projects reach final investment decision versus what's under construction? And I think that's probably where you need to spend some time thinking critically about risking those. But what's already in process probably gets built and contracted. Hello, I'm David Hunt, founder and managing director at Hyperion Search. Founded over a decade ago, Hyperion Search has helped organizations from major utilities to startups recruit their leadership teams and key individual contributors to accelerate both their growth and the energy transition. Our three main verticals are renewable power, energy storage and E mobility. The energy transition and the talent that delivers it has been our passion since day one. To find out more, visit hyperionsearch.com or listen to my Leaders in Clean Tech podcast, available on all platforms.

B (39:45)

As you say, trying to factor geopolitical risks and shifting sounds is, is tough at the moment. That's been absolutely fascinating. I kind of want to just finish up on and I promised at the start I wanted to cover this, so we should do. And there's so much more to discuss. We just don't have time here. But more broadly, in terms of private equity, it seems outside of, well, there seems a tale of two cities really. There's kind of the traditional energy private equity focused firms who are very much out of vogue are, have stood the, the test of time and are doing well for the most part. And we're talking us story here. Their energy transition funds, not so much, you know, some big bets made on technology and we're talking technologies, not fuels and all the rest of it. More broadly though, it seems that private equity is having a rather a tougher time. You know, obviously higher interest rates. We've covered that story in depth. But also kind of relatively few target organizations and exits are becoming harder. I wonder if you can sort of give us your take on private equity, how it's faring more broadly, you know, why Perhaps the more dedicated specialist energy firms are doing well and kind of where you think it's headed.

A (41:00)

That's a really good question. I think first of all, you're right. The last five years have been very challenging to navigate because there was a real push away from, for whatever reason from fossil fuels. And by definition, I think a push away from sort of what I would call a confidence window and underwriting economic outcomes. And you know, so, so investing in energy transition is, it was, is still and was a much riskier underwriting than a conventional energy decision. And then why is that? That's because a lot of it was requiring subsidies, you know, so it wasn't. The economics were, you know, the project economics weren't necessarily standing on their own. And you know, that just gets you into a different dimension in all cases domestically before you even put, you know, international, you know, sort of risk around that, supply chains and things like that. But everybody looked at it for, for the right reasons because I think across the spectrum, everyone believes fundamentally that the US should be a leader in doing things better, smarter, cleaner, more efficiently because we, we have a track record of that. And, and, and I think all the public firms and all of the peers that, that I am aware of on the private side feel like that's the right stewardship relative to capital. So, so whether or not you fully believe in climate change, I think you have a permanent mindset. Change that, that is capital needs to

B (42:41)

be

A (42:43)

following the right procedures, demanding the right health, safety and environmental thresholds around our portfolio companies and our people that our investors demand. So responsible investing, I believe is here to stay, even if energy transition migrates, for example. So you tumble that through. And so that was a challenge. But again, if you had, if you had said to me five years ago that the Magnificent Seven were going to be the primary source of sort of thought, thought leadership change on whether or not natural gas was strategic globally, I would have told you there's no way the technology companies would lead that charge. But here we are. And then what that has unfortunately opened up, you know, which is back into, into energy private equity's favor, is, you know, what I would call real economics. It's like we, we have to really know what the cost equation looks like and what the return profile looks like, and we have to really know and have confidence in reliability and accessibility. And so the core fundamentals of what kind of, you know, quite frankly drove pure industrial evolution, capital evolution, you know, markets came back into, you know, the vogue, the spotlight of how we're going to get things done. And so, you know, I would tell you that most investors that we talk to now for are fully over the transom and natural gas is a solution that's going to be a big part of the puzzle until we figure out something different. Primarily either technological efficiencies that require less power like you mentioned earlier, or nuclear small modular reactors or other forms of nuclear power which are also as reliable as natural gas fired power gen but, but run cleaner at least from an emissions perspective. Whether or not you want that in your backyard, that's a whole nother story. Right. So ironically, between us, I mean the, if you really want to look at what has been the globally, the safest power generation per kilowatt hour generated, it's, it's actually nuclear.

B (45:01)

So yeah, we've done a, we've done a very well. I mean the problem with nuclear, we've, we've done back and forth on it, right. Is that it's fantastic. It's just, you know, certainly in the west they take 15 years to build. Right. So unless we crack the sort of the. I'm sure you both follow Goring and Rosenswag and those guys and so forth. Unless we, until we crack that. We've had Adam on a few times the kind of the, the fifth gen, I think it is all the fourth gen with sort of the, the salt cooling systems that don't need to be 100 atmospheres, you know, those problems are going to remain. I'd also say we do have small nuclear reactors at the moment because they're on our, on our navy. But anyway, that aside. Yeah, I mean it's just interesting in some ways, isn't it? Because you know, if we were to also cycle back six years ago, we had Edward Chancellor on the podcast and his book Price of Time and you know, he's a financial historian who did a lot of work on interest rates. You know, it was you, you'd be sat there probably looking over, you know, your colleagues who are in the sort of the tech vertical of your private equity firm looking quite jealous as they absolutely knock it out the park whilst energy is, is stumbling along and having to face, you know, albeit low interest rates, real world cost of capital and you know, eking out margins. Whereas today, you know, it's the reverse precisely because frankly in my opinion interest rates have gone up to, to more like normal levels and real cost of capital require, you know, applies, returns apply. And that's in some way what's kind of shaking out. That's probably in tandem with why capital discipline has returned to shale. As you discussed earlier, it has to the investors as well. And you've got quite a hardy set of energy private equity investors who you know, who have got a weather eye on what it really takes to make returns over the long term. Right. So actually probably, you know, in some ways a whilst lesser less cool might be a much a surer option than and a more seasoned option than others.

A (47:00)

Well, you know, and I will tell you this, there's some other factors too. So the capital vacuum that the post Covid environment created, whether, whether it should have been created or not, it happened. And so the flight of capital away from energy, it caused a rebalancing on both the public equity side and you saw that as its percentage exposure of the S and P. But it happened on the private equity side too. But the reality is that is a huge opportunity. So our funnel therefore is bigger than it's ever been. So our ability to be more selective on, you know, what our return hurdles are, is better. Our outcomes have been better and our expected forward returns are also better quite frankly than we've seen in a long time. So we're, we're very bullish on, you know, on what the energy landscape looks like from a private equity perspective. But the, the second piece of the puzzle is also what we talked about earlier. We're looking, you know, when we used to look at E and P domestically there was a big wedge of risk associated with exploration and now what we're underwriting is literally a manufacturing company. So they're making widgets, they're just drilling locate, you know, instead of a, instead of a real widget, it's a, it's a, it's a, it's a stick in the ground. Right, right. So it's, it is a different profile for that underwriting. So again the, the certainty factor and, and what you need to, you know, contractually to, to get to your rates of return is, is got less of a risk wedge by definition. And so I, I think that's been helpful too. So I've, I've, you know, it's, it's a good time to be in energy in our opinion. We're, we're pretty bullish on it but, but the discipline required to, you know, ultimately around the investment committee decision table has not changed.

B (49:04)

Right.

A (49:04)

You still gotta be very focused on your underwritings but at least now we have more opportunities to select from.

B (49:11)

Well, it would be great to hear a few words on Tailwater Capital and when people should, when people should call you.

A (49:20)

Let me just explain our business model. So we, we focus, our flagship is energy infrastructure. Then we have a fund complex that does non operated emp. So we're helping to finance drilling activity by partnering with operators, but we're not backing operating teams. And then we have a royalties piece as well. And underlying all of that is 14 years of data. So we are actively harvesting and watching on a daily basis the data set that is that complete ecosystem. So we call this full immersion energy. And so we're, we're, you know, behind our little middle market platform, we have something like 3 million dedicated acres and 300 operating partners, and it's probably close to 50. We have almost 10% of the, of the rig fleet running behind our system. And so that's just a, a lot of information. But we're also very careful not to compete with our core customers. Right. We're not, you know, we're trying to be a solutions provider to, at our, at our root to, to the counterparties that have problems. And the way we define a problem most simply is a bottleneck. So there is something constraining the system that capital and infrastructure can solve that we go help provide that physical solution by building an asset or buying and growing one to fix it. So that's providing us with a real, I think, data advantage. And to complement that, we do a lot of fundamental research. So we call them white paper. So we're trying to put out a white paper, a quarter and we tell our investors that they have access to those white papers. But if, if they're looking at something that we haven't written a paper on, let us know because we'll, we want to look at it. If they're looking at it, we'll, we'll do some research on it. But you tumble that together and honestly, it's just about trying to be good decision makers because in a, in a fund complex where you're doing something like 10 to 12 investments, you're 10 to 12 good decisions away from being successful. And we're trying to, to optimize that process by, by really focusing on the fundamentals and being what we call full immersion. So we, we want to understand the, the full value chain of energy. We're not just doing gathering and processing, we're doing storage. We're doing last mile delivery of gas to end users. We're, we're looking at behind the meter power. We're managing waste products or, or what I would call byproducts like salt water disposal. So it's, it's a, it's a, you know, it's a, it allows us to have ultimate flexibility to try to focus on profiling where the bottlenecks are and therefore where are the highest rates of return and trying to drive capital to those areas.

B (52:09)

Well, fantastic. I wish I had enough money to invest, but well, Jason, it's been a real pleasure having you on. I look forward to having you on again in the future. I think we found now sort of someone who can update us on what's really going on in Shale and beyond and some fascinating theses. So really enjoyed it. And yeah, look forward to future conversations.

A (52:30)

Paul Me too. Thanks for inviting me on. I'm happy to, happy to be with you today. I really appreciate the opportunity.

B (52:43)

Thank you for listening. To find out more about HC Group, our global offices, and our expertise in search within the commodities sector, please visit www.hcgroup.global.