WHY I AM A CARBON OPTIMIST

[Applause]

i’m going to talk about the pace

of energy transition

the transition away from carbon to

something else

now why why is that important well if we

can accurately predict

the pace of energy transition we’ve

solved for one of the major variables

in climate change so i think it’s very

important

i have about a 40-year history in the

energy business

is there anything i’ve learned in that

40 years that might give me special

insight or special ability to be

predictive

i think there might be i’m going to make

a bold prediction

tonight i think that in the next 10 to

15 years we will largely have solved

human-caused climate change

because it’s working at a pace today

that was unimaginable

even a year or two ago we’re not going

to solve it from policy changes we’re

not going to solve it from regulation

we’re not going to solve it from

pandemics we’re going to solve it

from ingenuity from technology from a

massive

redirection of private capital in the

many many many trillions of dollars

you’ll see this in a minute and we’re

going to have fun doing it that’s why

i’m here

so a little

a little bit about me i’m a third

generation montanan

lived in nine different places around

the state a lot of disruption in that

my father started as a lineman climbing

poles from a montana power company

retired as president of the company

that’s obviously a company that was one

of the founders of big sky

i was very fortunate in the in the in

the family i grew up in

my father was one of 10 children i have

33 first cousins

we get together regularly every three to

five years

either at one of my ranches or somewhere

else in the state

and usually two to two hundred and fifty

lucians or lucian related people

show up i have benefited immensely

from the culture the the ingenuity

the fun of that family it’s full of

pranksters

it’s full of practical jokers it’s full

of some of the most creative people i’ve

ever been in a room with

i’m always forced to remember

a couple of the people of those 200 or

250

one of my my group owned a gas station

in eastern montana and it was in the

days this is in the 60s where there

wasn’t indoor plumbing

as most montanans do he had a complex

outhouse system out back at the service

station

a hers and a his two holes on each

never a single always two holes maybe

three maybe four maybe five

he got so annoyed at people from the

east coast 250 miles inside montana on

the way to the mountains

not having seen a mountain being rather

foul foul

in their attitude slamming the door of

the car this is back in the

self-service days uh full service days

and asking where the bathroom was and he

got

quite comical about this to the extent

that he wired up the hers

with an intercom system under one of the

seats

he would give the lady a minute or two

to sit down

and then he would get on the intercom

and say ma’am do you mind moving over

i’m

painting down here can you imagine what

that did to somebody

i never forgot that we had another of

the family or one of the family friends

who who got his veterinary degree and he

moved to cody wyoming

he hung out a shingle he didn’t realize

until he got there there were seven

other

vets in town he wasn’t doing much

business well those of you that know

cody

know that cody is one of the real

headquarters of big game hunting

in north america so one of his friends

counseled him that you know veterinary

medicine and taxidermy are pretty close

there’s too many vets but too few

taxidermists

so he thought about it for a while and a

few days later when we walked by his vet

clinic

the sign said veterinary clinic and

taxidermy

either way you get your dog back

that’s the humor of my family

so how did i get involved in the energy

business

like most things a series of accidents

i rough necked in teapot dome wyoming

that’s a well-known place to most of you

probably

and i um i ended up at a place called

goldman sachs on the east coast

in don corleone fashion i was told a

couple years into my career

that i was a fairly mediocre banker but

maybe i could specialize

because montana was such a hotbed of

energy and that’s where i was from

i think they got confused because there

really wasn’t energy in montana there

then it was

north dakota so what’s my career in the

energy business been like

for the first 25 years the energy

business in in america particularly the

oil business was really a backwater

on you know from a global standpoint but

about 15 years ago that changed rapidly

with the shale revolution it changed

because two individuals

george mitchell and mark papa

created a new way to drill oil wells to

turn the bit horizontally and use

a fracking uh technique with with high

pressure water

to break down the rock in a new way

overnight

the u.s went from 5 million barrels a

day of production to 12 biggest producer

in the

in the world of both oil and gas and it

was done

in america even though the resource

existed elsewhere for three reasons

one we only the minerals in america

that’s something that most people don’t

understand

in every other country in the world with

very few exceptions

the government the queen the czar owns

the minerals here

we as individuals own it it gives you an

unbelievable

incentive to make it work and that is

going to play right into decarbonization

secondly the u.s is drilled like a pin

cushion

hundreds of thousands of wells we have

rules here that we share the data on

every well

so when i drill a new well in north

dakota i’ve got 500 wells around

me there to give me data to know what

i’m drilling

in other parts of the world you don’t

have that pin cushion and then we have

rule of law private capital created that

not regulation not the government small

independents that means small oil

companies

not the super majors created and

executed to play

that is what will happen in

decarbonization

now let’s bring it up to today we’ve

been in the renewable

and conventional energy businesses for

many many years but things changed

in a cataclysmic way september

2019. we used to get ourselves that

for kid our clients and our investors

that

no one will get serious about climate

change until jesus comes back

what do i mean by that that free riding

i.e we solve the problem in america but

the chinese do nothing about it

will accomplish nothing until everybody

believes it’s a problem

so it takes somebody of total integrity

to say it’s a problem well it happened

in september

of 2019 jesus came back greta thundberg

it changed everything suddenly

a virgin away from fossil fuels

disinvestment

if you own fossil fuels the u.s election

cycle

the the whole accelerating pattern

against

fossil fuels came to roost

kovad when we were sitting here in march

amongst our our group in our energy

business

we had a raging debate about would covet

accelerate uh energy transition or delay

it

it’s very clear today it’s accelerated

it

today we can’t borrow money we can’t

raise money in the equity markets

for fossil fuels some of our companies

that have leverage

in the form of bank loans and the like

or bonds

have to actually pay down the loans

money they already have

if they don’t conform to certain uh

energy transition edicts that that the

bank provides to them

all that means this is accelerating and

an

incredibly incredibly fast pace

now those of you in march or april know

that

demand for oil demand for gas went down

precipitously

oil and gas produce themselves they

can’t be stopped

we ran out of storage oil prices went

negative

we own a lot of oil tankers most of

those tankers

were doing small circles in the atlantic

and the pacific because they had nowhere

to go with the oil

it was quite a time technology is

changing

it’s overtaking policy what is the what

is the real upshot of this

uh exxon historically was the best

managed company

among many companies many industries it

was also the biggest

today give you an example of three

companies

exxon equinox nextera

exxon you know equinox is a digital data

center company

nextera is a is an old florida utility

that went

wind in the last 20 years exxon stock

price is flat uh

equinox is up by a factor of three

nextera up by a factor of ten

next two r is bigger than exon now all

the big

apples and microsoft are ten times the

size of exon

if you don’t see the tuba is blaring

fossil fuels are over now how does that

play into our business well we

have one of those guys that created the

shale revolution

mark papa created the best shale company

in the world eog

then came to to our company after he

retired and he created a company called

centennial

we’re in the best rock best base in

permian best management team

and we keep beating the estimates the

quarterly estimates that the street have

for our

operations and our stocks down by 93

that says the business has changed now

where has it changed in the other

direction

well look at this in the last 20 year or

10 years

solar cost down to 80 percent solar

usage up by

by 1300 percent same with

battery costs battery costs are down 80

percent

evs are up by and five hundred percent

so obviously there’s a lot of positives

in this business

they’re not in the fossil fuel area

what’s the lesson

the lesson is the business is headed at

a very rapid

pace toward energy transition non-carbon

government and top-down investment

programs are not the way that happened

it’s all because of private capital

that’s why

i’m so bullish on how quickly this is

gonna you’re gonna

happen the other thing i would say the

biden administration while i say that

regulation and policy doesn’t matter or

doesn’t matter that much

you know people always ask me you must

go to washington dc all the time

because you’re in a business that’s so

regulated i said i’ve i’ve done this for

41 years

i’ve been to washington dc twice so i

don’t think regulation makes that much

difference

but what does make a difference is we do

change at the top

we do get a breath of fresh air i’m

reminded that when i was in

college in england i used to hang out as

you might expect

at the pubs with a bunch of my british

friends they usually usually picked on

me and my other

american classmates to say you yanks are

stupid

you’re not well educated you don’t work

hard but you are going to win

every single time because when it

doesn’t work

you change that’s what we’re doing here

now here’s just a slice of my life this

is just the last few days

living here or living in america and

just seeing the headlines that cross my

desk

this is the time for decarbonization if

you just look at a couple of these

climate change is going to be very

expensive that’s what the chicagoans say

you look at cnbc sustainable investing

is now

a third of all the investing in the

world all these

hundreds of trillions of dollars a third

of it

only goes to sustainable businesses

that’s up from zero

10 or 15 years ago that means we have a

limitless pool of capital

to try to attack the technical problem

or other problems related to energy

transition

likewise you know associated press says

it’s not too late and it is not too late

we can

we can change this thing fairly rapidly

the b of a

comment is a comment about a financing

technique that we and others use

that is really directed toward

decarbonization called a spac i’m not

going to take time in this forum to

explain this

but we are raising billions of dollars

of this it’s in the newspaper every day

it was in the newspaper

today probably half of my uh headlines

that i got today

we’ve raised six billion dollars in that

business but we need two and a half

trillion

so people always say well is it a bubble

is there too much money being raised

i just pointed to that number we are a

long ways

relative to the opportunity in raising

the money that we need to do this

now the title in my my talk was

excuse me was all about s curves what’s

an s-curve

it’s what’s drawn on the page it is a

measurement of the rate of change or

rate of adoption

for new products new technologies

whatever

and the line basically says these come

in all shapes

it starts out slow you get to an

inflection point

everybody wants it you can think of all

the things that everybody wants

then you get a flat point what’s the

flat point either you read saturation

or you’ve reached a point where other

technologies other

products are better now for those of you

who are wondering

well how am i going to use this you can

use s-curves for anything

we talk talk about this and we come up

with new categories we can apply an

s-curve to

one of them is sex

now if you’re sitting there looking at

and saying what could this

possibly mean you’re applying this to

sex

well i’ll give you a clue the upper flat

part is the cigarette in

bed all right let’s talk about

rapid change all right these are going

to go quickly that’s a picture of new

york city

1900 there is one car there

13 years later there’s one horse

rapid change the amazing thing and this

is where i argue with people that we’re

never going to change the infrastructure

the creating all these new charging

stations and all this

the people that were there then created

two new industries auto and oil

they built road infrastructure there

wasn’t any they trained the workers

they invented assembly lines and they

fought world war

one all at the same time you don’t think

we can do that again

i think we can these are by the way

some of these graphs are are compliments

of

a fabulously gifted person i would

recommend you look up if you don’t know

tony seba he’s a futurist at stanford uh

this is his graph

but this basically says look at a whole

let’s look at a whole bunch of s

curves and see if there’s anything

changing over time well it’s very simple

look at power look at cars took 50 years

to get to saturation

look at the internet look at the iphone

took two years

we are living in the two year phase so i

think we’ve got a lot to look forward to

in in terms of decarbonization we have a

very special relationship with mckinsey

so i like to pick on them mckenzie the

brightest guys in the room

1985 they got hired for millions of

dollars by at

t to predict how many cell phones will

it be in the year 2000.

they predicted 900 000 there were 110

million

they were off by a factor of 120. i want

that job

now here’s some of our predictions or

our use of other people’s data

to stack up how rapidly we’re getting

too conservative

this is a series of of predictions

on the wind installed wind

in in the u.s it’s done by the iaea

which is

international energy association one of

the many or agencies rather one of the

many

predictors but if you look at the time t

zero to t9

we refreshed each one of these

predictions you see how rapidly they’re

saying we were wrong we were wrong it’s

much faster three times what we thought

there

if you go over to solar much faster 22

times faster

and by the way solar and wind that’s the

old news

we’re talking about all these new things

that are part of decarbonization

so where are we focused we think

there’s six trillion dollars a year of

spend

that’s going to be required to

decarbonize the world

there are six areas that we think are

investible

today where you can actually take other

people’s money

and put it to work because we’re a

custodian for other people’s money

and actually turn a profit those are

those six areas are electrification of

transport

that’s essentially evs grid flexibility

that’s batteries

batteries are the are the are the holy

grail of our business

greening of fossil fuels which means

cutting down on emissions there are a

whole variety of ways to do that

proven agriculture i’ve been in the

energy

energy business for 40 years i’ve been

around the ranching business for

all of my years i’ve owned ranches in

montana and wyoming for 30 years

and i will tell you a simple thing we

generate about ten dollars an acre

of contribution in our cattle business

here in in montana we’ve had a number of

the new technology experts out to look

at

ways we can plant cover crops or do

other things

you’ve probably heard about no-till

farming and things like that

and generate in some cases only with a

few acres

three carbon credits an acre well that’s

60 dollars

you think it’s going to take a bunch of

farmers very long to figure out that

they can make a lot more money

doing the right thing i don’t think so

so i think the the world is

very very bright by the way i didn’t

cover the last two sections which are

basically hydrogen and then just taking

the the global supply chain

and making it more efficient those are

areas that that are included in the

three trillion dollars a year

of spend that we see in this business

now interestingly

so i’m a tired old conventional energy

guy

who’s made a pretty good living being

in a business where there’s one trillion

dollars of new spend

every year now i’m in a business that’s

six times as large

it looks like a feeding frenzy to me

looks like an opportunity-rich

environment

so the last thing i will say is the

concept of what i’m talking about is not

new

60 years ago john kennedy said these

words

so it is not surprising that some would

have a sta

stay where we are a little longer to

rest and wait but this city of houston

obviously was doing the speech in

houston

the city of houston the state of texas

this country the united states

was not built by those who waited and

rested and wished to look behind them

this country was conquered by those who

move forward and so

will we in decarbonization

the last thing i’d say is

i would be very optimistic about climate

change

sit back relax

be positive things are going to get a

lot better

they’re getting a lot better much faster

than i think they’re going to get

it’s going to take a lot of private

capital it’s going to take a lot of

ingenuity

it’s going to take some pranksters and

you know

folks like my relatives it’s going to be

fun

the only thing i would say is fasten

your seat belt it’s going to be a heck

of a ride the next 10 years

thank you

you