048 Arjun Murti, Partner at Veriten

[00:00:00] Arjun Murti: And it’s being forgotten right now with the what I’m going to call it. Necessary focus, but ultimately obsession about CO2 being all that matters. People are forgetting that you have to start with energy. It has to be abundant and affordable and available for all. And once you address that, then we can start talking about what are the environmental and emissions attributes and so forth that we clearly do need to focus on.

But people need energy. There is not life without energy. And I don’t know why people forget it, but we do have to seemingly be reminded every so often about

[00:00:28] Intro: Just because the facts are A, if the narrative is B and everyone believes the narrative, then B is what matters. But it’s our job in our industry to speak up proudly, soberly. And to engage people in this dialogue. Those two and a half billion people that are in energy poverty, they need us. America cannot meet this threat alone.

If there is a single country. Of course the world cannot meet it without America. That is willing to. We’re gonna need you. The next generation to finish the job. Overhaul nuclear radiation. We need scientists to design new fuels. And focus on net public benefit. We need engineers to invent new technologies.

Over absurd levels of radiation. Entrepreneurs to sell those technologies. And we will march towards this. We need workers to operate a. Assembly lines that hum with high tech, zero carbon components. We have unlimited prosperity for all of you. We need diplomats and businessmen and women and Peace Corps volunteers to help developing nations skip past the dirty phase of development and transition to sustainable sources of energy.

In other words, we need you.

[00:01:33] Mark Hinaman: Welcome to another episode of the Fire2Fission podcast, where we talk about energy dense fuels and how they can better human lives. My name is Mark Hinaman and I’m joined today by Arjun Murti, Partner at Veriten. Arjun, how are you doing?

[00:01:45] Arjun Murti: I’m doing well. Thank you for having me, Mark. Nice to see you here.

[00:01:48] Mark Hinaman: Yeah, I’m, I’m really excited to. I feel like I know more about you than you’ll ever know about me because you put out a lot of great content through close of business Tuesday and super spiked and your own podcast. And so, uh, but I’m always impressed with kind of your intelligence level and, uh, your view on, on the world.

So I’m excited to get to chat with you.

[00:02:12] Arjun Murti: Thank you so much for inviting me. As I mentioned, I’m excited that you are an apparent CU Buffs fan. So, uh, I went to college in Denver and they were our adopted college team and, uh, excited to be here with you. So thank you for, for those

[00:02:23] Mark Hinaman: just listening. I’m wearing a, a CU Buffs sweatshirt.

So, yeah. Um, all right. So Arjun, uh, we’d like to start by giving some background on the guests. Uh, so why don’t you give kind of a. Brief 30 second overview of what you do at

[00:02:39] Arjun Murti: Veriten. Sure, so Veriten is a firm that is helping energy companies, large and small, it is global though with a huge North American focus, to help them think through the energy outlook, and that includes macro, it includes Things like transition.

How do companies think about what role they have going forward? It is to stick with oil and gas. If that’s their background, is it to try new energies and all that kind of stuff? What is the outlook for growth for returns and all these kind of things? My own background is as an equity research analyst is still how I identify.

So I’ve been doing this for about 30 years, all focused on energy. Bulk of my career is at Goldman Sachs and people can see all the stuff on LinkedIn, but kind of. First 20 years as sort of a public Wall Street equity research analyst. The last decade I’ve been on various boards and advisory roles. And then my, our mutual friend Maynard Holt convinced me that unretiring, as I say, I retired from Goldman in 2014, unretiring, uh, to join Veridan as a partner earlier in 2023, it’s been a great decision.

Kids are leaving for college. And we’ve got this crazy new energy cycle upon us. And I try and bring that perspective, sort of a lifelong career energy equity research analyst to thinking about the sector and the world going forward, tracking

[00:03:54] Mark Hinaman: equities in the public market over the past 20 years. Well, I guess you said 20 years to 2030,

[00:04:00] Arjun Murti: 30, 30.

So you gave it away the first 20 at Goldman and then the last 10 in these boarded advisory roles. So, yes.

[00:04:06] Mark Hinaman: Yeah. Um, so, I mean, you saw it through. What? 90s, 2000s, and then 20 teens, right? Exactly. Yeah. Yeah. Give us some perspective on, uh, maybe some of the most exciting and some of the most depressing times, uh, through the 90s and 2000s.

I mean, I know you’re not maybe prepared for that, but the kind of what, what comes to mind is, uh, it was kind of a sleepy time in the industry, right?

[00:04:31] Arjun Murti: There was, uh, oil price

[00:04:33] Mark Hinaman: was kind of just hovering in what I would say kind of a bottom, uh, relative

[00:04:38] Arjun Murti: to now. I mean, it’s funny, but I’ve been in both a lackluster period, a super cycle, the bus from the super cycle.

And now whatever this recovery is being called energy, messy energy transition is the word I use. And it’s been exciting throughout. So I’m by chance in the energy sector. I, my 1st job happened to be at a boutique oil and gas investment bank is how I got into the sector. But I started when, Okay. Henry Hub Gas had just fallen below 1 and it was a big deal that it was below 1.

And then 1994, oil collapsed because Mattel and Gesellschaft, a trading firm, had some issues and oil, I can’t remember the exact price it fell to, but it was like 12 or 13 from what had been kind of a 15 to 20 per barrel oil environment. We had the Asian financial crisis in 98. We had the tragedy of 9 11, which I worked downtown at the time.

You know, we had the tech bubble burst and boom. We’ve had The great financial crisis oil going from 20 to a hundred to ultimately one 47 and myself and my team. And, uh, you know, we’re kind of a big part of sort of making some, some good and bad calls in that period. And then the post boss 24, like it has been a global sector.

It’s been volatile and whether it’s been in favor or out of favor, it’s actually always been important. Um, I used to say that like, even in 1999, at the height of the tech bubble burst, Exxon was always a top three S and P stock. That has been true until the last five years. And people always care about the price of oil.

No one debates polypropylene prices. No one debates the price of Coca Cola or Starbucks coffees, but everyone. Has a view on oil prices. It impacts presidential elections. President Biden clearly felt pressure when gasoline prices rose above 5 a gallon, you know, two summers ago, or whenever it was. And it’s not just Biden.

It is all presidents always care about the gasoline price. And so I’ve been very lucky to be involved in this sort of great global and important sector. Irrespective of whether the sector itself from a public equity standpoint has been in or out of favor, I consider myself very lucky. I’m an accidental energy equity analyst.

That is for sure.

[00:06:45] Mark Hinaman: Yeah. Um, exactly right. It influences everything we do. That’s why it’s so exciting. Sometimes it can feel boring because it’s like, it’s every day. There’s always the oil price and it always comes back. But yeah,

[00:06:58] Arjun Murti: I mean, it’s so fundamental to life, right? And so I interrupt people take it for granted.

So the cycles are long. We say 15 years up, 15 years down for, let’s just call it traditional oil and gas. And I think for some newer stuff like residential solo, these cycles are seemingly much shorter and so forth, but you know, oil is longterm in nature. It is 80 percent of our primary energy comes from oil, gas and coal.

So it is just fundamental to everything else in life. This, you know, zoom recording the clothes were wearing clearly powering the lights that are on in our respective studios driving our cars. But it is everything. It is not just gasoline and power gen. It is a building block for everything. And I think that is often forgotten.

And it’s being forgotten right now with the what I’m going to call it. Necessary focus, but ultimately obsession about CO2 being all that matters. People are forgetting that you have to start with energy. It has to be abundant and affordable and available for all. And once you address that, then we can start talking about what are the environmental and emissions attributes and so forth that we clearly do need to focus on.

But people need energy. There is not life without energy. And I don’t know why people forget it, but we do have to seemingly be reminded every so often about it. It’s easy to forget because

[00:08:12] Mark Hinaman: it’s so easily available. Right? I mean, we haven’t had shortages of gasoline in the United States or really globally since like the 80s, right?

I mean, you never run out of energy, but when the power goes out, people notice, right? So,

[00:08:29] Arjun Murti: um, People, it is, you know, it’s funny, it is in some respects Available and abundant. It is a miracle of industry of economic systems. You know, some energy is produced by privately owned or publicly traded companies that are in capitalist systems, but some comes from state owned companies, which are anything but.

Capitalist and orientation states like Saudi Arabia and Russia and some of these places and so forth. But whatever it is, um, it is a really hard thing to do. And I think those of us in Wall Street don’t have sufficient appreciation for the challenges of actually creating, getting energy out of the ground, converting it into a useful product, let alone the broader public.

And again, I think it feeds into, The unfortunate dialogue that’s happened around energy transition. Well, this stuff’s this easy. You snap your finger and boy, we can get gasoline. He’s in. Yeah. I remember in the seventies, there was some price controls and some embargoes that caused gasoline. Well, I was, you know, I was alive for that.

I remember waiting in gas lines with my mom, uh, I didn’t even license plates and these kinds of things that people take this stuff for granted. And they think it’s easy. Um, and I think we shouldn’t confuse the fact that it’s been a very successful in the sense that we have had. Miraculous economic growth.

We have the least number of people in poverty globally. We have had massive population growth, all driven by energy, but it’s not easy. And therefore transition is not going to be easy. And I know that’ll be something we’ll talk about. Well,

[00:09:53] Mark Hinaman: your perspective is a good one, I think, and it brings to mind the age of the industry, you know, oil and gas isn’t.

A young industry relative to, say, the carbon capture industry or a carbon credit market. I mean, we’ve been doing this since the 1800s and globally it’s over 100, 150 years old. Right? So, um, if if you look at it from that lens, then the new energies that we’ll talk about it. Is very young and, and has, has room

[00:10:19] Arjun Murti: to grow.

So I think that’s right. And so the, you know, these, the idea that by some random round number year, and you can call it 2050 or 2040, or even 2060, that we will have shifted out of something that’s taken 150 years to build up. And again, with it created significant population, economic and lifestyle improvements, poverty reduction, all these kinds of things.

And that this can sound out just totally transformed over the next 30 years. In the existing places that are lucky to have abundant energy, and I’m talking the lucky 1 billion of us in the U. S. Europe, Japan, Australia, New Zealand and Canada versus the other 7 billion people on earth. And we’ll get to this.

I know that are using a fraction of the energy that we do that. You’re going to transform all all of this into new stuff that is largely untested at scale. Uh, you know, That is what I push back hard on. It’s not that we shouldn’t care or want to do new energies. I think the world will absolutely want to, because it is not going to want to just be dependent on Saudi, Iraq, Iran, Russia, or for that matter, depending on the country, the United States or Canada, what everyone thinks about any country, uh, as, as, as a foreign nation, you’re going to want to be.

You’re going to want to try and control your own destiny. And that is the motivation of doing new energies. But the idea that we can just scale all this stuff up and satisfy all the world’s current needs and future needs by 2050 or 2060, it’s absurd. It’ll take this whole thing will take 100 to 150 years.

That is the kind of timeframes. It doesn’t mean we shouldn’t think about being urgent, but it is a hundred year transformation. It is not a 10 year transformation.

[00:11:54] Mark Hinaman: Which, if it’s going to take that long, we’ve got to start now, so. For sure.

[00:11:57] Arjun Murti: Absolutely. There’s nothing about what I’m saying that says anything should be delayed, I should be clear about that.

It is about being pragmatic and realistic about how big of a challenge we are facing. And I know we’ll get to nuclear, but The fact that it’s only just now starting to gain some acceptance as a possible, like if we want to decarbonize, it’s going to have to be a big part of the solution, and I think it’s a great case in point that let’s not wait 10 years to then recognize we need to do nuclear.

That’s an example of something we should be aggressively going after today. Still keeping in mind, it’s going to take 50 or 100 years to get nuclear to where I think it needs to be, and that is a major part of the energy mix. I couldn’t agree more.

[00:12:39] Mark Hinaman: So Arjun, tell us briefly about Veriten. I mean, you mentioned kind of 30 second overview of what you guys did, uh, but what’s your role within the organization?

Uh, I mentioned close the business Tuesday, right? That’s a podcast that you guys run on Tuesday afternoons and then release on Wednesday mornings. And then super spiked is kind of your own brand. Um, give us some perspective on kind of the organization and, and what you guys. Trying to accomplish.

[00:13:04] Arjun Murti: So there’s five partners and I wanna say 15, soon to be 16 employees in total.

And the five of us have generally known each other for some version of 20 or 30 years. So Maynard Holt, our

[00:13:15] Mark Hinaman: founder. That was gonna be my question. How did Maynard loop you back in to get come outta retirement?

[00:13:20] Arjun Murti: Maynard and I worked together 20 years ago at Goldman Sachs, and I do remember going to lunch with Maynard.

It was probably 2001, 2002, an analyst. He was a BA banker, I was an analyst. We could talk to each other in those days. And his dream. Was that him and I and a third person, Mark Meyer could do a radio show because there’s no such thing as podcasting or zoom or those kind of thing. We just talk about energy issues and educate people.

And he’s always had that dream. And, you know, he, he left Goldman founded Tudor Pickering Holt, one of the leading boutique oil and gas investment banks. And when him and Bobby sold it to Perella Weinberg, and he said, I’m going to start something new. I want to start a company that is not an investment bank, but that helps companies.

I want to. Start a company that is involved with research and education, but doesn’t do traditional sell side research. Same thing for capital markets and all these other areas. So we’re a non investment bank that wants to help companies think through what does energy transition mean to help them.

Strategically analytically work through whether it’s transactions or analysis or what have you. And we do that based on our background. So we don’t view ourselves as a competitor for investment banks. They’re going to help companies actually close and complete transactions. What we’d like to do is help companies say, is this good or bad?

We’re not going to get paid a fee on whether you successfully do the transaction, which is how. Most investment banking works. We’re not going to do research that’s targeted at the buy side investors to try and make buy, hold, or sell decisions. We’d like to do macro oriented research that again, speaks to where’s this industry growing over the next 10 to 20 to 30 years, uh, to help boards and executive leadership teams think through thing, both close the business Tuesday, which is a weekly video podcast.

And my super spiked, which I publish on Saturdays, which is usually written, but has an occasional podcast or video every 3rd or 4th week, it is meant to be in part energy education for the masses. So both are broadly available to anybody. They’re both for free. And we noticed there’s a lot of energy illiteracy out there and whatever small role we can help.

Play in educating the world is the real point of that. It obviously has some networking and those kind of benefits as well. But it is meant to be energy literacy and energy education and just sort of here’s what we think of the world. And those are the 2, 4 free things we produce. And I’m sorry, there’s a 3rd thing we do.

So we. Produce some of this research content. We try and help companies strategically think about where they want to go. We also have an energy transition fund called next 10, uh, any X. T. E. N. it’s 85 million dollar capital be raised and that is focused on really new energies exclusively. Um, we like and invest in support oil and gas, but for this funds fund specifically, it is focused just on the new opportunities.

Yeah,

[00:16:03] Mark Hinaman: no, that’s excellent background because looking from the outside. It’s not always obvious And I love that. I mean you guys aren’t I won’t say old guys But seasoned professionals that have kind of

[00:16:13] Arjun Murti: leaned and we’re definitely all we have one one younger person But we’re definitely on the older side of things We’re I’m noticing that we’re older than some of the management teams now And I it’s a weird thing when suddenly like wow that CEO is actually like 47 or something like that, which to me now seems like super young.

So, but you’re leaning in, you know, we’re podcasting, you know, we’re making the company that we want. Got this vision. It’s cool. I like it. Well, we have a former president who became president through Twitter. So I think social media should be part of everyone’s playbook. So if you can go from not being a politician, I’m not trying to make this controversial, but it’s factual.

He went from not being a politician to being president in part from celebrity apprentice and in part from Twitter. There’s something to be said for figuring out new ways to be visible. I think that we can take away whatever one’s view is of, of any of our politicians, we can take that away from it. So,

[00:17:06] Mark Hinaman: so what, what is super, you mentioned, uh, it’s.

Industry research and you publish an article. I always love it. But what do you try and accomplish with this

[00:17:17] Arjun Murti: newsletter for 10 years? I’ve had these various and involved with Columbia Center on Global Energy Policy. All is an advisory board member. And the point there is all of these are sort of behind the scenes kind of roles.

And I have the Learned a lot and really loved all those engagements and all three of those, by the way, are still active. I’m still, I’m still continuing with all three of those while having joined Veriten, but what they don’t do is provide some sort of public outlet and you’re certainly behind the scenes and sort of giving advice or governance as you will.

As we went through sort of 2018 2019, the ESG movement rose, suddenly everyone became quote Paris aligned on their objectives. Uh, you know, and we then started moving to this world of sort of energy transition has to happen by 2050. I feel like there’s been a lot of noise, a lot of misunderstanding. I’m going to call it misinformation.

from folks who think we can do this quickly and that we have all the technologies and that it’s just a question of will and we just need to really believe and really double down if we could just stop those awful oil company lobbyists or some of the climate deniers. Oh, it just be golden out there. And there’s large aspects of that.

So it’s one thing to say, okay. There’s some mistakes that all companies have made over the years. Some of them had poor profitability. Maybe there were statements made about the effect of carbon emissions and so forth that, you know, one could question the validity of those statements. You know, looking back now, 20 years from now, there’s plenty of misinformation that comes from those most passionate about the climate as well.

And my point is not to be pro or con anything, actually. It is to take that equity analyst perspective and say, what do I think is actually going to happen? What is, what is the path forward? How do I make the right call on how much oil and gas we’re going to use? What is the scope of ramping up solar or wind or battery storage or electric vehicles, and how will that interplay with broad economic growth and lifting 7 billion people further out of poverty?

The, uh, and there’s a long way to go on that metric. And how does that all add up without being an ideologue about it? And that is why I created Superspike. It was in reaction to what I viewed as. We’re on track for a really messy energy transition where energy transition, certainly in 2020 and 2021 seem to mean we’re going to yell at a bunch of oil companies.

We’re going to protest oil and gas projects, but mind you, only the United States, Canada and Europe, for some reason, we’re not going to go to Saudi Arabia. We’re not going to go to Iran. We’re not going to go to Russia to keep it in the ground. We’re only going to protest and put pressure on Western. Oil and gas companies and that’s somehow by putting that pressure will result in less supply and that will lead to less demand and then they will be out of the way and we can ramp up solar and win and just, you know, such a piece of cake, right?

And there was no, there was no part of that that I thought made any sense. You can yell at oil and gas companies all you want as an equity analyst. We definitely don’t love all oil and gas companies, right? Plenty of companies that give you a real bunch of heartache. And you think, man, they are making some bad investments or they’re too optimistic or they missed their targets.

Like wall street analysts are totally capable of completely disliking large segments of the oil and gas industry for reasons of, Hey, they were bad stocks and they misled us on some. Production target or what have you. So it’s not about loving or hating the industry, but it is about recognizing we absolutely need oil and gas supply.

So no one has to love oil executives. I happen to like many of them. And there’s some that I don’t like as you’d expect throughout society. And it’s true for any sector, tech, pharma, doctors, nurses, not every, you know, all, all aspects of life. Um, the idea that. Energy transition means shutting and supplying Western countries is really the part that I think is most problematic at its core.

It is not going to lead to less demand. It is going to lead to greater political power in places like Saudi, Iraq, Russia. We can see that we can see that in the last 2 or 3 years. It’s going to lead to high and volatile prices, and we’re not going to be. Affecting our co2 trajectory, even one iota. So for those again, who are most passionate about dealing with carbon emissions, I didn’t think there was any part of their strategy that was going to help what they purport to care most about, which is addressing carbon emissions.

And so all of that was the motivation to write super spiked. And my point was simply that, hey, I think I do know something about energy doesn’t mean I’m right, but let me at least share my perspectives. And no matter how I’m coming across now, I really hate. Parsonship on both sides. I don’t like the hard left that we need to yell at oil companies and keep it in the ground, but I don’t like the hard right either, where the view seems to be soul and winderdom.

The climate’s always changing. So let’s just skip it all. And you could have that view. What I would say is that if you’re China. And you’re currently importing 12 million barrels a day of oil and you don’t have robust oil supply to match your demand growth and you’re only at four barrels per capita of oil consumption.

The U. S. Is that 20? So, yes, you’re richer than you once were, but you’re definitely not a rich country yet. You’re somewhere in that middle income level. You’re going to be highly motivated to try and figure out ways to not consume as much oil going forward because you don’t have it. And so there’s a huge case to be made for new energy.

I would say. Okay. China would rather have a coal fired EV over an OPEC Plus or shale fired ICE vehicle. And I think India is going to be the same. I think the rest of Southeast Asia, meaning they’re going to be highly motivated to try and do stuff that does not require energy imports. You don’t want to be dependent on oil, and you don’t want to be dependent on natural gas or LNG if you don’t have it.

Doesn’t mean you’re not going to be using more of this stuff. I think, I don’t think there’s any decade, let alone year, Where we can today point to, well, that’s when it definitely because we don’t know because the energy needs of the rest of the world is so massive and we don’t know what else is going to scale up and help meet those needs.

So I think oil and gas will be a part of the solution. There’s a huge motivation to do new energy says there’s no reason. And by the way, we do have environmental challenges. That frankly, Republicans on the right in the U. S. could do a much better job of proactively addressing. And there’s lots of benefits, in my opinion, for dealing with carbon emissions.

Uh, certainly dealing with methane, which is a source. Why wouldn’t we want to capture it and try and, uh, you know, both reduce our emissions, but also provide a product that can be sold to, to those in need of, of, of energy. And so, both sides of issues. There’s a need for pragmatism. The last thing that should be partisan is energy.

It doesn’t, it doesn’t make sense that. Oil and gas is Republican and solar and wind are Democrat. How does that make sense? I think the role of markets versus the role of government policy, that to me should be the appropriate level of debate for energy. Do we need a lot of heavy handed public policy, which is something Democrats might favor, or do we find innovation and free market solutions that Republicans may favor?

And of course, with energy, we’re going to need a mix of the two because you will not solve all your energy needs. It’s only with free markets or only with government policy, but why isn’t that the source of debate? Why is it the energy source, wheeling gas versus renewables, that somehow is our partisan divide?

It doesn’t make sense. And all of this is a long winded way of saying it’s what motivated me to start creating Super Spiked. I love it.

[00:24:20] Mark Hinaman: I mean, that’s just a ton of information and different topics that you think it sounds like a simple subject. You talk a lot about it’s super spiked, uh, R O C E or return on capital.

It’s fun when I talk to finance guys, uh, in physics, there’s so many, it feels like there’s a singular truth, right? Many problems are deterministic. And, um, as an engineer background, it’s like, Oh yeah, well, that’s just how something that exists. Right. But then we have these units and you do unit conversions all the time.

I think of many financial maturities unit. Conversions, but, um, some of them are, there’s nuance to all of them. So, um, it’s kind of a simple question for finance guy, but, uh, give us kind of an overview on this metric return on

[00:25:06] Arjun Murti: capital employed. I actually think you set it up very well. It’s interesting to talk to someone with sort of an engineering and science background because.

That notion of a singular truth is actually, it really resonates where when it comes to profitability, there is definitely not a singular truth. So return on capital employed is a metric. It’s one of many. Um, you can’t always talk about nine metrics. The idea is to provide a metric that represents total company profitability.

So other metrics that have been talked about is I’m going to drill a shale well. Here’s the internal rate of return on this singular well. And the issue that has occurred for this industry over the last decade is the project returns. In this case, a shale well, it could be an LNG project, oil sands facility, whatever.

They look really good. They look good. And so the issue was like, so these companies said in the, in the 2015 to 20 period at 50 oil drilling shale wells in the Permian, Eagle, Ferdinband, we were going to generate 30 to 50 percent IRRs internal rates of return 30 to 50%. And I feel like For a non finance person, that sounds like a great number.

I mean, if interest rates were zero and like 8 or 9 percent sounds like kind of a stable return, 30 percent, that’s a really high return. And you know, their total company profitability over 2015 to 2020 was either 0 percent, minus 1 percent, or minus 4 percent, depending on exactly which year you’re including or excluding.

And are you including 20 companies or 22 companies or 18 companies? But it was, Basically, 30 to 50, they didn’t actually make money. Exactly. Yep. There were taxes, acreage costs, the wells are more heterogeneous than the simple IRR math will lead you to believe. In some cases you drill the well. But you didn’t complete the well, and you know, like, what’s the return on that?

It’s negative 100 percent while you’re waiting for the stupid well to come online, and if it took three years for the duck, as they were called, the drilled but uncompleted well to come online, then over the period you were, you’d spent a bunch of money on your well costs. It’s like, It was ridiculous.

Like it wasn’t like in the old days when you did Gulf of Mexico or oil sands, because the project costs included most of the costs at the time. If you’re doing an oil sands facility, you’ve got an upgrader, you’ve got to steam the wells. You probably have to have like some sort of sense of a refining thing.

Like there was a whole bunch of costs that get gotten with, because shale incurred in the U S with the industry is fragmented. So you’ve got an upstream company. You’ve got a drilling company. You’ve got a mission company. You’ve got a process. It is so disaggregated because it is mature. That is, on the one hand, a good thing.

On the other hand, it led easy and peace to overstate what their profitability was. And so, you know, it is a metric. There are other metrics. 1 could use their pros and cons to the technical return on capital employed calculation. But I do think some notion. Of a total corporate level, profitability is important, and you can still talk about project returns.

And I think companies understandably do that, but they do have to tie it back to what the total enterprise is making. And that was really lacking, uh, really, frankly, for most of my career, but certainly in the last decade. And I think industry is doing better on getting closer on these things now. So, um,

[00:28:19] Mark Hinaman: for some projects in different.

Uh, energy space or different energy generation technologies. Uh, the returns haven’t been as good as oil and gas. Um, I mean, notwithstanding 2015, 2020 returns were not good on a company wide level. Um, but I think the renewable sector comes to mind, right? The wind and solar booths and having four to 6 percent price return on those projects and being long projects.

Like I, it’s always been difficult for me conceptually to understand how you would build a successful company and expand at kind of that small growth rate.

[00:29:00] Arjun Murti: You know, there’s no simple answer to to to your comment. And so, yeah, I don’t know that. Yeah, let’s just stick with actually, let’s do offshore winds.

And that since that’s an obvious case in point. So they were targeting at the end of the peak of the cycle, which was now 2021 2022. I’m talking about offshore wind in the United States. States. We’re going to secure a 5 percent rate of return. That sounds like a low number. I don’t think you can say 5 percent in and of itself is low or high.

What the problem was, it turned out to be low. Um, not because 5 percent was necessarily low, but because the capex and the underlying costs were not hedged. Uh, you know, so suddenly. Uh, if you if you could guarantee the 5 percent and you have a 30 year kind of fixed return on your power with some escalator and you levered it up, you could actually make the case that the levered returns 12 percent or something like that.

It’s hard to simplify any of these things. And again, I think there was a lot of bad investments made, especially in offshore wind. You can see the write offs. I’m not defending the 5%. What I would argue, though, is. I think all these profitability, um, statements or analyses, they’re far more complex than the simple, well, solar is 4 percent and oil and gas is now 15.

Oil and gas is more volatile. I think oil and gas overall has generated a cost of capital return, actually, as one would expect in commodity business, but there’s a subset of companies. That has generated mid teens or better returns on capital over very long periods of time that they’re now getting back towards that are sort of in the very good bucket, but the frankly, many bad companies who are 3rd and 4th quartile companies who frankly, I’d rather have a solar return at 6 percent with the right solar company that has correctly hedged their CapEx and costs and so forth.

I mean, so it’s hard to stereotype. It is all worthy of discussion. And of course, people always make whatever point they want to make. So, like. Hey, if the last decade was poor for oil and gas and you want to disincentivize oil and gas investment, you say, well, look, they didn’t even make good returns. So you should all be doing solar, which the 7 percent in solar kind of equates to some long term average of 7 percent for oil and gas.

And there’s a lot of politicization of these returns. And I think that is if financial analysts have any role in the world is to help sort through profitability. And I don’t think, you know, no energy source. No region is absolute high or low, like take the Permian Basin. They’re good parts and the bad parts.

Um, they’re good companies. They’re bad companies developing the wells. You just can’t say all the Permian is low cost and high return. Some is, some isn’t. That’s going to be true for solar. It’s going to be true for wind. It’s going to be true for basically just about everything. It is going to depend on exactly the nature of the resource on the project.

Who’s doing it. What they’ve hedged or not heads, how good they are at executing. They’re just so many variables. What I would say, though, is for new energies. We don’t know which are going to stand the test of time, excluding government subsidies or those kind of things. And I think that’s where the issue.

Becomes 1 to energy transition, so hydrogen requires. A massive subsidy just to get a project off the ground. You’re going to have to believe from a macro standpoint that hydrogen can scale without subsidy. And I would differentiate that from maybe an individual company. Generating good returns on a on a subsidized project.

And that to me is what a lot of solar is and wind is where if they’ve had subsidies, there’s nothing wrong with the companies who are then sort of, uh, you know, essentially taking advantage of those taken. I don’t mean take advantage in a bad way, but using those subsidies justify their business models.

It’s a complex issue. When I look at it from a macro perspective, I think we don’t know what is going to compete with oil and gas, quite frankly. There are some things out there that show some promise, but man, it is still a long way to go. I like how you

[00:32:39] Mark Hinaman: provide the color that there’s nuance to it, and there can be successful companies.

In an unsuccessful

[00:32:47] Arjun Murti: industry, uh, for sure. And vice versa, right? There are plenty of bad oil companies during the super cycle. As an example, 20 years ago, um, but lots of bankruptcies, right? Bankruptcy lawyers built their careers

[00:32:59] Mark Hinaman: in oil and gas

[00:33:00] Arjun Murti: in the twenties. The trickiest thing on energy transition is if you’re a country like China or India.

You may choose to subsidize things because you’d rather subsidize solar and wind or electric vehicles in your country than import oil or natural gas. And so there is a tendency for oil and gas people to kind of say, well, all that stuff requires subsidies. And yeah, once the subsidies run out, governments can’t afford it.

Um, they’re going to do something different, but it’s. It’s expensive to fight wars. It’s expensive to, you know, I mean, oil and gas prices can be as high as 150 to 200 a barrel. They’re not always 50 a barrel. Uh, there are periods of time where for 10 or 15 years, oil is going up into the right. As we saw in the 70s, as an example, the price of oil went up 10 X in that era.

So it can be very expensive to. To be dependent on traditional oil and gas, I think there will be a motivation for governments to subsidize. If you will, some of this stuff, there’s still a question of, you can’t, it’s going to have to scale up to some degree on its own. And that’s what I, that’s what I push back with on the people who say we can transition quickly.

I don’t think we know, um, what can the degree to which we can scale up without being 100 percent dependent on subsidies. So, Yeah.

[00:34:09] Mark Hinaman: Um, we mentioned solar, wind, uh, nuclear, or sorry, oil and gas, but what about, uh, geothermal or nuclear and their level of profitability and success

[00:34:21] Arjun Murti: moving forward? The most important area is, is the nuclear area.

And that is something that’s really hard to understand why for those people who care most about climate and think that is an existential issue and all urgent climate crisis kind of stuff. Um, Why isn’t nuclear discussed? I mean, I understand. I, you know, basically grew up in the seventies and eighties. So I mean, I can, I understand.

Uh, we used to do these nuclear fallout drills out of fear that the Soviet Union was going to attack us in the seventies, which seemed ridiculous. I remember I was thinking, how is hiding underneath this desk or next is brick wall going to save me from a nuclear explosion? Never. Those drills never made sense to me other than if it was just to sort of scare us, or maybe it’s propaganda.

I don’t know what it was. But I remember the fallout shelter was this brick wall. It’s like the worst place you’d want to be if the Soviet Union attacked us. But I’m getting off topic that my point was simply be, it is that history of nuclear war and the fear of nuclear war that I am sure is why people are against nuclear power.

But if. We’re going to need it. Um, we’re going to need it for baseload. We’re going to need it for, um, if people really want truly zero emission stuff, it’s not clearly if you have a disaster, it can be awful. On the other hand, my understanding, uh, you’re probably more of a nuclear expert than me is actually it’s safety track record is actually better than every other energy source.

I don’t think it’s all right. It’s really, really good. It’s

[00:35:44] Mark Hinaman: the consequence of the underlying technology and not the regulations, but.

[00:35:49] Arjun Murti: I’m sure, I’m gonna guess that since we last built nuclear in the 1970s, technology has probably progressed and maybe we can do these things better. And I’m not But 2023,

[00:35:58] Mark Hinaman: man, the,

[00:35:58] Arjun Murti: the latest point came I years, I think, right?

So my sense is that the war is turning in a favorable direction on nuclear. It seems like even the COP 28, you know, nuclear was part of the discussion. Um, there’ll always be opponents. You know, for against all this stuff, but it does seem like there is some growing recognition that you have to start now.

So again, even if I think it’s gonna take 100 years, certainly for nuclear, we have to start now. What I wonder about nuclear in the United States is we have this individual utility monopoly regulated market approach. And do we want individual utilities? Doing individual utility projects. I think that’s worked for a lot of our history.

I don’t know if it works for nuclear. I do have, uh, I don’t know if admiration is the right word, but I have respect for what the United Arab Emirates is doing. I have respect for what China has done on the nuclear side. Nuclear experts can weigh in on whether they had the highest safety standards or not, or all the pros and cons of those industries.

But my point would be if there’s a role for government, uh, as someone who’s kind of a Wall Street capitalist kind of guy, it is, it is almost certainly with nuclear. Um, I’m not the one to figure out what exactly that model is. I don’t think it would ever be China or UAE. There’s something about the regulated utility model of developing nuclear that feels like that’s not going to optimize costs or speed of build out either, and I don’t know what that private public partnership, if that’s a

[00:37:20] Mark Hinaman: buzzword, could there be perhaps a parallel to the shale revolution

[00:37:25] Arjun Murti: that could be copied by the nuclear industry?

I’m not sure because shale was driven by smaller companies of which there was a large number of existing companies, like if ExxonMobil had owned, I don’t mean to pick on Exxon, it’s one of my favorite companies actually, but if they had owned all of the U. S. shale industry, we would have, I swear, zero U. S.

shale production, and that is why other countries like China, Argentina is not a perfect example because Vaca Merte is ramping up a little bit, but what we have is property rights. Tax law, rule of law, we have a capitalist system, we have a lot of things that are great about America that no other country really has.

Canada would come the closest, they’re trying their hardest to, you know, not be a good capitalist country for whatever reason, but now I’m gonna not be. I love Canada by the way too, and I don’t, I’m not a You know, anyway, I love Canada and there’s some things at the federal level that I might push back on.

Maybe that’s the correct way to say all this. Um, we’re the two places, right? And so I don’t think that that’s the best. I don’t personally think, I’m not gonna, I’m not a nuclear expert, but I don’t think it’s the best analogy for shale, for, for nuclear, shale. But I, but something is, I’m not sure what it is.

So as well, that’s an area I find intriguing. I understand it can be base load, power generation can be storage. I’ve spoken actually at a geothermal conference a year ago, they were looking for a profitability discussion on oil and gas and how, you know. That to me seems to be the other area that we could stand to spend a lot more time on.

Nuclear is obvious, uh, geothermal probably requires study. But if we’re going to study wind and solar and this other stuff, it seems like we could stand to study geothermal. And there, I think all these things have their niche, and by niche, I mean, It could be a large number, but their area where they’re going to do best at, like, there certainly are regions where solar makes a ton of sense.

And there are definitely regions where solar does not make sense. And same thing with wind. I’m going to assume the same thing for geothermal where it makes sense. We should try and use it. Um, so

[00:39:26] Mark Hinaman: we’re recording this, uh, December 20th, 2023. So, and I think we’ll probably post this pretty, pretty soon. So. Um, but you, you just came out with the lessons from 2023 that I thought was excellent.

Uh, and I had some follow up questions, so I don’t, you know, you don’t need to regurgitate all of it, uh, meaning folks can go and find them on their own. Um, You talked about, uh, kind of ROC, pullback, uh, new energies, the tam, um, total addressable market for energy, uh, which I thought were all wonderful topics.

Um, you’d mentioned offshore wind, uh, pulling back or pulling back. Can you expand a little bit on. What wasn’t hedged and why some of these companies had to write off, uh, or make big write offs this year?

[00:40:14] Arjun Murti: Yeah, I mean so like it was a year where energy broadly struggled You know energy got to as high as 5 percent of the S& P 500 This is probably a metric of investor interest and it’s now about 4%.

This is the broad energy sector That’s going to skew towards traditional energy oil and gas to be specific about it Which is quite low,

[00:40:33] Mark Hinaman: right? Historically, energy has been five to 10%,

[00:40:36] Arjun Murti: right? It’s historically been, I would say eight to 12% of the s and p. It got as low as 2% during Covid, and so it’s up to four, but that’s off of a peak of five.

The, I hate using the term clean energy, but it’s what the index is called, the ICLN Clean Energy Index. I every, no. No energy sources, clean or dirty, brown or green, they all have different attributes of cost and emissions, different levels of environmental impacts,

[00:40:59] Mark Hinaman: for sure. But I will, for

[00:41:00] Arjun Murti: the purposes of speaking about an index uses actual name, which is the, the ICLN clean ETF.

I use it as a proxy for a broad swath of. Solar wind, you know, biofuels, a whole bunch of new energies in there, like it peaked with the Biden becoming his inauguration and it is, it fell in 2022 and it collapsed in 2023. I mean, that sector, those names were down 60, 70, 80%. I’m talking everything, residential solar, biofuels, all the new EV companies, excluding Tesla.

A wide swath of new energy, and some people say, yes, he is all dumb. And it was like, no, it got overhyped classic boom bus cycle. It’s now crashed. And now we’re going to sort through what makes sense. And what doesn’t make sense. I think the offshore wind was sort of the height of hubris where we can lock in 5%.

And yeah, interest rates are going to be 0 percent forever and they’ll never be inflation. And they got both of those key inputs wrong. So if you’ve now hedged your selling price for 30 years, locking in a 5 percent rate of return, or even a 7 percent rate of return on what you thought was going to be the interest rate and cost environment, and both change dramatically, we go from 0 percent to 5 percent in short term rates.

And suddenly we have a whole bunch of CapEx inflation for steel and everything else. Well, then suddenly you’re going to have to write out, I mean, some of them have completely written off their projects, which. As bad as anything, any oil and gas company has done when they’ve had write offs. And so it’s a capital intensive sector.

Uh, so I don’t know that offshore wind is actually going to make some massive comeback. I think residential solar is actually the most mature. It’s been around for a few cycles. Uh, all these sectors have their pros and cons, and I think it will be interesting to sort through what does make sense. And I think I think that’s what we’re we’re looking for.

I think with. The traditional energy sector, um, the profitability is still really good, especially relative to the last decade. It was sequentially down because oil and gas prices pull back. And so from a trading standpoint, I appreciate why short term investors are going to sell off the sector, but I take a lot of comfort that now we’ve had 3 good years of really much improved profitability.

Capital spending still in check and so forth. So I think the traditional only sector, once people get over recession concerns, has a very bright future. I think for new energies, it’s about sorting through the rubble and seeing which of these crazy things might make some sense. You’ve

[00:43:19] Mark Hinaman: talked a little bit about a company’s unique value proposition.

Uh, and how some companies are engaged in kind of new energy technologies, like oxy’s got carbon capture projects. Devon’s got a thermal project. Chevron’s even invested in a fusion company. Um, we also mentioned that there’s. Uh, probably a better role for pure play new energy companies to be solely focused on just those things.

And because, I mean, some of these bigger companies aren’t good at the innovation, just like you said, if it was up to Exxon, we wouldn’t have a shale industry, right? If they were responsible. So, uh, can you riff on that a little bit and why that’s the case? I mean, you don’t need to bring examples specifically from anyone that you’re directly associated with, but why are some of these bigger companies, even though they’re energy companies, not as good at.

Uh, being kind of innovators in

[00:44:12] Arjun Murti: the new energy space, there’s actually two different, two kind of somewhat not totally related points to this discussion that the first I want to address is this idea that you just asked about of should traditional energy, should they be forced or have to do? Is it their responsibility to do new energy?

So you hear things like the, um, you know, all these sort of globalist organizations say, Oil and gas needs to get on board with the energy transition, and they need to allocate a significant portion of their capex going forward to new energy. So we can solve the urgent climate crisis. And my point would simply be, what is the history?

Of yesterday’s companies being the leaders in tomorrow’s technologies like we, you know, if Blockbuster had bought Netflix, which they were offered, I believe, a billion dollars. It’s in Reed Hastings. Great book. It’s got a red cover. I recommend it. Um, would we have streaming today? I mean, I guess we probably would, but would it be as like great?

Like, you know, and Blockbuster video went away. Does anybody care? Did it impact anything? You know, you know, and so, um, you know, but If you remember when Wal Mart first came in and started taking away the old hardware stores and so forth that I was going to be there and suddenly then Amazon came away and took him.

I mean, there’s a history of innovation in this country, and especially in this country, the United States, where it is a new company that creates a new paradigm. I remember when Amazon was mocked for being an online who, you know, Barnes and Noble had the famous ad who would want to buy books online and it’s like, it’s, it’s, it’s laughable today who would want to go to a bookstore to buy books.

Right? So it is rarely. Yeah, you know, the one company that I say deserves some credit is probably under Satya Nadella, Microsoft, where they have really transformed to being, you know. Yesterday’s software windows, whatever Excel company to be in a cloud infrastructure and all the great things they’re doing.

And it did not happen under Steve Ballmer. to pick on him, but it actually did not happen under him. It took someone different like Satya to lead. So Microsoft may be one exception, but I defy people. I encourage people. Tell me all the examples of yesterday’s leader that became tomorrow’s leader. Like, you know, the iPhone killed.

Kodak or something like that. And I think there’s this notion that if oil and gas companies don’t quote, get with the program, they’re going to be left behind. Like no way. The idea that is going to be a fast energy transition. There, there is no chance of that. Um, that is, you can say that’s my opinion. I feel like I’m well on track for that opinion to be true, but even if it was true, let’s just say we could have a fast transition, I think I’d much rather these traditional companies, not all of them, but some portion of liquidate.

Like return all your cash back to shareholders. Why, why do I think they’re going to be leaders in something? They know nothing about the only guys comes at enough trouble being profitable in the business they’ve been doing for a hundred years. How are they going to scale up something that they know nothing about?

It makes absolutely no sense. That doesn’t mean they shouldn’t be trying anything. Exxon believes, Oxy believes, that they can do carbon capture. We can have a separate conversation on the merits, the pros and cons, the ability to scale up, CCUS and DAC, direct air capture, carbon capture, utilization storage, and whether, you know, what is the timing of this, what policies needed.

Like, it’s a separate conversation. They believe they can do that. Um. You know, is the random midcap EMP going to be a leader in residential solar or geothermal or nuclear or anything? It’s absurd to think that they are. And so if the business is going away, which I do not think it is any day, any decade soon, maybe not even any century soon.

If it was, if I’m wrong about that, they should, they should sell their companies and or liquidate as a generic statement of what should happen. Um, there’s a separate topic where oil and companies have been so beat up. That they’re in this defensive mode of, Oh, we’re not going to waste your money. We’re going to have good returns and we’re going to fix our balance sheet.

And we have an ESG slide and we have a scope on emissions, zero slides. Like, okay, saying you’re not evil. This is not a positive equity story, right? These are table stakes. You got to have good returns. You got to have a good balance sheet. You got to have a plan for your scope on emissions. You ESG stuff.

And we can have a separate ESG conversation if we want, but whatever these things are. This is none of this is sort of, you’re going to all have to do all this stuff. What, why should people get excited about you? And I will say the new energies companies do a much better job of it. Hey, they may be ridiculous.

They may be wrong. They may be too optimistic, all that kind of stuff, but at least they have a vision for who they want to be. I think oil and gas companies are kind of like. Hey, oil and gas isn’t peaking this decade, but they all have a peaking next decade, by the way, look at the forecast from Shell BP, Exxon, all these big companies, they all have oil demand plateauing next decade.

I’m saying, I don’t know how they know that because I don’t know how they know what’s going to scale up. And I don’t know why they’re so pessimistic on the economic growth for the other 7 billion people on earth. But some combination, so they don’t, the oil and gas industry does not believe in its own future.

And I get that it’s been beat up and it needed to course correct. To a degree, meaning, yeah, we vow not to waste your money, but 2024 ought to be the start of a year. What is your positive equity story? It could be returning cash to shareholders, but then that’s your story. Or it could be exploration. Um, or it could be, we’re going to explore and find some new shale basin, or we’re going to, you know, pick up the pieces from everyone’s castoffs in the rest of the world.

Or it could be LNG. Like there’s lots of things. It could be infrastructure. It could be refining is out of favor and we’re going to gobble up some refineries. We’re going to on the margin, ensure that. You know, this area is whatever. What is the story? It cannot be that our returns are good. We’re not going to waste your money.

And we got an ESG climate slide. That’s not a story. And again, I will compliment the new energy sectors for doing a hell of a lot better job than most oil and gas companies on having a positive equity story.

[00:49:57] Mark Hinaman: That’s awesome. Um, something that you highlight often is profitability and the importance of it, and that it’s more important than growth. Uh, I think, personally, the nuclear industry is missing this, and it’s kind of missed, uh, not intentionally, but because, I mean, they’re not building new projects, right, we’re not actually Building a bunch of new nuclear power plants in the United States.

So we, we don’t know how to build profitable or do profitable projects. Um, how do they

[00:50:30] Arjun Murti: fix that? I don’t know how they fix it. I will say that I think another example of a new company doing better than all companies is Tesla in the market. And so again, we can separate. The pros and cons of Elon. I think there are a lot of pros.

There’s some obvious personality things that we can say, why is he doing that or this or so forth? But there’s no disputing. They sell over a million vehicles up from zero 10 years ago. And that is miraculous. And one can debate whether whatever they’re, I think the market cap like 700 million today, billion dollars, excuse me.

I think it got briefly to a trillion. It’s pulled back a little bit. It’s still a massive, whatever it is, it’s a massive number well in excess of all the traditional OEMs. And so do we need a new model for nuclear or some? New type of entrepreneur visionary or is it that you know, it’s really isn’t a private sector kind of thing.

This is where we have kind of a regulated return kind of a model. But if you do that, how do you motivate these things to be sufficiently low cost? And so I think that’s the tricky part. I’d say. To me, the point on profitability is it’s a pro capitalism argument. And I always take capitalism over any form of socialism.

We do need rules and regulation. There’s a role for government policy, but to me, no one should apologize for making profits. It is what allows the world to bring us. It allows us to wear the clothes we’re wearing. Because

[00:51:44] Mark Hinaman: the profits allow us to reinvest in the community and go and do the project again, right?

It’s not like we’re, it motivates

[00:51:52] Arjun Murti: investment, motivates wealth creation, motivates entrepreneurship. Employees people to me. Is there no ills? Of course, there are some ills and those need to be corrected. Maybe that’s why we have labor laws. Maybe that’s why you’re not allowed to dump chemicals into rivers.

And we say, no, as a society, dumping chemicals is drivers is wrong. Yes, it’ll raise your cost structure. Not dumping in a river. We’re going to make you collect the chemicals and dispose of them somewhere else. That’s going to cost a little more as a society where there could be certain things we’re going to decide upon, but profits themselves.

Are good. They, they’ve improved our living standards. They create new Protestant technologies and the minor society deals that come from this society can decide to address again. Dumping chemicals and rivers is my example. Minimal labor standards or even more than minimal labor standards. It’s another thing.

We should absolutely care about health, safety and environment. It’s a big part of most oil and gas companies, frankly, to their credit, more so than other industries. It’s an area they excel on as an industry. Um, and, uh, I agree, you know, pro profits. Yeah. Pro profits.

[00:52:52] Mark Hinaman: Um, well, Arjun, we’re coming up on our time.

Uh, I’d like to close on kind of your vision of the future and specifically expanding on the total addressable market. And I mean, you mentioned 7 billion several times. Why is there so much space and opportunity for both traditional energy and new energy moving forward? And what does that look like in the next 10,

[00:53:12] Arjun Murti: 20 years?

If you look at economic development around the world, if you look at energy usage, if you look at any kind of sense of wealth, it is. Insane to degree to which, um, there’s about a 1 billion of us that live in the United States, Western Europe, Australia, New Zealand and Canada and Japan that are disproportionately more wealthy than the other 7 and soon to be 9 billion people on earth.

This is not about who’s fault that is or anything of that nature. Every country has its history there. Uh, every country has governments that people elect or don’t elect because they’re autocrats or what have you. They’re, they’re a whole bunch of reasons. My point would simply be that the world, ultimately we should all be similarly rich.

That is a pro capitalism, a pro markets, a pro well, instead of all being similarly miserable, which to me is socialism, a pro human view. It’s a pro human view, right? Everyone deserves an improving living standard. Every person deserves an education. Um, it is pro women’s rights to have an advancing economy.

Uh, you know, it is pro human rights to have, uh, an advancing economy. It’s going to take energy. So I would say, without going on for three hours about this, the amount of energy that is required to get everyone to be similarly rich, The United States and Europe is as good and big of a secular growth opportunity as anything that’s out there.

People think about AI and robotics and electric vehicles, a whole bunch of niche things, ultimately at its core is energy usage, and we are using in some cases, 3 to 5 to 10 times more energy than other parts of the world. And, you know, China’s rise is probably the clearest example. It is the first chunk.

Of 1. 4 billion people to develop, we are 1 billion people again, US, Europe, Canada, Japan, Australia, New Zealand. There’s 1. 4 billion people in China. And I feel like it’s being treated as a one off. Well, they joined the WTO and their communist government sort of embrace capitalism for a little bit of a period.

And somehow this doesn’t count. Um, China is at the middle income level. They are not rich yet. And they’ve got challenges. And we can debate China separately. We still have India 1. 4 billion people. We’ve got the 54 countries of Africa, 1. 4 billion people. We’ve got the entire rest of Southeast Asia, excluding China, India, which is about 1.

4 billion people. And these buckets of 1. 4 billion people, the 1. 4 billion people club, as I call it, are using a fraction of the energy we do because their economies are a fraction of the of the wealth that we have. And it is an inextricable human march towards progress. Now, there may be wars. There may be bad governments.

Venezuela’s got a awful socialist government that has really ruined things for their people. So it’s not that it’s going to be a straight line up for any of these places, unfortunately, but it is to me. We know how to do this. You use energy, use capitalism. You do use democracy and you have success. And that’s it.

Uber simplified, uber simplified. There’s probably some room for non democratic places to actually have success. But the combination of energy and capitalism, I think is undisputed in terms of making the world better off. And if you’re going to do that, you’re going to be using a heck of a lot more energy.

So we darn well better spend a lot of money, trillions of dollars, maybe million trillions of dollars trying to figure out whether it’s commercializing nuclear, whether it’s geothermal wind, solar, all this other stuff and stuff that probably we can’t even imagine today. Because I don’t think you’re going to want to be just dependent on oil and gas to meet what could be, um, if we’re 100 million dollar, 100 million barrel a day oil market today, if everyone was similarly rich, 100 years from now, let’s just pick a long time frame so we don’t have to debate it, that’s a 250 million barrel a day total addressable market.

I do not think, and I do not forecast, that we will have 250 million barrels a day of oil demand in 21 years. 23. My point would simply be, we might be

[00:56:57] Mark Hinaman: untouched crude oil that we’re getting out of the ground, right? It may not be the raw energy source.

[00:57:03] Arjun Murti: I’ll use that as sort of an equivalent energy need.

And I think electric vehicles will be a big part of it. I think things we don’t know is going to be a big part of it. I think nuclear is going to be a big part of it. And unfortunately. Some people will perhaps stay poor. That’s very unfortunate. It does not have to be. Um, there will be wars along the way.

There’ll be disappointments, all that kind of stuff. So you can start eating away at it. The point would simply be that there is massive, massive energy needs for the rest of the world. And I think that’s what we’re trying to solve. And we do want to do it with as small of an environmental footprint as possible, but you got to provide people the energy they need first and foremost.

I love it. Well,

[00:57:38] Mark Hinaman: that’s where we have to leave it. Unfortunately, as I was and I can tell you and I could chat for a long time.

[00:57:42] Arjun Murti: So it’s great to be here, Mark. I loved all your questions and it’s really good to spend time with you today. So

[00:57:49] Mark Hinaman: thanks so much. I appreciate it.

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