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The Right Place at the Right Time – and Beyond

Managing Director Tom McNulty discusses the opportunities and challenges of the energy transition.

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Being in the right place at the right time is the ulti­mate strat­e­gy. It places oppor­tu­ni­ties with­in reach, allows for informed deci­sion-mak­ing, leads to time­ly trans­ac­tions, and places busi­ness­es and experts in the spot­light. And it is tough to accomplish.

The back­drop for the val­ue Chi­ron brings dur­ing the evolv­ing ener­gy tran­si­tion is root­ed in being in the right place at the right time – and beyond. 

Loca­tion, Loca­tion, Location

As the say­ing goes, Loca­tion, loca­tion, location.”

Chi­ron is head­quar­tered in Hous­ton, Texas – the Ener­gy Cap­i­tal of the World. Here, you will find crit­i­cal mass: more than 4,600 ener­gy-relat­ed enter­pris­es, intel­lec­tu­al cap­i­tal, tech­ni­cal exper­tise, sup­port, and pro­fes­sion­al ser­vices for every seg­ment of the ener­gy indus­try. As such, it makes sense for the Ener­gy Cap­i­tal of the World to lead the glob­al ener­gy transition. 

Com­plex­i­ties, Peo­ple, and Perspectives

By its very nature, ener­gy is high­ly tech­ni­cal and draws upon geol­o­gy, geo­physics, ther­mo­dy­nam­ics, physics, chem­i­cal, mechan­i­cal, and elec­tri­cal engi­neer­ing. The sum of these ele­ments is a long, com­plex learn­ing curve. 

As a result of the learn­ing curve, ener­gy is a sec­tor in which big mis­takes are made, such as those made in Ger­many where aggres­sive shut­downs of nuclear pow­er plants have result­ed in pow­er short­ages because the growth of renew­able ener­gy can­not yet keep up with the pace of coal and nuclear’s exit. Set­ting an ambi­tious ener­gy tran­si­tion tar­get is one thing, but under­stand­ing it and achiev­ing it are very different. 

Clos­er to home, a con­cen­tra­tion of peo­ple is pro­pelling the Ener­gy Cap­i­tal of the World with a lev­el of tech­ni­cal exper­tise and tal­ent that doesn’t exist else­where. As a respect­ed mem­ber of the dynam­ic Hous­ton com­mu­ni­ty, and with offices across North Amer­i­ca and Europe, Chi­ron is well-posi­tioned to be a valu­able resource dur­ing the ener­gy tran­si­tion. As reflect­ed in 

Chiron’s deal port­fo­lio, our depth and breadth of capa­bil­i­ties is exten­sive and impres­sive. We have pro­vid­ed strate­gic advi­so­ry ser­vices and val­u­a­tion opin­ions to clients up and down the ener­gy val­ue chain, and we have exe­cut­ed a wide range of ener­gy trans­ac­tions, includ­ing merg­ers, acqui­si­tions, sales, debt and equi­ty offer­ings, and restructures.

Lack of Def­i­n­i­tion Cre­ates Opportunity

Ask more than one per­son to define the ener­gy tran­si­tion and you’ll quick­ly see it’s yet to be tru­ly defined. It means dif­fer­ent things to dif­fer­ent peo­ple. In the absence of a glob­al­ly accept­ed def­i­n­i­tion, what is clear is that the ener­gy tran­si­tion is mul­ti­dis­ci­pli­nary, involv­ing phys­i­cal and finan­cial ener­gy mar­kets, risk man­age­ment, val­u­a­tions, merg­ers and acqui­si­tions, and sub­stan­tial reg­u­la­to­ry, pub­lic pol­i­cy and gov­ern­ment affairs ele­ments, among others. 

Also debat­able is the veloc­i­ty of the ener­gy tran­si­tion. The pen­du­lum swings dra­mat­i­cal­ly, with one end of the spec­trum pre­dict­ing every­thing fos­sil fuel-relat­ed will be elim­i­nat­ed com­plete­ly and quick­ly, while the oth­er end of the spec­trum main­tain­ing that fos­sil fuels will remain for decades, while renew­able resources become capa­ble of main­tain­ing ener­gized grids in the indus­tri­al world. While Chi­ron does not have a crys­tal ball on veloc­i­ty, we clear­ly see the ener­gy tran­si­tion cre­at­ing tremen­dous needs for finan­cial and strate­gic advi­so­ry ser­vices, cap­i­tal allo­ca­tion, M&A, and trans­ac­tion support. 

Also unclear is what will emerge nation­al­ly and glob­al­ly in terms of pub­lic pol­i­cy, statutes and reg­u­la­to­ry changes, any and all of which might – and like­ly will – trig­ger the divesti­ture of assets and the desire to invest in clean ener­gy, renew­able ener­gy, and asso­ci­at­ed tech­nolo­gies. One of the biggest and least addressed ques­tions is how the under-devel­oped coun­tries will fund and man­age their tran­si­tion after the rich­er coun­tries take the ear­ly steps.

Regard­less of how it plays out, the ener­gy tran­si­tion process will involve ele­ments of old ener­gy and new ener­gy. Chi­ron is very deep and broad in the core ener­gy skill set, which forms the basis for much that is hap­pen­ing in new energy. 

Think of old ener­gy as a build­ing block for new ener­gy. The physics and ther­mo­dy­nam­ics of ener­gy are absolutes; they won’t change based on deci­sions made in Lon­don, Wash­ing­ton or Bei­jing. Only when you under­stand old ener­gy can you explore, engage and think through new ideas, new mar­kets, new struc­tures, new tech­nolo­gies and new oppor­tu­ni­ties. You have to under­stand ener­gy. Period. 

Chi­ron does.

Today and Beyond: Con­nect­ing the Dots

Crude oil. Oil and gas com­pa­nies can – and will – con­tin­ue to pro­duce dur­ing the ener­gy tran­si­tion. Accord­ing to data from the U.S. Ener­gy Infor­ma­tion Admin­is­tra­tion, the num­ber of drilled but uncom­plet­ed wells (DUCs) has fall­en to about 4,600 from its 2019 pre-pan­dem­ic peak inven­to­ry of near­ly 8,900 DUC wells. The focus on well com­ple­tion ver­sus new drilling activ­i­ty dur­ing the pan­dem­ic sig­nif­i­cant­ly ramped up oil pro­duc­tion. U.S. crude oil pro­duc­tion is up to ≈11.8 mil­lion bar­rels per day (b/​d), which is still below its pre-pan­dem­ic peak of 12.3 mil­lion b/​d. Pro­duc­tion fore­casts for 2022 and 2023 are for record-lev­el highs, reach­ing 12.6 mil­lion b/​d next year.

Nat­ur­al gas. Nat­ur­al gas has essen­tial­ly become a byprod­uct of crude oil drilling, and more than 50% of U.S. wells pro­duce it. Nat­ur­al gas is the ful­crum mol­e­cule in the Ener­gy Tran­si­tion to a low­er-car­bon, clean­er-ener­gy com­plex because it dis­places coal. U.S. nat­ur­al gas pro­duc­tion aver­aged 95.5 bil­lion cubic feet per day (Bcf/​d) in Jan­u­ary and is fore­cast to hov­er around 96.1 Bcf/​d in 2022 and climb to 98.0 in 2023, accord­ing to the Ener­gy Infor­ma­tion Admin­is­tra­tion. There are about 300 new coal plants under con­struc­tion glob­al­ly, and 90% of those are in Asia. And it’s worth not­ing that the cli­mate debate would be very dif­fer­ent if those plants were gas-fired or nuclear and sup­ple­ment­ed by renew­ables. Con­vert­ing planned and exist­ing coal plants to nat­ur­al gas is an essen­tial medi­um-term ele­ment of any real­is­tic plan to approach net zero in com­ing decades.

Renew­able ener­gy. Renew­able ener­gy is only 12% of the cur­rent U.S. sup­ply stack, so there is room for it to con­tin­ue to grow and become a larg­er part of the ener­gy sup­ply chain. Solar and wind pow­er have remained resilient dur­ing the pan­dem­ic, and geot­her­mal ener­gy is rapid­ly becom­ing a third key ele­ment to the growth in renew­ables here in the U.S.

Ener­gy Transition. With the ener­gy tran­si­tion under­way, we esti­mate there will like­ly be at least $3 tril­lion in annu­al cap­i­tal allo­ca­tions and deal activ­i­ty glob­al­ly – buy side and sell side trans­ac­tions and cap­i­tal rais­ing – for many years. New tech­nolo­gies will like­ly include nov­el forms of nuclear pow­er, large scale ener­gy stor­age medi­ums, new modes of trans­port and man­u­fac­tur­ing, and on and on. A lot of com­pa­nies engaged in this space are mid-cap and below, and Chiron’s advi­so­ry and trans­ac­tion com­pe­ten­cies can work hand in hand with com­pa­nies in this space. 

With a sharp eye on accel­er­at­ing activ­i­ty, Chi­ron is in the right place at the right time – and beyond, with the right peo­ple, skill sets, per­spec­tives and con­nec­tions – and a rare depth and breadth of wis­dom to help mid­dle-mar­ket com­pa­nies nav­i­gate the ener­gy tran­si­tion path forward. 

Tom McNul­ty is a Man­ag­ing Direc­tor of Chi­ron Finan­cial. Draw­ing on 25 years of expe­ri­ence work­ing across the entire ener­gy val­ue chain, he brings a rare com­bi­na­tion of indus­try, Wall Street, con­sult­ing and gov­ern­ment expe­ri­ence to bear for his clients. Read his full bio here.

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