Your web browser is out of date. Update your browser for more security, speed and the best experience on this site.

Update your browser

Blogs

The Right Place at the Right Time – and Beyond

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

Adobe Stock 198664323

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.

Meet Our Author

IMG 1899

Tom McNul­ty

Managing Director

Mr. McNulty brings over 25 years of working across the entire commodity and energy value chain.

Is your com­pa­ny per­form­ing like it should?

Left