The energy transition is too important to ignore, and there’s capital in it, according to an energy asset management and investment strategist.

So, it was logical for Houston-headquartered Pickering Energy Partners to focus on this megatrend that is disrupting the traditional energy business, founder Dan Pickering told Hart Energy.

The 18-year-old firm has deployed billions in capital—mainly in oil and gas—amid offerings that include not only investment but also consulting, advisory and insights. Each business unit, he said, touches the energy transition.

“The smarter we get about energy transition topics, the better we’re going to be at our specific jobs within the verticals,” Pickering said. “I believe that the word ‘transition’ is going to get dropped over the next ten years, and it’s just going to be 'energy.'”

Tapping industry expertise, the firm announced in September the formation of an energy transition advisory board focused solely on clean energy, decarbonization solutions and other critical energy transition matters and opportunities to be a “sounding board for the PEP team.” The news—along with the unveiling of six of the dozen or so members—came about seven months after the firm launched its Energy Transition Advisory practice.

In a recent interview, Hart Energy spoke with Pickering about the firm’s focus on the energy transition, how it plans to grow investments and trends that have emerged.

Velda Addison: Since 2004, PEP has deployed more than $15 billion worth of capital for its clients in both oil and gas and the energy transition. About how much has been directed toward energy transition or low carbon technologies?

Dan Pickering: The vast majority of our investments have been in traditional oil and gas. So, less than 10% in low carbon or energy transition effort, probably less than 5%. But it’s an area where we’re spending a lot more time. Again, keep in mind that for this advisory board, they’re helping us not just with the investments business, but with all the other businesses. So, it’s not just making smarter investments, but it’s also the networking around research clients or investment banking clients and capital raising clients.

Dan Pickering, Pickering Energy Partners
(Source: Pickering Energy Partners)

“The smarter we get about energy transition topics, the better we’re going to be at our specific jobs within the verticals. I believe that the word ‘transition’ is going to get dropped over the next ten years, and it’s just going to be ‘energy.’”– Dan Pickering, Pickering Energy Partners

VA: As far as energy transition investments, how is the firm looking to grow that?

DP: We’ve been doing one off, sort of bespoke investments. We do not have a dedicated energy transition fund. We’ve been using our existing strategies, sort of a small sleeve of our existing strategies, to look at things around low carbon. We’ve done several things in the enabling commodities sector. We’ve done several things in combination energy storage and electric vehicles. And, the firm itself has made an investment in a company called Merge Electric Fleet Solutions, where we are the majority owner of a business that’s focused on fleet electrification. So, the firm’s put money in. We’ve also done deals where we’ve put money in and raised outside capital for other investments; it’s been across two or three different technologies for the energy transition.

VA: What are some of the investment trends you are seeing when it comes to technologies critical to the energy transition?

DP: There are dozens of potential pathways forward, and we’re seeing capital attack all of them. From a trend perspective, it is a rush to run down paths. The industry is going to see if those paths actually go anywhere. We see a proliferation of different technologies. Two, we see this sort of bifurcation of capital that’s being deployed. It’s being deployed in small tickets and venture and early stage pre-revenue technologies. Then, it’s massive projects—wind, solar—long lead, high-dollar items. So, there’s a big barbell of capital being deployed. In the middle right now, there simply aren’t that many mid-cap, revenue-positive, EBITDA-positive companies in this business yet.

We’re also seeing an acceleration of interest post the Inflation Reduction Act. That legislation and all the money that’s now available from the government [can] meaningfully change the economics of hydrogen, battery storage and carbon capture. … Some of the newer technologies are getting a big boost. A fourth trend that we’re seeing is the traditional energy companies, the incumbent energy companies, are pushing aggressively to build out a portfolio of energy transition opportunities.

VA: What do you see are the greatest opportunities today for profitable decarbonization technologies and service services?

DP: Wind and solar are good. Carbon capture is getting momentum [with the higher 45Q tax credit]. Batteries, increased momentum. Hydrogen, still more of a stretch. Electric vehicles, I think, have good momentum, but I don’t view those as dramatic. That’s not an industry thing. That’s a global thing. Geothermal and nuclear are two other energy sources. Both have improved momentum. You’re seeing a lot of interest from the oilfield service community around geothermal because it involves a lot of same—drilling holes in the ground. Geothermal has raised some money recently. There are several successful financings within geothermal startups.

Everything in the energy transition is still on a hopefully declining cost curve. I haven’t seen any energy transition projects that are beating oil and gas projects from rate of return perspective with oil at $85 a barrel and gas at $7 [a barrel]. But there are plenty of projects that look like they have economics that meet hurdle rates. I don’t think they’re as good as oil and gas, but they’re not necessarily intended to be right now. With the support from the Inflation Reduction Act, an increasing [number] of projects can make money for investors, including the credits.