Nissa Darbonne executive editor-at-large, Hart Energy: Thank you for joining us. I'm visiting with Wil VanLoh, founder and CEO of Quantum Energy Partners. We're discussing the investment prospects of oil and gas versus the gamut of potential energy investment opportunities, including alt[ernative] energy and then in the de-carbon space, directly and specifically.

Well, thanks for joining us. So oil and gas. To begin with, what is your view in terms of the maturation of the oil and gas shell plays? We're just in the third inning. What do you think is the outlook?

Wil VanLoh, founder and CEO, Quantum Energy Partners: Well, you know, the shales have been underway now since kind of the mid-2000s. Obviously, the gas shales came first and then the oil shales after that. And so really in many of the shale plays in North America, with maybe the exception of the Permian for oil and the Marcellas for gas, I think most of the shale plays have kind of reached their apex in terms of productive capacity and are going to either have started to already have rolled over or will very soon in terms of output from those key basins. And it makes sense. I mean…you always drill your most economic stuff first, and that's what the industry's done, especially in light of the lower prices we've had over the last, you know, 6, 7, 8 years. And so…we’ve got to remember we've drilled several hundred thousand wells in the shales already.

And so I think we've drilled most of our best stuff. Again, the Permian still has, I think, a lot of running room, as does the Marcellus for gas. But I do think that's something we're going to have to contend with. I think it's going to bring down, if you think about capital efficiency, when you drill really good wells, your capital efficiency is pretty high. And as you drill more mediocre wells, capital efficiency goes down. And I do think that, you know, at some point we're going to have to have higher commodity prices if for no other reason, to provide the economic stimulus to actually drill this next tiering of wells because they won't be economic at $70 oil and $2.40, $2.30 gas.

ND: What is the price then, at least for oil, is it $100, on a sustained basis?

WV: Service costs matter, right? We've just had a lot of inflation. So, you know, there's lots of variables that go into that. But I think, you know, would it be foreseeable to say that we could see a steady rise of 5%, 7% a year for a decade in commodity prices? Absolutely. Does that mean at some point oil will need to be over $100 to make things economic? I think so. And when you look at, in particular like OPEC budgets and their break-evens, while their cost of actually drilling for and producing the oil or gas in OPEC countries is very low, remember, they run their whole governments on that revenue. And so the true break even cost is really what's all the cost to run the government, the social cost.

And so when you look at most OPEC countries, I think in today’s dollars, you know, that number is probably pushing up into the high $80s to mid-$90s. And for some countries, it's well over $100 already today. And so I think as U.S. shale patch, which became really the swing producer for roughly, you know, 5, 6, 7 years there, as we lose our ability to meaningfully keep ramping production in a million and a half, 2 million barrels per day, which we were doing there for a while, really that power goes back to OPEC. And I think OPEC clearly wants prices as high as they can be without causing, you know, economic recession around the world.

ND: And then in terms of investors and whether they're putting their money in oil and gas and alt[ernative] energy, you made the point that not all Btu’s are created equally. What do you tell investors in terms of: should they be investing in North American oil and gas rather than divesting for their ‘E’ goals in ESG?

WV: It’s a really good question. You know, if you go back a couple of years ago both in the U.S. and Europe, I think the vast majority of the people that controlled the large pools of capital in both continents were pretty much having this mindset of “probably we should be divesting, not investing in oil and gas.” I think the war in Ukraine did a lot to kind of change certainly attitudes in the U.S. I think we've realized how dangerous that can be. We have energy independence in the U.S. and our energy costs stayed very low. Relatively, they were five to 10 times the cost in Europe. So I think that's caused people to kind of really refocus on energy security. And in doing so, I think now they're realizing people are like, “okay, we're going to use a lot of oil and gas for many, many decades into the future.”

And so are all molecules, do they have the same economic footprint? Do they have the same social or governance footprint? And there's a lot of good data out there on this now. And if you look at molecules that are oil and gas produced in the U.S. and Canada on average are 25% more environmentally clean than molecules produced in the rest of the world. And in many countries like Russia, they're 200%, 300% more clean. And same thing on the ‘S’ side of ESG. If you look at like the Freedom House global scores for social scores throughout the world, the U.S. and Canada are about 75% higher, meaning better, than molecules produced in the rest of the world. If you really care about the environment, therefore, I think the argument to investors is use your capital—already North American molecules are the cleanest and most socially responsible molecules produced in the world, so we should be increasing production from North America, not decreasing it. And so use your dollars to even cause those companies to get more efficient when it comes to environmental footprint. I think that's really starting to resonate, especially here in the U.S. We're seeing that with a lot of the big pools of capital, that they're realizing they can do a lot more good for the world by encouraging investment in North American oil and gas as opposed to discouraging it.

ND: And then lastly, you described geothermal as being kind of kin, cousin to oil and gas in terms of, you know, you need to understand geology and reservoirs and such to be successful at it. Carbon capture and disposal is akin to oil and gas too because you need to bring a similar kind of knowledge. What do you think, having a CO2 capture and disposal, a CCS component of an oil and gas company separate from it, what do you see as the future role of CCS?

WV: So as I talked about, I think there's two things that have to happen at scale if we have any hope of hitting net zero by 2050. One is, we have to have large scale adoption of nuclear energy. It's the cleanest, it's the most environmentally friendly energy in the world in its base load, unlike wind and solar, which are intermittent. And we have to have large scale adoption of carbon capture and storage. You look at all the projections out there, even the most aggressive in terms of renewable penetration…probably a majority of the energy the world is consuming in 2050 is going to be hydrocarbon-based energy. And so if we really care about you know, ESG, we've got to figure out how to actually basically decarbonize hydrocarbons.

And that's not that hard to do. It's expensive today for a lot of them, just like wind and solar are expensive a decade ago, right? And as you scale these things and new technologies come in, then you drive the cost down a lot. And we're very, very bullish on in particular pre-combustion carbon capture technology. And then, you know, as you said, oil and gas companies are incredibly, they're the best positioned companies in this country to make that industry a reality because you have to understand how to capture, effectively, a gas and then transport that gas well. That's what the midstream industry does. And then you have to inject that gas, that CO2 gas, down a wellbore, you have to drill a well, and then you have to manage a reservoir. And it just happens to be, in a lot of cases, it's the same reservoir that we produced oil and natural gas out of.

I think it's really kind of a cool story. As you know, we spent a hundred something years taking all this oil and gas out of the ground, and we burned it and we created CO2. We're capturing that and we're putting a byproduct of that back into that same reservoir, right. And we know that that reservoir will hold because the whole reason it was oil and gas fields because it had a trap and a seal. And so it's a natural-based storage cavern. Otherwise we would've never produced oil gas from it. And so it's kind of a neat, kind of a bringing the oil and gas industry full cycle now and using all that evacuated pore space to be the kind of the holding space for all this CO2 that we're producing. And in doing so, we turn a baseload fuel that creates, you know, greenhouse gas into a baseload fuel that is basically CO2 free.

ND: Again, hydrocarbons [are] one of the best fuel sources on earth.

WV: Absolutely. It's stored sunlight. It's all it is. It was stored sunlight from millions of years ago.

ND: I like that. Thank you, Wil.

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