YouSaid · the spoken record

Matt Miller

lines on the record: 61
first: 2024-10-14
most recent: 2024-10-14
sittings or episodes: 1
sources: podcast

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“Core tenant of also like how we behave at Gray Rock is just to say, hey, you have an obligation to dissent. Maybe the firm doesn't go with you, but we also don't stifle. We're not trying to make sure that folks' opinions aren't heard because then you're just surrounded by a bunch of sycophantic yes people. That's not helpful to anybody. That's an important lesson. Well, Matt, thanks so much for sharing your incredible insight and wisdom in this space. Thanks for having me. I really enjoyed it.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“Take a breath. The first hour is the worst hour. The second hour, second worst hour. Calm down. It's going to be okay. You're going to make it through. That patience and perseverance is important to have because, and this goes in family and this goes in business, you're going to have days where it's like, gosh, I just want to hang it up. This is brutal. And then you're going to have other days that are just absolutely euphoric. And you have to experience the troughs in order to love the peaks. So I think that would be the best advice. Matt, last one, what life lesson have you learned that you wish you knew a lot earlier in life? The capacity to change. There's a phrase I use for that to have strong opinions weakly held and the capacity to change your mind. And this goes beyond investing. This can go into politics. This can go into relationships. It's just to say the capacity to change your mind shows an enormous level of maturity. To say I was wrong. I really was. You were right and I was wrong. There is nothing wrong with that. So that really is something that's.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“Which two people had the biggest impact on your professional life? I'm going to give a random shout out here. Kevin Stout, when we were 28 and starting Gray Rock, I sent a cold email to Kevin at Spider. And he came into our fund one. But for the grace of God, I have no idea why he did it. You know, we were so young. My partner, Kurt, has a phrase where he says, we dance with those that brung you for him. Lauren Messerv and Amy Diamond, Michelle Everart, I owe them a lot. And then I think that that's the investor piece. I won't name names here, but ironically finding out what you don't like in business. So in some of my prior career paths, I learned if I ever employed people, I'm not going to treat them that way. If I ever have investor capital, I'm not going to do that. I think that those are really important lessons to know. Just because, look, the hours are long, but the years are short. What's the best advice you've ever received? It would probably be my mother. When you're going through a hard time,”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“My biggest pet peeve is when people don't do what you say you're going to do. Closing table retrade. I'm going to sell you an asset for $100. Oh, did I say $100? I'm in $130 or something along those lines. Just”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“People don't see when my parents got divorced when I was a little kid, we moved 13 times in under three years. I'm very thankful for where I am. Very, very thankful. Anybody who says money doesn't buy a happiness, I'd argue also probably hasn't ever had zero of it. It is a very motivating factor over time.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm a golfer, I suppose, would be my favorite hobby. Not a very good one, but I like getting outside and it's really pretty. And my wife's from Augusta, so I got some good hometown baseball there.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“Midland, Texas. And what we try to do is merge these worlds together, is just to say, hey, when we're in those conference rooms, realistically, we're not bringing up climate. We just aren't. We're bringing up money. And when we're in other conference rooms, we talk about how we're cleaning up the operations of these firms. So that's where I think that there is a huge opportunity in the transition is to be that bridge that helps those two camps talk to each other. This situation's become politically imbued, but it shouldn't be. So we just try to help bridge that.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“This is the other thing that I tell people in the energy transition it's going to sound really cheesy, but it's a phrase from Bible study. And the phrase from Bible study is if hospitals are for sick people, then the church is for centers. What does that mean? So when you're sick, you go to the hospital to get fixed. Don't worry that you see a center in the pews on Sunday mornings. That's actually what you want. They're there to get fixed. The same thing is true of emitters. If you start this conversation with X, Y, and Z company in Tulsa, Oklahoma is the devil. You actually have set the energy transition back, in my opinion. These are not bad people that work at these firms. They really genuinely are not. They're reacting to market forces on demand of their core product for some that may have more evangelical opinions on this transition is just to say, look, at the end of the day, you may not be welcome in that conference room in Shreveport. You may not be welcome in...”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“The environmental impact is still labeled as an evil fossil fuel, but I actually think natural gas is the battery that's going to get all this stuff done. It is dispatchable, it is online, is reliable, it's cleaner, it does emit some CO2. But I tend to say, hey, look, let's move from 100 units to 50. Let's worry about the next 50 next. People tend to lump oil and gas. Well, they're used for two totally fundamentally different things. Oil's used for transportation and plastics and jet fuel and stuff like that. Natural gas is largely used for power, heating. We're not burning crude oil in our power plants, and we're not gassing up our cars with natural gas. So I think that's just been lost. The United States has reduced its CO2 emissions since 2005, largely on the back of fracking and getting that natural gas molecule out. I wish that there wasn't evangelism against natural gas because I think it solves for this energy equity and cleaning up and all this other stuff.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“Natural gas. Oh man, people hate fossil fuels. They just hate them. What we try to tell people is natural gas globally has been the largest decarbonization project by far. The United States, by virtue of fracking, has natural gas prices that are just structurally lower than the rest of the globe. They are 80% lower than Europe. That's why you're seeing people like BASF move to the United States. It is actually genuinely cheaper for folks to operate here. When I turn off a coal plant and turn on a natural gas plant instead, I'm at 50% less CO2. And this is one of the largest decarbonization projects. And there's no carbon credits attached to this thing. There's no IRA. There's no nasty incentives. It just got cheaper to burn natural gas versus coal. And when you look at the delta between if I move from a coal plant to a natural gas plant and a natural gas plant to renewables plant, that first step has 2.5 times.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“Of the world's lithium reserves are in the hands of just four countries China, Chile, Argentina, Australia. None of which are the United States. I think it's bad energy policy for us to say, hey, we've been fighting OPEC for decades and decades and decades. Let's do it again just with a different cast of characters. So that's where I think you will see things that look like the hybridization model where you don't disrupt people's actual lifestyles.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“And if you took 50 or 100 year time horizon on those investments, it would be universe changing. I think one that I'm bearish on is electric vehicles. There's several things about EVs that are, when you dive in, they're just not a good fit for your average customer. And I'm just putting my United States lens on here. They're very expensive. The charging time, the range anxiety and all these component pieces are something to think about. I actually think the solution set for the US is going to be hybridization of everything. So if I can take a car, it doesn't need a 300 mile battery. It needs a 30-mile battery realistically. That would probably reduce our personal CO2 emissions by like 95%. The other thing that I point out to people here is the battery supply chain is an unmitigated disaster. It is OPEC on steroids. China controls over 90% of the rare earth refining capacity. For some sense of scale, OPEC is 13 members and controls about 30% of the global oil market. So its 3x is concentrated here.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“I'm going to cheat on your question a little bit. If capital was not an issue, I think it's in nuclear. Nuclear energy is extremely safe. It's zero emissions. It is dispatchable. Baseload power. It's an old technology. There's not some tech risk around fission technology. If I was king for a day and I created the United States climate policy, it would look something like a Manhattan Project 2.0. It would look something like we're going to build a thousand nuclear reactors in the United States, some crazy number. I'm going to have the Army Corps of Engineers do it. And then once a plant is built, we're going to auction it off to a utility. Therefore, utilities don't bear the cost overruns. So if you look at Vogel, the most recent nuke plant to come online, I think Southern Company had said it was going to be $14 billion and ended up being $40 billion. You can't do that too many times. So we have a real problem, which is that ecosystem needs more ed bats, but each ed bat is too expensive for private corporations, largely due to regulation. That's where I think you could have a really material impact.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“When the government's asking you to measure something, I got news for you. That thing's going to be taxed. That thing is going to be taxed at some point in time, which is a whole different revenue source for the energy transition over time. I think that there will be low hanging fruit to achieve in the energy transition, but I think it'll take decades. This is not something that's going to happen overnight, especially when you consider things like energy equity. The impact on raising people's energy prices too fast. Bill Gates talks about a green premium inherently all of these things are just more expensive to do. You can't do that too fast because the reality of the situation is we're trying to fight for a world a hundred years from now where we're really worried about people dying. If you do it too fast, people don't die 100 years from now. They die tomorrow. If you're in Chicago and you can't afford your heating bill, you die tonight. There's a tension there on the transition. But I think it's durable and I think it's here for decades to come.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“I tell investors, despite the fact that we raise money in the energy transition, I'd argue vehemently there's too much money in the energy transition. It's just concentrated in the hands of very large funds who can't get out of bed without writing a billion dollar equity check. What our goal is is to try to build seedlings for those platforms to eat. My hope is that LPs don't get burned in the energy transition because I think if they do, it sets us all back on what's common goal for everyone. I think that you're going to see government stepping in and creating more and more policy. So the United States under the IRA has picked a carrot strategy. We're going to reward you for behaving in a way that we want you to.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“Methane. Methane is about 30 times more potent to the atmosphere than CO2. It's a definite greenhouse gas. So our team goes out, measures these methane leaks, plugs the well, permanently stopping it with cement, and sells voluntary offset credits to technology firms, financial services firms that need to offset their own corporate emissions. So those are some areas of the energy transition where we found there's not as much competition or this ecosystem is sufficiently nuanced. And carbon capture, well, you need to know subsurface and land and all this traditional energy skill sets. You need to be talking to emitters. You also need to know tax law. It's a weird nexus where gray rock's able to try to play in the energy transition.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“12 months. So we're a bridge power solution to get a data center developed there, but in a decarbonizing way. So those are examples of stuff where we see where is there an inefficiency? Inherently, I'm telling you there's a problem in renewables, which is if you went full merchant on renewables, there's no market for your electrons. Who's going to solve that in five or seven years from now? And they're fine for right now. Who's going to solve that? Is that a vulture debt guy who goes in and buys a mez piece and owns a free facility? There's so many different ways that you could play this over time. We have another problem that we've been solving recently, which is around orphaned oil and gas wells. So an orphan well is think of a well without an owner. It's exactly what it sounds like. It sounds weird, but there's at least 100,000, some people estimate up to a million orphan wells in the United States. This is an Exxon or Chevron doing this. This is like if Matt Miller drilled a well in 1949, but Matt dies peniless with no errors. These wells have no owner and they're leaking.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“Where operators flare natural gas and burn it off, that is a terrible thing. It's terrible for the environment. It's actually terrible for the upstream operators. It's terrible for the mineral owner. It's just one of these inefficiencies of life. So we have a firm conduit that goes to these firms and says, hey, in lieu of you, flaring methane, which is very bad for the environment as well, why don't we put that methane into some Rolls-Royce hybrid engines? So they're part battery, part thermal. And instead of getting value by selling natural gas molecules, let's get value by selling electrons to the grid. It's decarbonizing. It reduces CO2E by about 40%. I think that one of the worst kept secrets out there is AI is very power intensive. And these data center developers are in an arms race. They are facing a challenge which looks like, hey, if I want to plug into a grid system, it takes me five to six years to do so. That's an eternity in their arms race. Whereas our team can have them fired up and under.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“We think there's too much capital chasing renewables, and renewables are actually disrupting our grid system. They're causing intraday price volatility. They're causing electricity to be less reliable. That has actually, in a weird way, placed weight on the value of a dispatchable electron. The value of an electron that you can say, I want you on or off. Because you can't really tell the wind to blow or tell the sun to shine. So in electrification, for example, we've been chasing weird problem. You'll start to get the theme that all of our problems tend to be a little weird. But the weird problem looks like there's upstream companies that are flaring natural gas. So why does this happen? A lot of times when an operator is drilling a well, that well is mainly for the oil economics. And if the gas is priced too cheaply, there's not enough money in the ecosystem to pay for a pipeline to get it out of there. Or the pipeline's already filled. That causes this friction.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, as you've studied this ecosystem, looking for these little niche opportunities that look like great investments under the theme of something where you feel a lot of things are overcapitalized, where have you looked and found other opportunities?”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“Work on this vault 44.01, which is the molecular weight of carbon dioxide, and then carbon cycle. And Vault's really focused on ethanol plants, carbon cycle is really focused on chemicals and natural gas processing. And that's how a deal comes together with an emitter. If I had to say, what's the nexus of value here? It's the emissions. Ironically, by virtue of putting a price on carbon, you've actually made carbon valuable under the IRA”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“At the end of the day, at Gray Rock, we own a couple of development firms that have their own teams of technical experts, management, finance accounting, land, geology, et cetera. So those teams are at the forefront of talking to emitters. Several of our portfolio companies we just created. One was started with friends and family money and we came in and massively capitalized them, let's say. So then they're approaching emitters. Your goal is to make this a great deal all around. You're trying to make sure the landowners make money. The emitter makes money. Our firm and investors make money. And that's really what's a component piece of pulling a deal together. So a lot of times these are structured as joint ventures, things of that nature where you definitely want the plant incentivized to stay online. They are financially healthy. So that's really the component piece is it's a Venn diagram of where do you have an emitter that's emitting pure CO2? Where do you have geology that's local, landowners that will cooperate are aligned with you? There's two portfolio companies that we have that”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“Far does a CO2 need to go. We were looking at an ethanol plant. Great ethanol facility, but it's bounded by a river on one side and a town on the other. Do you want to build a CO2 pipeline under a river or through a town? So that's the thing that deprioritizes your project is to say it's not impossible, but in the energy transition, this shouldn't be project number one. Let's do the lowest hang fruit first. We are going to get to coal plants and natural gas plants 100% certain in the next decade. Why don't we start with these pyramiders first that are more layups operationally? And then let's work on where is CO2 more dilute. So that might be cement, iron, and steel, and power.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“You're analyzing one of these projects effectively a handful of component pieces you need to worry about. From an operational perspective, you need to worry about things like what is the CapEx to drill well, what is your cost elites, landowners, what's the OPEX to power the compressor to send that CO2 downhole, what's your power cost there, what's the royalty rate that you've got to pay the emitter, or what's the deal structure there? Those are all important, vital underwriting things. And then I'd say there's idiosyncratic. Does this law get repealed? Does the law change? Does a spill happen? Theoretically, you're saying they don't happen, but there's a good friend of mine, John Cox, says risk is the price you never thought you'd pay. So be ready for it. Those are the component pieces of underwriting. And then really, at the end of the day, you're taking technical expertise on geology and candidly whether or not that rock can support that volume of CO2 or if you need to go to a different rock. And that will drive a lot of your unit economics on these in terms of how.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“If you wanted to think about it this way, a CO2 spill is the default. That's what you're doing every single day. You're spilling tons of CO2 in the atmosphere, permitting is a problem, though.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“A mile into the earth. Now, think about how heavy one mile of rock pushing down on you is. It's a lot of pressure. Let's go back to chemistry class. What happens to gas under pressure? It's no longer gas. It's actually a fluid. That CO2 is going to flow through that rock. One of my partners, John, says, it's like pouring water on a bucket of marbles. It's not going to go into a marble, but it's sure going to get in and around these nooks and crannies. All we're doing is repurposing technology that's been in the traditional energy ecosystem for 50 years. So it's not a venture capital exercise that we're up to. It's technical in nature. It's not tech risk in nature. There's only 10 or something permanent sequestration wells operating in the United States right now. It's very safe, no known industrial accident is tied to injection. What makes an oil and gas operations very dangerous? Well, the reason why humanity likes it is it explodes. It lights on fire. Whereas CO2 puts out fires.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“Start with what are we doing when you say sequester CO2, really what you're doing is you're taking CO2 from an emitter and you're drilling an injection well down into the earth. It goes about a mile into the earth. And what you're looking for is you're looking for geology. The geology looks something like a cap rock, which means an impermeable seal of rock. So you could think of a slight patio or something. You could spray gas at that thing all day long. No gas molecules are getting through that. You're looking for that seal of rock. That portion of rock might be a 10-story building of rock. The Earth's crust is enormous. And you're looking for that rock sitting on top of a porous sedimentary rock. If you've ever held in your hands like pumice or sandstone, it has little nooks and crannies in it. The problem we're trying to fight is humans is the CO2 actually wants to go to the area of lowest pressure. It does not want to go one mile into the earth. So we've got to add some energy to it. So we're going to compress that CO2 and we're going to send it down.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“Weapon against the energy transition. That's why you're seeing very large firms in red states having very large investment programs against this. So that looks like Duke and Dominion and DTE and Southern company and Exxon and Chevron and Shell and Aero Liquid and CF and Nutrient and Coke industries and Little Grey Rock. When you talk about project economics, our mission from our partners is you have a material impact on carbon, but you're delivering returns to me that are competitive with my traditional private equity portfolio. I'm not a charity. That's actually a complicated part of the energy transition because there is charitable capital out there. Bill Gates doesn't need to make a return. It is a difficult thing to swim through. Again, it's focused on these full cycle returns.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“A good project in carbon capture might be an unlevered 20 to 30 percent rate of return might be somewhere around three to six times your money. These are competitive with traditional private equity economics. The weird thing about 45Q is it's not a supply-demand thing. It's $85 a ton. If one plant gets built, it's $85 a ton. If 1,000 plants get built, it's $85 a ton. And it goes up with CPI. I like to say in the energy transition, we've all become government contractors. We're all working for the DOD because the only folks that have deep enough pockets to do this at scale are governments. For some sense of scale, the voluntary carbon market. So you're Microsoft and you go out and you say, hey, I'm going to buy X tons for saving this rainforest and offset our corporate emissions. That global market is about $3 billion a year. For some sense of scale of how big the IRA is, the IRA is about a trillion dollars. It is a tactical nuclear.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“Dioxide gas and he injects it into the earth permanently getting rid of it. We'll pay him $85 per ton that he does via tax credit for a period of twelve years. This is an old tax credit. This thing was created under George W. Bush at twenty dollars a ton. Too low of a price to really do anything with. It got increased in price again, fifty dollars a ton under Donald Trump. I don't think either one of those gentlemen have a brandishing of the environmental movement in terms of today's politics. And then it got enhanced again under Biden and Mansion at $85 a ton. So that's really how you make money doing carbon capture. The vast majority of the economics are on the basis of that tax credit.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“It starts with the purity of CO2 emissions. There's three component pieces of carbon capture capturing the CO2, transporting the CO2 through a pipeline, and sequestering it. So drilling an injection well and getting rid of that CO2. What is a variable that we really look at is this transport piece. That pipe is super expensive. What we're trying to do is sequester the CO2 that comes out of a plant gate as close to that plant gate as possible. The idea here is it reduces CapEx for pipeline transport. It also reduces the number of stakeholders you have. So those are the component pieces. And then you have to have an emitter who's aligned with you. So those are the component pieces of what makes a good project. I guess that might be a good time to hit on who pays you to do this. How in the heck do you make money doing carbon capture? And it's actually through a tax credit. Tax credit's got a really weird name. It's called 45q. Really what that tax credit says is, hey, if Ted goes out and he takes one ton of carbon.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“The right style of emitter. You can actually make private equity returns. So typically when you read an article that says, we've tried carbon capture, it doesn't work. These doofuses in Texas just don't understand how the world works. Typically, they're pointing to one coal-fired power plant. It's the Petronova plant in Texas. Decarbonizing coal is where humanity wants to go with carbon capture. And I agree with that. I think that's a phenomenal thing. Now that being...”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“Trillion dollars. I don't think people understand how large the energy ecosystem actually is because it sounds good in a sound bite, but in actual dollars, these things are massive investments. So that's some of the stuff that we do is we look at, okay, what's the logical extent of this ecosystem? Sustainable aviation fuel, another example. Are people willing to pay a premium for an airplane ticket? Well, depends. They are if it's 1% of your airplane ticket. They're not if it's 100% of your airplane ticket. So we try to think through these ecosystems. And then what we really found was that carbon capture was largely being ignored. It had gotten a bad rap. What I tell investors is saying you do carbon capture is like saying I do real estate. Okay. Are you industrial outside of Dallas Fort Worth? Are you building one of these super high skyscrapers on Central Park? Are you hotels? They're just so many ways to do it. And what we saw was if you focused your investments on”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“Electrons and the federal government says, Hey, I'll pay you $10 if you produce a renewable electron, and somebody uses it. Well, if there's nobody to use it, then Matt pays Ted $5. I get $10 from the government, so I'll pay you five just find some use for this electron. And it creates negative prices, which is really weird. That happens at high noon in California as well. So that's where I say renewables are phenomenal thing in an energy portfolio when you push renewables to try to be 100% of the ecosystem. That's where you create problems. And then folks might say, well, that's really simple. Just use a battery. A battery is a sponge for these excess electrons, and it can grab them and then resell them, and that's perfect. Well, taken to an extreme, we did some math on Germany, for example. Germany's trying to push an energy vende policy that's effectively heavily only renewables. And the back of the envelope mass says, well, in order for Germany to be 100% renewables plus 100% battery, the battery piece of that equation was 270.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“Let's start with renewables. Renewables are overcapitalized, and it's not even close. It's massively overcapitalized. When you look at areas where renewables are built, you're not creating too much electricity. You're creating too much electricity at a certain time. They are time-delimited electrons. So some specific examples are power prices in western Oklahoma are negative 20% of the time today. They will pay you to take the power. What in the world? That doesn't sound right. Well, if you think about it this way, hey, I'm a Google or I'm a meta and I want to be 100% renewable power, but my data center might sit in Illinois next to a coal plant. I'll finance a wind farm in Oklahoma with renewable energy credits or something along those lines. I've cleaned up my power, even though I didn't use those electrons. Not a lot of folks are moving to Western Oklahoma. So there's nobody actually in terms of a demand or load sink for those.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“As you looked at supply-demand characteristics of different environmentally friendly ways of investing as you were going down the path to where you ended up with carbon emissions, what are some of the simple math equations that led you to pass on wind or solar or some of the other projects that you see?”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“The way that would increase global oil demand by 30. So that's three times the COVID effect. That's the challenge on the traditional energy side. And I walk folks through that. This is where I say the second big overarching thesis here is the drum beat of carbon's only going to get louder. Currently Republicans under the age of 35, 80% of them say climate should be in our top five list of policy issues. Nobody talks about that. That means that the United States is quickly headed to a supermajority climate position on policy. Carbon will be a commodity that rivals oil and gas in scope and scale. And you need to be ready for that. Buddies in West Texas that are say CO2 is food for trees full stop. And then I have, call it more evangelist folks on, I'll pick on San Francisco here who say we need to stop all fossil fuel production tomorrow in order to solve it. What I try to do is I try to help folks to this centrist.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“Oil needs to come out of less stable regimes and/or more difficult geological places. But I also point to them about demand on the oil side and I say you may read articles about electric vehicles and hydrogen and all these energy transition theses. You've actually already lived in a world of all hydrogen airplanes and electric vehicles. You just didn't realize it. It was in May of 2020. Not a car on the road, not an airplane in the sky, not a cruise ship on the ocean. Oil prices went to negative $37 a barrel. What do you think global demand was down? You think it was 50% that month, 70%? It was down 10%. So that coupled with the emerging world wants to be like the lucky 1 billion of us that are energy rich. The contra of the supply problem is a sticky demand problem. And that looks like if you took your average African citizen and gave them 80% less oil than you and I use, you would consider this camping.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“It's an inflation hedge. So, by virtue of handing shares in a permanent capital vehicle to those endowments, they can actually maintain that exposure at their will. So if they need to sell and get liquidity, that's phenomenal. If it's, I need a spot in my portfolio that's permanent capital exposure to this inflation hedge, you have the option of doing that. I still see things as super rosy on upstream. This may sound like I'm talking out of both sides of my mouth here, but when I talk to people about energy, I say two things are simultaneously true and it will not make sense. One is I think oil's off to the races. And I do say this to CIOs with a, hey, think with your inflation hat on, this thing is the input to almost every product in humanity. And the reason why is largely the world has lulled itself into a soft slumber on the back of stable U.S. shale oil supply. And we're going to run out of it. Like all reservoirs, we're going to run out of it and you're going to start finding.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“What we did was we rolled up the assets from our oil and gas private equity funds and actually did a DSC transaction with them and created a public company out of it called Granite Ridge, get a Gray Rock in Granite Ridge. We're excellent at branding. And we were able to take that public in fall of 2022. That actually solved for a handful of things. Number one, that solved for called a fee stream for our employees to make sure that if I'm a traditional reservoir engineer, I'm a traditional landman, maybe I'm not necessarily as plugged in on our net zero thesis, but I still have hundreds of millions, if not billions of dollars of value I need to be looking after as a fiduciary. It also solved for another thing which is a little bit nuanced for the endowments, which is if you put your CIO hat on, you say, okay, I actually really like the exposure that Gray Rock's given me. It's high cash flow yield. It's not levered. It's diversified.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“How do you manage the business part of that? Because you've put investments in the ground as they come off. Revenues could go away. You've got a team of people that are doing one thing. And now you've got to start looking at another thing. How did you navigate through all that?”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“In to start chasing what I like to call credit Dan Pickering with us emissions transition investments. It's not really an energy transition. It's an emissions transition. The emissions is what we're trying to get at. So that's really how we were able to parlay, call it our upstream natural resources.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“Happened to Shale. I was really worried because we looked at renewables every which way. We said, hey, well, we have a land team at Grayrock. Why don't we go out and buy renewables royalties? Let's go buy the land underneath the wind farm or underneath the solar development. And we get a royalty. And well, we size that market that entire market. This was several years ago. It was about $2 billion annually in the United States. And we had friends that had already raised a billion dollars to do it. That points to not great full cycle returns. So then we looked at doing renewables and regulated utility territories. We looked at doing offshore Gulf of Mexico wind. We looked at every which way we could on quote unquote clean power and ultimately had to settle on this isn't where we should spend our time or our partners' dollars. And in that process of multiple years of study, obviously you have COVID as a weird interruption there came up the learning curve on carbon capture specifically, methane abatement opportunities, different ways of playing electrification as well. And we're very fortunate to be able to get investor dollars.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“Again, in natural resources. So, our partners were very supportive of saying, hey, you helped us navigate shale, which was an overcapitalized commodity, oil and gas. And typically the average investor in that space got burned. I have the same gut instinct about carbon that decarbonizing investments are also overcapitalized. Can you help me figure out where we can put money to work? Because they were coming to us with a real challenge, which looked like saying, I need to have an impact on carbon. I can't sacrifice a penny of returns. I walked away from these conversations thinking, oh no, they want us to do renewables. And anybody who reads our stuff will know I'm super bearish on renewables. And it is important in the energy transition to think about it. There's two hats to wear. There's a humanity hat. What's best for humanity? And then there's an investor hat. And I have to think with my investor hat on. And I see renewables as just a massively overcapitalized space. It will likely torch capital on multiple.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“That's a really great question. So we've been really blessed. Our partners have been phenomenal and true partners. They tend to be endowment foundation pension insurance capital. We started in 2013 round about 2018. I had independently several partners. They kind of looked like Lauren Messer or Amy Diamond or Mike Berry and Christy Craig or Elisa Maul. And they said, hey, look, there's a voice on our investment committee and they're saying the word carbon. And we're friends. I want you to know this conversation over before it starts. That actually gave Greyrock a significant advantage to other energy firms by virtue of starting to search for how are we going to invest in the low carbon economy starting in 2018. The ESG pressures at your typical endowment foundation, the vast majority didn't take the form of you have to divest all of your natural resources. It typically took the form of you're not allowed to invest.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, over the last decade, certainly in a public and political realm, there's been a very big shift in ESG movement and how people were viewing natural resource investments. How did that impact what you were doing in your investment activity and then as a business at Grayrock?”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“There's this concept of half cycle. How much does it cost to just do a project? And then there's the full cycle. What do I have to pay to get access to that project? And that's where a lot of people lose in energy.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“You phrase a question in the right way, that's 90% of the answer or something like this. It starts with us writing down here's a real problem here, and it looks like X, Y, and Z. I tend to be a nerd. So we write pretty in-depth quarterly letters that are effectively energy surveys. Here's what's going on in the entire energy ecosystem. And I mentioned that these things are interconnected, really what you're trying to find is where is there a durable dislocation? There can be dislocations in energy, but they might last 90 days or something along those lines. Where is there a durable multi-year dislocation? That takes a lot of study. There really isn't a shortcut. You're going to spend hours reading, talking to people, looking at transactions, losing almost all of those transactions, by the way. The best thing to be in energy is cheap. So that's really what we do is we're very diligent on trying to find dislocated energy opportunities that provide great full cycle returns for our partners. That includes entry.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“Own a ranch together. Seven of those cousins live in San Antonio, use the same attorney. EOG finds them. Three are in San Francisco and New York. Long story short, we're able to find those three other cousins to get access to an EOG operated position at a material discount versus what operators had to pay. That was a thesis that turned out to be true over the past decade of the Shale Revolution. And I think that's really an important theme in energy is anytime something's overcapitalized, you're likely to lose your shirt. Just because a market is growing doesn't mean you're making money. That's a really hard thing for people to grasp in energy.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source
“Upside economics, but at a really material discount because nobody was trying to buy that asset. Sounds really weird. And you might say, well, okay, so you're buying maybe a 10% piece underneath EOG. Why is EOG selling you 10% of their asset at the discount? That doesn't make any sense. So we had to explain to investors just the nature of how these assets actually come together is due to the private mineral ownership in the United States of America. Most other countries, Saudi or Canada or something along those lines, the oil and gas is owned by the crown. It's owned by the government. The United States is actually quite unique in that individuals can own it. There's a great quote by J. Paul Getty where he said, the meek shall inherit the earth, but not its mineral rights. So the examples we would use with investors, we say, hey, rare rail is a one mineral owner that's leasing to EOG. There's actually maybe 10 mineral owners. There was one mineral owner, but that was granddaddy, and he's passed away, and now 10 cousins.”
2024-10-14 · Capital Allocators · Matt Miller – Crossing the Energy Divide at Grey Rock (EP.412) · IDENTIFIED FROM THE TRANSCRIPT · source