Chuck Yates Needs A Job

0:21 Hey, everybody morning morning. Oh, yeah. Morning. Good. All right. Steve Trauber, the greatest MA banker in all of energy. And yes, I mean that mannered hold. Sorry, man. He's kidding.

0:35 Level set us where we are MA and energy because I mean, are we going there out of the cellular phone business? We're going to have five EP companies five years from now. Where are we? Now, look,

0:46 I think if we sit here today because of the volatility we're seeing in the marketplace, we're kind of in a little bit of a pause. Doesn't mean things aren't happening. We're extraordinarily busy,

0:55 but we just come off of a 12 to 24 month extraordinarily busy period, maybe a record setting period. It's certainly in the upstream sector and people are pausing. If you think about all of the big

1:05 companies, most of them have done a large MA transaction, Exxon, Oxy, Conoco, Chevron's trying to get one done, depending upon what happens with Hess Diamondbacks another one. They're all

1:17 digesting at this point. What that said is consolidation has tremendous amount of benefits, right? The scale is good from an efficiency perspective, from increasing returns, from lowering your

1:28 cost of capital, all of things of which are better. Investors like bigger companies, they can move in and out more easily. And therefore, I do think we are going to bigger, stronger, and fewer

1:42 companies in the energy space. Now, that's upstream. I also say every other aspect that feeds the energy business and the midstream and services will follow that as well. So I think we will see a

1:53 consolidation face in the midstream space. Midstream companies are doing real well right now. So there's not really compelling reason to force them to do anything, but there is ongoing dialogue

2:03 throughout that space. And then the services space is opposite, probably what I would say in the midstream space. They're struggling a lot more. Certainly, the volatility doesn't help them.

2:11 There's a lot of companies that have fallen dramatically in market value and it becomes somewhat irrelevant to investors. And so I think there's got to be a consolidation there so that they grow in

2:22 size. There's really kind of three or four large cap companies and we all know who they are, the Baker Hughes, Lumbershay, Halliburton's, Otherworld, National, Orwell's, but there's a lot of

2:30 companies that need to gain that scale and I think consolidation is what's going to happen. Yeah, my running joke for most of my career was there was one investment in energy. It sucks on

2:39 everything else, just a trade. And this is going to sound like a huge juxtaposition but we're going to tie it together I promise, Matt, Gracie, what's going on in insurance world? Level set us

2:54 there 'cause then I want to come back and try to tie the two together. Yeah, so I'll take it from an MA perspective. So within AON we have a group that focuses on ensuring MA deals. And 10 years

3:06 ago, the ability to do that in the energy space didn't exist. And so what we saw over the last 10 years was kind of a push by private equity who were effectuating sales in every other sector It had

3:17 these investments in energy, and they said, We want to do in energy what we're doing in our other businesses. And that is when we're selling a company, we want to keep all of the proceeds. We

3:26 don't want to put 10 to 20 of the purchase price in escrow for 12 to 18 months. So the insurance markets responded by creating unique proprietary insurance policies to basically free up indemnities.

3:39 So now when you sell your business for2 billion, you don't have to put200 million into an escrow account for a year. You're able to get those proceeds out So I had the fortune of reaching out to

3:50 Steve a few years ago, actually about 18 months ago in his short retirement period, to come on board with us as an advisor. Because A on its core is a sales organization.

4:05 And so we have a really interesting advisory board where we have seasoned vets like Steve who can come in and look at what we do and say to you guys. That's for being old. Exactly. I'm starting to

4:09 get that now to seasoned vets. But it's been great because we've been able to work with Steve and get insights into how should we

4:17 be adapting our business to meet kind of the current needs of energy transactions. So it's been great to get to know Steve and work with him over the last 18 months. So I'm gonna drill down on those

4:26 'cause that's the stuff we didn't really do back when I was at Caine and we were selling stuff. It seemed like we investigated it, but never seemed to work out. But real quick, before we get there,

4:38 Tracy, insurance companies actually were willing to work with hydrocarbon-based companies. Are we okay there? Yes, the insurance, yes. While there, I was worried about that. There was some

4:48 concern there. I think the insurance companies were following kind of what the banks were doing. That has now, we don't get really ESG questions anymore, which is interesting from insurance

4:59 companies. I mean, what has happened with the MA activity is that there's less clients to buy insurance. And when you have companies like Exxon acquiring a HESS, Or maybe it'll be Chevron.

5:12 that insurance premium goes away from the market. And so then there's less

5:18 clients to buy insurance so there's more competition. So we're using the market environment to our advantage and it's definitely a buyer's market for oil and gas companies. Yeah, unfortunately I'm

5:29 on the podcast somewhere talking about how the money center banks will be out of energy within the next five years. Oh, I wouldn't say we were headed that way but as you know, a lot of banks that

5:42 got out of energy. Barclays would get in, announced getting out of energy. BMO was getting out of energy. Deutsche Bank was getting out of energy and certainly the big banks, one of which I was

5:51 part of, was shrinking and was looking at their portfolio of loans and saying how do we shrink so that we can get our own portfolio on a finance emissions basis, net zero by 2050 and what was that

6:03 glide path to 2030? And I can't tell you the amount of time I spent with advisors and outside consultants trying to convince them that energy wasn't going away, and that there was going to be a

6:14 major problem if the major banks weren't helping to grow energy companies to supply the world with the much needed resource, which was hydrocarbons. Yeah. So Matt, how does this work? Give me a

6:26 specific example of an indemnity or something that you're insuring under a PSA, or y'all doing, is it title? Is it environmental? What type of stuff is it? Yeah. It's a great question Upstream

6:40 oil and gas is one of the interesting places where it took us years to actually develop a solution to ensure upstream transactions, and you hit the two key areas. It was environmental and title. We

6:51 had a real challenge getting insurers to focus on those things. To take a step back, if you think about it, if you are a private equity fund, and you've had an investment for eight to 10 years,

7:02 you're ready to exit that investment, you want to return that capital to LPs. The idea of holding proceeds up for even another 12 to 18 months has a significant cost to it. If you can return those

7:13 proceeds to your LPs on the date of closing. That's because 8 clock on it. Right, exactly. The preferred return to your LPs. That's exactly right. So really, when we looked at this solution,

7:23 it really kind of was born out of almost an arbitrage to say, if we can free up that capital today, but only pay 2 to 3 for something that frees up 8 capital, it makes all the sense in the world So

7:36 ten years ago, I think we talked about this earlier, you really didn't see this as a solution. I mean, no one used it. Today, probably 60 to 70 of all private MA are insured transactions. And

7:46 it's generally, you know, the sellers are pushing for it because they don't want to walk away deal. And what it's actually done is it's made the transaction a lot easier and more efficient. So you

7:55 don't have the lawyers. I was a practicing attorney before I joined down. You don't have lawyers spending, you know, weeks negotiating reps and warranties and various indemnities because you're

8:04 pushing that risk to an insurance company. So on upstream, you're basically covering all of the kind of unknown liabilities that would come over with an asset. So you're covering special warranty

8:14 of title. You're covering environmental pollution. You're covering the inaccuracy of lease operating statements. You're covering potential underpayment of royalties. You're covering potential tax

8:25 issues. Another big one we see is material contract issues where someone didn't disclose certain terms under a JOA or a joint development agreement. So if you just think about all the things that

8:35 you could step into after you buy an asset or a business, the idea is let's take all of those potential liabilities and push them onto a balance sheet of an insurance company and let the parties just

8:46 walk away from the deal kind of free and clear. Oh, interesting. And when, and either one of y'all take this, when does this start? Meaning I'm selling XYZ property, then I pick up the phone

8:60 and call you six months before I wanna run the sale assignment. Yeah. How are we starting? Give me a little bit of color on that process. Yeah. We actually, we're working on one with Stephen

9:11 Moles right now. But the idea is that you're engaged once you're actually going to go out to buyers, at least after they've submitted a first round bid. So you might test the waters and confirm,

9:22 all right, we've got real bidders with purchase prices that we're actually willing to transact on. Now we're going to move into the next step of negotiating term sheets or LOIs That's typically the

9:32 stage where we get involved and really work directly with investment bank advisors and the lawyers to structure this in a way where it works. And so we're typically doing that, you know, at least a

9:42 month before the parties are going to sign. We've gotten phone calls on a Friday that says, hey, we need to sign on Monday and we need this done. And it turns into kind of an old, you know, law

9:52 firm type weekend where you're working 18 hours a day, but preferably where it where it won't feel like a fire drill for everybody, it's usually about two to four weeks out from.

10:02 No, it's interesting that they have developed, and his developed is really almost a staple. Like we did in financing. We could provide a staple and you went out with the sell side and the bank

10:10 that was doing the sell side had the staple. So anybody who wanted to look at buying that, they had the financing ready to go, they had the same thing in the insurance product now. They can come

10:18 in and do a staple and then everybody who's looking at buying that property can look at what the insurance is going to be behind it. So it takes time, energy, and effort out of the process as it

10:26 pertains to the insurance product. And the other thing we do, Chuck, I mean, we'll team up with Tracy and her team So we're, again, we're focused just on MA, but Tracy and her team will look at

10:34 anything else that's insurance related. So as we're looking at these assets or businesses, you know, her team can come in and also help supplement other areas that we need to address. So there

10:42 could be kind of known environmental remediation or whatever else is out there. Her team can come in and kind of address all those other kind of more kind of traditional insurance needs that come up

10:52 in the context of the deal. So the idea is let's just make it streamlined and as efficient as we can, get to the finish line and move on to the next deal I had a dinner. with an LP one time. And

11:04 the backdrop of this is we had bought an asset from another private equity firm that shall remain nameless merit.

11:15 And we got a phone call one day. We're literally the CEO goes, Hey man, we're piping sour crudeunderneath the

11:23 city of Laduc in Canadathrough lines that were built for sweet crude We're like, What? And my business partner, my kind, engineers, engineer, ran the J-field at Exxon, which is a real nasty

11:37 field. I've never seen his face turn white like that before and he just shut it in. This wasn't, let's call headquarters in LA and this. But anyway, so we wound up having a big lawsuit and it

11:50 went for 10 years and something I didn't appreciate when I was having dinner with the

11:58 LP Well, one of y'all too, just give me my money. You know, y'all are fighting over this money and y'all are both holding it. And so I actually think there's probably more to what you're doing

12:11 right now than you even realize the ramifications. Yeah, I worked on an MA deal in the offshore sector one time. There was an ongoing litigation between one of the parties in the merger and another

12:22 party and insurance company came in and would ensure that amount So it wasn't an unknown amount. So you could determine that and deduct that from the purchase price and settle that effectively from

12:35 an economic perspective right there. And then the insurance took the rest of that liability, whatever that may be. And they obviously were excellent at assessing what that is and it helped get the

12:44 deal done, but not for the insurance. The deal would never have happened. Yeah, it's kind of interesting Chuck. I mean, I think at the end of the day, it all comes on to, you know, how much

12:51 is the premium gonna be for risk? But there's insures that will take almost any bet. I mean, if it's a loser, they're gonna step away but if there's something that's on the fringe. they may be

12:59 willing to do it for some premium. And in particular circumstances, that premium may be justified. We've insured litigation, where someone wants to buy a company and it's subject to a lawsuit.

13:09 And they're looking at it and they're saying, it's probably a bad lawsuit. We don't think the business we're gonna buy is actually gonna be found to be liable. But if they are, who's wearing that

13:18 risk? And historically, that could hold a deal up 'cause you look at it and you say there could be punitive damages, there could be who knows, right? There's insurance policies that will ensure

13:27 litigation, right? So we can, in the context of a deal, we're always working with parties to say, What are you guys really worried about? A lot of times they're not worried about anything. They

13:35 say, We think it's clean. We just need to make sure that something unknown doesn't pop up a year later. Cover us for that. But then you get the, well, we're buying assets from someone who has a

13:45 history of not paying their royalty owners. And we think that's been settled, but we don't know. And we're gonna buy these assets and we don't wanna get hit with a bunch of claims. And so these

13:55 are things that, clients bring to us, Steve, lawyers bring to say, Can you help us with this? And then we'll try to go address it with the broader market. David Lee Rothkup, paternity insurance

14:05 back in the night.

14:08 Tracy, what are you seeing in insurance world that's maybe different than five years ago? So the amount of capacity has grown in the last five years. There's an abundance of capacity, especially

14:24 for upstream companies, like I said earlier, it is a buyer's market in almost every sector of our space. I mean, there's some restrictions from a liability standpoint. US liability is not a fan

14:38 favorite of the insurance market. We've seen a lot of nuclear verdicts. I'm sure you've seen the settlements and the demands have just continued to increase. And so from that standpoint, I

14:50 wouldn't say that there's as much capacity, But at Aon, because we have a global -

14:56 We're in a global company and we access markets all across the world. And we are agnostic about where we access this market. So it doesn't matter if we're placing business in the US, we're

15:07 replacing business in London, if we're placing business in Bermuda, we are searching high and low for the capacity to deliver the best results for our clients. Does that mean cheaper premiums or

15:21 has risk so? It means cheaper premiums. Yeah, it means cheaper premiums It hasn't been on my car insurance, but that's - But it may be my driver. One thing about the insurance companies that

15:31 we've seen is as they've gotten more familiar with the energy sector and more insurance companies have, and as they've gone through and worked on a bunch of these companies and issued policies and

15:42 the policies have worked out well for them, more companies have gotten involved, more obviously, more supply of it, you're gonna bring down the price, right? And I think that's what we're saying,

15:52 and they're very comfortable with the claims. have been acceptable, and so they've made money. And is these insurance companies look to expand their business? More and more of them are moving into

16:02 this area. Yeah. So Steve, I'm gonna make you look into the crystal ball. What trends are we gonna see in MA over the next five years that maybe we're not talking about right now? I'll throw one

16:18 at you. You can tell me this is stupid, or you've been out of the business podcasting too long, check, but I think at the end of the day, ultimately big tech just wants electrons. And natural

16:33 gas is the logical solution to do that. I don't really see the bridge. I haven't seen a lot of the natural gas folks go into Silicon Valley talking, okay, how do we get you your electrons? So I

16:47 think a convergence has to happen there. You know, that would make some sense. I mean, obviously, if you look at the big tech, the hyperscalers, their cost of capital is pretty unattractive.

16:58 And the need for energy is only compounding. So from a theoretical perspective, that makes sense. We aren't seeing it right now. We are hearing, we talked to them regularly. In fact, we're

17:10 working on a process right now, we're getting ready to go out on a roughly 500 to 600 million dollar non-op Appalachia sell side. We will be approaching some of the tech companies to see if there's

17:22 interest. But every time we approach them, they say, Look, that's what you do. We do what we do. We don't understand energy and we don't want to get involved. What you could say is maybe it's

17:32 not the tech guys. Why not, if electricity and natural gas is going to be a major super trend in this sector, then think about why wouldn't one of the major oil companies, why wouldn't an Exxon or

17:46 Chevron That's the big growth there. We're great at projects. We have a low cost of capital. We're very integrated. Why wouldn't that be the next logical step for them? And even that, I don't

17:58 suspect will happen. I think they like to do what they do best, and they've stuck to it. Five years from now, maybe it's not quick enough, but there is this super trend where we need tremendous

18:08 amount of natural gas, where the electrical generation, power generation in North America is not sufficient. So there's got to be a lot of capital spent there, which means there should be good

18:17 returns, particularly for companies that know how to take on these massive projects. But when we talk to them, that's the furthest thing from their mind. They just don't see themselves getting

18:26 into that. Well, and I was on a panel at NAIP, and I sat here and said, okay, who has natural gas in their portfolio? And I've, you know, 200 people out in the audience, everybody raises

18:37 their hand. And I got, how many of you have been out and sat down with Microsoft and talked about their energy needs? All the hands went down. And you do need to figure out, how to bridge that,

18:49 because if we leave it to the utilities, it's not gonna happen. I mean, those are the most unentrepreneurial people on the planet. Usually regulated, not used to working in the entrepreneurial

18:59 environment that we need to have now. We need to be thinking strategy and growth and not just how do we connect the next neighborhood to the grid. And you're right, there needs to be some creative

19:10 thinking about it. You notice John Arnold went on the board of meta. There's a reason that happened, right? Obviously they recognize energy is a critical need for them going forward. And it's

19:19 only going to become more critical. Somebody needs to understand the energy ecosystem and help explain to their board and their management team how we capture that natural guess. How do we take

19:27 advantage of that? But yet today, I mean, your point is logical. It's rational. It's just, sometimes people say, look, we do what we do. And you do what you do. And we'll help you. You've

19:41 seen, for example, we worked earlier this year on a company with X energy.

19:47 and when a lead investor, it's a nuclear, small modular nuclear SMRs, and Amazon was one of the big investors in it. They understand the need, they will put their capital up, but for them to

19:56 actually get involved in owning it or operating into these assets, just don't see that yet. Doesn't say it won't ever happen, but I think it's got to be down the road. The one thing I've heard is

20:07 a couple of the more entrepreneurial EMP companies are hiring the old IPP guys and saying, all right, figure out how to turn my natural gas into electrons, 'cause something that's gonna have to

20:22 happen. And unfortunately, I think they're gonna have to build it all off-grid. Yeah, you know, we're seeing a little bit, we sold a company earlier this year called Baseline. They've got gen

20:30 sets out in the oil field, right? Yeah. And they want to obviously take it to the next step to data centers and help AI grow. But right now it's out and they're trying to do exactly that, take

20:40 that natural gas and convert it Let's get rid of the diesel. it's upgrade from a clean tech perspective and use that out in the office. There's a lot of places you're not connected to the grid. You

20:51 go out in the far stretches of Midland Basin or Delaware Basin in particular. You're stretched to find out how to get plugged into the electrical grid. So I think that is a logical step. And you do

21:05 see we saw some of the oil field service companies actually looking at bidding on that as a compliment to what they're already doing in the oil field Yeah, that's always been my running joke that if

21:14 you're the mayor of Monahan's Texas, you all got to upgrade the binigans if you're going to have Zuckerberg coming in. I actually had a question for Steve, just based on what we heard this week

21:23 with with money coming in from sovereign wealth funds from the Middle East. Do you think that's going to have an impact on energy in the US. specifically? Yeah, look, Trump is obviously over in

21:32 the Middle East right now. And we've seen, you know, you saw that Aramco, he's going to put3 billion into

21:41 their refinery system here, Motiva. And, you know, I think, you know, you've seen X energy, which is a new subsidiary of Adknock, right? Commit to80 billion. That's like global, but they're

21:52 looking, all of the Middle East companies right now, we're working with a lot of them. Moles in company is one of the dominant true advisory firms in the Middle East. And we're working with a lot

22:01 of those companies right now, looking at opportunities in the US. Natural gas is at the top of the heap. LNG is there. They're really not looking for oil because they've got plenty of oil, right?

22:11 But they are looking for derivatives of the energy sector and trying to figure out how they can become more global in nature. Are we to

22:24 the point where you guys will actually ensure - and I'll make up the example. I'm a big natural gas producer. I go hire some IPP guys Old school, natural electrical generation equipment

22:44 Y'all would y'all underwrite that the generation would actually happen or is that more getting into an engineering realm that's outside of what y'all would look at? I think it would be tough. I mean,

22:56 it's not a hard no, but I think anytime that you can't look at actuarial data and get comfortable, what is the likelihood of something happening, right? I think with that, you're looking at

23:06 what's the likelihood of these assets performing or not performing You'd have to have some kind of underlying analysis that you could provide to get insurance comfortable. I'll give you an example of

23:16 things that are kind of outside of the box that we've looked at. We had a private equity fund here maybe seven, eight years ago come to us and say they'd made a large acquisition in Colorado of

23:26 upstream assets. And they had a big LP co-investment piece to help fund that. And right after they completed that acquisition, the state of Colorado put this proposition to increase the setback

23:41 that you could drill an oil and gas well from 1, 000 feet to 2, 500 feet from certain structures, churches, schools, you name it. And I think in Weld County, going from 1, 000 feet to 2, 500

23:51 feet would completely destroy the drilling locations, right? It would basically say like, we can't have anywhere to drill. So this PE fund comes to us and says, guys, if this actually happens,

23:59 like our investment is gone. And they had hired a lobbyist to do this really deep dive research into how much revenue does the state of Colorado generate from oil and gas. It's funding teachers,

24:11 pensions, all the things, all the impacts would happen to the state if this got passed and how harmful it would be. And they said, this is never gonna make it through. We were able to use that

24:19 analysis to actually go out and place political risk policy that said, if this propositions on the mandate is mandated, makes the ballot, and is approved and all these drilling locations are

24:29 destroyed, the insurer would fully reimburse the PE fund and the co-investors for the value of those drilling locations. Right. really strange and esoteric, but it was one of those things where we

24:39 had the analysis. Similar was in bankruptcy cases on upstream operators, you had midstream companies saying, hey, we're concerned that the bankruptcy courts are gonna completely wipe out our

24:50 dedications and say that the covenants don't run with the land. And you had different courts and different applications of law in different states, all saying different things. And so you had all

24:59 these midstream companies that were kind of really worried that, hey, these billion dollar dedications we're ever gonna evaporate That ended up being a risk that we could ensure against. So anytime

25:09 someone brings me something new, like you just mentioned, our first thing is, let's go talk to the insurance companies and see what would you need in order to ensure this type of risk at a premium

25:18 where it's actually affordable, right? 'Cause if they tell you it's 70 cents on the dollar, you're gonna say, we'll just self-insure for that. 'Cause where I was gonna go with this, and Tracy,

25:29 feel free to tell me this is a really stupid idea. But in my vision of natural gas producers having to get under the. selling electrons business, they're gonna go out. A core competency of an oil

25:41 and gas company is providing electricity to a drill site. I mean, so they kinda know what they're doing there. They're gonna go get generators. They're gonna start producing electricity. They're

25:53 gonna go to Silicon Valley and say, okay, Microsoft, put your data center here. We've got this big natural gas field and Microsoft's gonna say, who the hell is Company X? And they're owned by

26:05 private equity fund Y. And those guys are gonna sell it at some point. The insurance product that might actually be interesting is you guys looking at the field saying, there's 25 years of natural

26:17 gas here. We'll ensure that Microsoft, don't worry. It'll, you know, barring these acts of God or whatever the gas is actually there. That might be helpful 'cause you don't need that much

26:31 natural gas to actually generate

26:37 I mean, it's a bit outside of my kind of area of expertise, but I almost think of it like business and eruption insurance, where you're basically saying, we want our business to operate

26:44 continuously. And what are the acts or things that could happen that could effectively shut down, you know, the data center, the gas coming into whatever the operations are. So, yeah, what do

26:53 you think? Yeah, I mean, I think if you have enough underwriting information, underwriters are looking to be creative because we are in a soft market and they need to generate premium and grow

27:03 their business. They all have growth targets. They're all double digit growth targets. So, I

27:10 think if there's a way to ensure it, there's an insurance company out there that we can find that can bring a solution. I would say never assume the answer is no. It's just how? Yeah, exactly.

27:18 Yeah. And we have expert, you know, Matt mentioned political risk. We have political risk, trade credit, environmental. And we bring these people together to come up with what is the best way

27:29 to solve this problem and to ensure something like something that you just described? And yeah, I mean. I think it's not far-fetched to come up with an idea to resolve all this any solution. It's

27:41 a global business now. I mean, I really knew nothing about insurance when I practiced law, but having been in this role now for 10 years, you realize I might not be able to do it with insurers in

27:50 the US, but I can go to Europe. I can go to Bermuda. I can go to Asia. I mean, there's capital out there all over the place. And to Tracy's point, they have growth targets. They want to

27:59 collect premium. They're then taking those premiums and calling up Steve and saying, how can I invest my premiums in your businesses to generate 30 IRR so I can pay these claims when they come in.

28:08 It's a fascinating world. And if they're always just competing for the same kind of traditional business line, sometimes they can't meet those growth targets. So when you start pointing out, hey,

28:18 this is a place where we think it's actually a good risk. And we have to her point the data to show you why. We think it's a good risk. This is one thing that I think Aon does very well as data and

28:26 analytics. So we as a broker will go to the insurers and say, this is a good risk. Here's why. Here's the premium you should charge. And then we may spend a couple of months or longer trying to

28:38 develop a unique proprietary solution. But once you get there, all of a sudden you've got something that no one else has. And so we love it when people come to us and say, Hey, what about this?

28:47 Because it sends us off down a rabbit hole trying to figure out, Can we get this done? Yeah, interesting stuff. All right, Steve, how's the AI changing? Energy companies, MA, banking?

29:04 Well, you know, it's slow adoption because people are learning it.

29:07 And so we haven't really seen it impact too much in the banking world yet. I do think that there are - We still have analysts. We still have analysts, we still have associates. We still work

29:16 really hard. Still write your own emails. Still write my own emails. Still write my own presentations. Doesn't mean that sometimes when I write something, I'll stick it in there and see if it can

29:25 be written a little bit better, but it's my content. But no, with regards to AI and the energy business though, It is increasingly being used to to really evaluate wells, to evaluate, you know,

29:36 as you know in the oil and gas, well, there is so much data, and there has been so much data, and people have collected data for a long time. And the question has always been not whether we have

29:45 the data, how do we interpret the data? Now we have AI that can go through reams and reams of data and come back with real answers. And we're seeing that in the upstream space, we're seeing that

29:56 in the midstream space, we're seeing it in the downstream space. How do you operate or be fine or even much better? I had a former client of mine, a friend of mine, come to me recently and said

30:04 he's working with an AI company that can take all of the data out of a refinery and improve the processes dramatically, reduce costs, knowing something's gonna have to go on, don't have to wait

30:14 until the turnaround, we can fix things real time and we can save tremendous amount of costs and introduce them to one of the big refinery companies here and they got hired right away. So it must be

30:24 a pretty attractive product and service that they can provide. I was with the CEO of a large independent just this week and this individual was telling me the offshore area, what they're doing with

30:37 AI right now is absolutely mind-boggling and it's incredible and how they're being able to analyze the data on these deep wells and figure out how to drill them better, how to produce them better,

30:47 and they said it's changing the world as they're seeing it, and they're very at the infancy. And as you know, AI is an iterative process. The more you learn, the more you gather data, the more

30:56 you input that back, the more information and real-time processes can be improved So this is,

31:03 it's happening rapidly, but it's still in the infancy stage. And I do think that is gonna be applied and energy is gonna make energy companies much more efficient. And as they become more efficient

31:14 and operate more effectively and with better returns, obviously that helps oil prices come down because they can produce more with less. And obviously the other side of the AI is the demand side,

31:25 right? We talked about natural gas, AI, the demand for power. and therefore natural gas is incredible. So that's just gonna continue to drive demand too. So there's a lot of implications of AI

31:36 throughout the energy sector. Yeah, and you and I haven't grabbed a glass of wine in a long time. It's kind of wild. We've morphed around here. We figured out about 18 months ago, the podcasts

31:48 are the greatest thing to train AI models on. So we're actually building AI software these days. You walked in through all those autistic coders we have out there,

31:60 that's what they're doing. They're writing code kind of as we speak. And it is crazy because we wound up doing a VC round that Mercury led here, but we were out in Silicon Valley talking to all

32:13 those guys. None of them believe us when we say we use less than one percent of the data in our business that we have. I think the energy companies would say the same. They've got reams of data

32:22 that sitting in rooms and files and databases and trying to figure out how to how to amalgamate all of that and provide data. that somebody can read, can interpret and help them run their processes

32:34 better. And I agree with you, by the way, on the podcast, first of all, I'm an investor in Mercury, so I hope it goes well. Me too, we're online. But second of all, you know, companies like

32:44 Envirus and other entities are all going to AI now because they are collecting data. They get more data and they can use that and spit that back in a much more effective way. Chat GPT coming out and

32:56 in effect, democratizing AI has been pretty powerful stuff. Yeah, so I would just add that AON has invested a billion dollars in data analytics because we have all of this information. We have a

33:11 large reinsurance arm and we're using all of that data to come up with different solutions analyzers for our clients to help them make better decisions. Well, and it's funny because I probably

33:26 couldn't spell AI 18 months ago, when we. started going down this path. The thing I truly believe is anytime you connect disparate data sources, AI finds relationships that you didn't know existed,

33:42 even if you're the world's expert at something and you have all the data and stuff. So, anyway. There's not a day in my weekly business that data centers and AI don't come up multiple times, every

33:57 single day I mean, it's on the top of everybody's mind. Not only how do I use it in my business, but how is it gonna impact my business? How is the demand in the energy sector gonna grow? How do

34:09 I service that demand? It's the biggest change, I think, that we were seeing in the energy sector that we've seen in a long, long time. It's also becoming a huge tool in MA. I mean, all the

34:18 various forms of due diligence that parties have to do. They're now running it through AI models and it's, you know, truncating the time that they need to get through work I mean, think about

34:27 reviewing. 5, 000 contracts in a VDR that you can now feed into an AI model and tell it to look for change of control provisions and shoot those out and it does it in 30 seconds. I mean, it's

34:37 pretty fascinating. So we've got three installations right now as we speak. We've got one in it, NOV, we've got one in it, ProFract, we've got one in

34:47 it, Kraken, and Kraken's using it on the marketing contracts because they go in and say, Man, we hate these five things. Go find it, even before they look at a deal instead of where that's stuck

34:57 Stuff would always pop out at the end. The quality of earnings and accounting work, we're hearing about AI models that are going to be trained to basically perform QV lights within a few days versus

35:10 what now may take two to four weeks. To your point, we're in the infancy. No one even knew what chat GPT was really two, three years ago. When you think about five to seven years from now, the

35:20 expedience at which these machines are learning, what tools are we going to have access to? education starting in elementary school. It's going to start being a guy. You need to know AI, you need

35:29 to know how to apply it. You know, it's good, it's incredible. It is changing the world. I can't think, you know, the Industrial Revolution, et cetera. This is the AI revolution. And it is

35:37 going to change the world for sure. So it's, you know, every technology ever invented, it's always, we overestimate it in the short term, way underestimate it in the long term. One of the

35:48 things I've found where we are, the state of AI today is, you are still the subject matter expert So,

35:58 can you go into AI and say, how should I space this well, and what completion should I do? Answer that's no, not yet. But if you realize you can get your answers, you can search the data and get

36:12 your answers really quickly, what's my best well? What was the completion I did there? What was the casing design? What other wells did I do that? Oh, those are good wells too. If you realize

36:22 that, that you're not digging around for data, trying to figure that out, place and get your questions answered. That's where we are today. That being said, one of our developers was messing

36:35 around with some reasoning software the other day. It was getting scary good. We were running it on some well files. And it was sitting there saying, I don't know why these guys did this and we're

36:46 kind of looking at it. And it's right. So I'm going to look the more data you input and the more results that come out of it and that you can put back into the system. And it starts to learn,

36:55 right? These are all machine learning. It's going to be able to do exactly what you said pretty soon. How do I take this well? How do I take this pad? How do I optimize it? How do I drill it?

37:05 What's the lengths? What are the lateral lengths, et cetera? I think it's just a matter of time. You've got to continue to put data into it and pretty soon, you know, some of these drilling

37:15 engineers and others are going to be replaced by, I don't need you to figure it out for me. I've got it real quick You know what the scary thing is? They still can't articulate to you exactly how

37:25 it learns and I think it was what, chat. GPT-4 that when they were announcing 45 is going to be released, it replicated itself and tried to export it to a really other set of computers. I mean,

37:38 that's scary. That's where, you know, ultimately, regulation is going to have to come into this somehow. You hate to put the hand of the government into any of this technology development, but

37:47 at some point, when it starts to intrude upon, you know, certain aspects of your daily lives and other things, there's going to have to be some regulations involved to be interesting to see how

37:57 that happens. Yeah, no, it's wild, because say what you want about his politics, however you feel he's wicked smart. Tucker Carlson believes this is baby Hitler. We ought to be dropping nuclear

38:08 bombs on data centers today as we speak, where Mark Andreessen, arguably the world's greatest VC, is just a hammer. We'll unplug it if it gets nasty, and, you know, I don't know where the truth

38:23 is. We're going to find out at some point, I'm sure.

38:27 All right, y'all have been cool to come on. Let's kind of wrap up. Give me kind of final thoughts and you can take that anywhere you wanna go with it. Steve, I'll hit you first and I'll run this

38:41 way. Give us final thought. What should enter? Celtics beat the Knicks in seven. Oklahoma City comes out of the West. Oklahoma City wins the NBA championship. Is that good? I like that. I went

38:52 to game seven with the Rockets and the Warriors. That broke my heart I was there, I was there. I mean, like, I love the Rockets. Everybody knows I'm a massive Rocket fan, one of the biggest

39:01 Rocket fans in town. We, you know, unfortunately we had some players that didn't step up to their normal abilities, capabilities, and it was heartbreaking for sure. But I will say this about the

39:13 Rockets. We are two years ahead of schedule, right? Nobody expected this team to be number two in the West, right? Yeah. And, you know, with some more maturity, we're really young, with some

39:22 more maturity, we can continue to play well. Now we happen to have Oklahoma City in the West, You were also very young. And so we'll contend back and forth, but I think we're on a good glide path

39:31 to future success. Well, you know, Raffelstone's a good friend of mine. We met each other playing basketball at the Metropolitan Racquet Club 25 years ago. Our kids wound up going to school

39:41 together. And it's the funniest thing. When you look at our text thread between each other, it's me with a thousand trade ideas. He gets in from every, I got the same thing to him. Yeah, we're.

39:52 And when Luca got traded to the Lakers, I said, What's up? Yeah But no, he and I are very good friends as well. And my son actually coached his son at St. Francis. Oh, cool, yeah, yeah. Now,

40:03 he's extraordinarily smart. And look, I think, on the one hand, there's some great players out there. So, you know, once the generation type players, like Giannis, it'd be nice to be able to

40:11 figure out how we could fit them in without giving up too much. But, you know, you also don't want to really change a lot when things are working so well. So. I think playing together for two and

40:21 three years is underappreciated. For sure. that young players take three to four years at the earliest to really start to mature and understand the NBA game. We're almost there with a lot of our

40:32 young players. Unfortunately, we got a lot of those young players 'cause we were bad for a number of years, but now they're here and we've gotten some great draft picks. And I think we can be good

40:40 for a long number of years. I think we're kind of like where the Astros were for a long time and they improved by getting top draft picks, early draft picks, and have had a nice run. I think the

40:49 Rockets are at the early stage of that as well. And I always say, if you look back, we should take Mobley, not Green. He's got

40:56 all the times that he just ignores, but the greatest thing Riffel did was hiring coach. Great coach, no doubt a great coach. I think the players really understand it. He's a defensive minded

41:08 coach, which in the NBA, you need to be, look at the Knicks. But yeah,

41:12 I think we're on the verge of some great years here in Houston. Coming back to your original question, which was where does energy go from here? Is that the - Sure, take it Look, I think, I

41:23 think, um. particularly with this administration. I think we've seen a pivot back, fortunately, to what's more rational. You know, we were too far to the left with the last administration,

41:34 meaning we got to get rid of hydrocarbons. Hydrocarbons are bad. Well, the reality is, hydrocarbons are good. It's what makes America move. It's what makes the world move. It's what creates

41:45 standards of living and an ability to increase your standard of living. And as you know, and you talk about a lot in this podcast, we have beings and beings of people that are energy starved. We

41:56 need more energy. You can't get rid of any kind of energy and be able to help people around the world where they need energy. So I think on a hydrocarbon side, we have a much more rational

42:06 administration. Interestingly enough, the European Union is starting to move back as well. They were a little bit later than us. They were a little earlier moving to green energy. They were a

42:14 little bit later coming back and understanding the need for fossil fuels. And so I think we're really in a great place with regards to the energy sector. I think energy companies need to be stronger.

42:24 I think AI is going to help that. They need to be able to generate more better returns. Investors are just at the, you know, really it's kind of, this is a test with declining oil prices right

42:34 now. Can they be disciplined? Can they continue to generate the returns that investors expect them to generate? You know, that was the problem for so many years, particularly with the shale

42:42 revolution. People threw money at shale. It was like the, you know, California gold rush. People ran out and she was buying everything, buying land at all kinds of prices with yet to be

42:53 determined exactly what the resource base was, how you're going to develop that and what the cost of that was going to be and therefore what your returns are. Now that we're mature, we're 15 plus

43:01 years into the shale revolution. People understand all of that now. Now we need to figure out how do we generate better returns? How do we make sure that shareholders benefit from investing in

43:12 energy? 'Cause we do need more investors coming back to energy. And if we stay disciplined and continue to generate strong returns throughout cycles, boom and bust cycles, It's a commodity at the

43:22 end of the day. We are going to have moving bus geopolitical factors play in GDP. As GDP slows down, you're going to need less oil. And I think if we can stay disciplined in the sector, I think

43:35 it's going to be a great sector for companies to invest in, to invest in. Can we on the flip side of it? I think it's going to be a great place for kids coming out of college to go into. It's been

43:43 a tough business historically to want to go into the energy sector. I think it's a great place to be going forward. Technology still continues to be developed We probably need to restart reinvesting

43:53 in technology. We've kind of stopped that for a long time in search for returns, but we do need to continue to increase investing in the sector. But I think energy sector is a great place to be

44:04 longer term, and I think we're going to see more investors flocked there. I think the oil and gas sector is going to thrive, and I didn't touch on natural gas, but we have today on the podcast,

44:13 natural gas is a super trend right now. Because of AI data centers and because of LNG, we really didn't talk much on the LNG But both those factors are driving demand for natural gas. So I think

44:23 that natural gas is in a great place. US. is flush with natural gas. So we sit in a very good place from a global perspective.

44:30 Any final thoughts, Matt? Two, from a sports perspective, I think SARC and ARCH are gonna have a big year this year. We can keep ARCH protected. I think the Longhorn is gonna make a good run.

44:42 From a business perspective, so - As a, as a rice owl who had a former brother-in-law that was a UT guy, my line was always, try building a sports program without the taxing authority of the state

44:55 of Texas, and then you can talk to me. But that said, Del Conte is my guy. So I hope y'all have a great year too. I think they can, they know he was trained in rice. I hope you realize I'm a

45:07 rice grad too, as you know. And Del Conte was trained in rice. Incredibly, really, Lord has been 80. That was his first AD job. Well, what he's done for the, Texas sports is incredible, so

45:18 big shout out to Del Conte. From a business perspective, so we're MA, we're industry agnostic,

45:25 we look at everything, energy, healthcare, tech, and we came into this year with what we thought were significant tailwinds, new administration with a more friendly, kind of antitrust regime, a

45:35 lot of dry powder that hadn't been deployed and need to sell assets and return capital to investors, right? All of these things are what we thought would create a significant tailwind for MA We've

45:46 had a pretty muted or flat first couple of months. My kind of optimism is that I think that the trade challenges that we've had with the rollout for tariffs seem to start to be coalescing with

45:59 individual countries making deals with the US. So I think you're going to get to a place the next 90 days where in particular kind of middle market funds are going to be comfortable operating in this

46:09 environment. They really have a better sense of what are going to be the kind of impacts from tariffs 'Cause right now, you know, for the last couple of months is. Are there tariffs? Are there

46:18 not? What's the impact? I think we're going to have a better sense of what those are in the next 90 days. And so I am optimistic that the second half of the year will be very busy for MA.

46:28 Yeah. So thank you for having us. I would just say from an insurance perspective, it is a buyer's market for energy companies. You should be seeing reductions in your premium and your total cost

46:40 and spend. And we represent the whole spectrum of the energy space So whether it's upstream downstream, midstream and all the contractors that sit around it, you know, you should have a strategic

46:52 partner with you, especially at this time in the market. And we've got a great team at Aeon in Houston. So how do people get in touch? Website LinkedIn. LinkedIn would be great. Yeah, Tracy

47:07 Irwin. Yep. Oh, gotcha. You guys are great to come on, this was fun. We appreciate it Chuck, thanks for having us. Thanks for having us, been a lot of fun. Absolutely.