Deon Daugherty, editor-in-chief, Oil and Gas Investor: Hi, I am Deon Daugherty, editor-in-chief, Oil and Gas Investor magazine here at SUPER DUG in Fort Worth with Wil VanLoh, CEO of Quantum Energy Partners. Wil just gave a compelling presentation on private capital in oil and gas, and he's going to take a minute and kind of expound on some of these issues. Number one, public companies' response to AI and other technologies and what your observation is on that, Wil?

Wil VanLoh, founder and CEO of Quantum Energy Partners: Yeah, So I think public companies largely are starting to really embrace it, and there were some early adopters, companies like Chevron and EOG [Resources] and others that got way out in front of the rest of the pack a few years ago. But I do think today that most public companies are trying because they do have a lot of data, they can automate things and the data can be useful. So, I think in the public world, we're seeing a lot of people try to really embrace AI and machine learning. I think a lot less so in the private world. And I think that's been given where we spend most of our time in the private world. That's something we spend a lot of time trying to get people to think about AI and machine learning and how that might be helpful for their businesses.

DD: And what have you found, I mean, what are the ways in which private companies could embrace it and make themselves, I mean frankly more attractive to public companies when it comes time to exit?

WV: Right. Well, first of all, you’ve got to realize there's an inherent problem with a private company embracing AI. First of all, a lot of them don't even know what they don't know. Because they've never been around it. The bigger public companies, they use it and so people just get exposed to it. So in the private company land, a lot of companies have never used it before and so they don't know what they're missing out on. Secondly, just human nature causes people not to want to change. And when you start using machine learning and AI, you have to change everything about everything you do. It's hard. It's that old thing. You got to slow down and speed up. And so it makes you less efficient for a while before it makes you much more efficient.

So I think there's a natural aversion to that. And most private companies look at the world as well, I'm only going to be in business for 4, 5, 6 years. It'll take me years to do this. Does it make sense to even do it? And then you have just the practical implication. Most of them don't have the size and scale. They used to call this big data, now they call it data science and machine learning and AI, but they called it big data because you needed vast amounts of data to make it work. And the truth is, most private companies don't have enough proprietary data to make it work. So you could argue how useful might it be? I still think for every private company it can be very useful, but that's really where we've tried to come in as a financial sponsor to so many companies where, in aggregate, we've got a huge market share. We're as big if not bigger than every other oil and gas company, public company out there. So we have massive data, and if we centralize that within Quantum, we can then make those tools. It takes years to develop these tools. It takes years to train these models. We can make those available to our portfolio companies and it's a huge competitive advantage when they can just step in. We can show them how to use them, they don't have to go through the time and the learning curve and all that. And we've got huge private data sets we've already trained them on.

DD: And then something that we were discussing before your presentation earlier was some of the ESG matters that some of the private companies, again just sort of juxtapositioning the public company attitude or approach versus the private company attitude and approach toward ESG, the environmental side in particular. Kind of walk us through that.

WV: Yeah, it's been a challenge. I would say public companies were forced to embrace ESG by public shareholders. And I think in the private world it started with private equity funds. A lot of them didn't embrace ESG energy private equity funds, so they didn't try to encourage their portfolio companies to do it. And I think it's like a lot of things in life, it's kind of a black-or-white issue. There's a lot of people that just look at it. They think of it almost as it's a political issue, it's climate change, it's environmentalism, and I don't stand for those things or I do stand for those things. And so I think unfortunately it's a topic that's been politicized. I think it's also a topic kind of like AI that's not fully understood. But what I like to say to people is it doesn't really matter what your view on climate change is or on social engineering.

The bottom line is as a private company, you're in business to build a product that public companies want to buy. And public companies want to buy assets that have great ESG footprints to them. So they don't want to buy something that's got a bunch of methane leaks. They don't want to buy something that's got a bunch of flaring going on or not recycling water or all these other things. They want to buy stuff that fits well into their program. So our point to people is it's just good business. If you're in business to sell your business, then make sure you're creating something that your buyer wants to buy. And then there's a whole host of other things, whether you like it or not. There's all these regulations that are coming down. There's a methane tax that now has been approved. Now it may get challenged in courts and this and that, but it's going to start costing people money.

And a lot of it, if they don't get what the program here, the other side of it is, I think most people think of it as just a cost. And while it does cost more to do these things, what we found at Quantum is we actually can turn those cost centers into huge revenue generators too. And I'll give you an example. We have a company in the Haynesville Shale play, and we had four rigs running two frac crews year-round. And we drilled about 50 wells a year. And each one of those wells, we converted each one of those frac crews we converted from diesel to where we're run about 60% on natural gas, about 40% diesel. That lowered our environmental emissions, our greenhouse-gas emissions by more than two-thirds. And it saved us half a million dollars per frac job. So, we saved $25 million a year. We got paid a multiple of four and a half, five times on that when we sold. So, we made $125 million, and we saved $500,000 every time we drilled a well. That's great economics and it's great for the environment. And so to my point is sometimes you just have to reframe a problem into an opportunity. And I think for a lot of private companies, they don't appreciate that. And when it's laid out for them like that, they're like, okay, that makes total sense. Absolutely.

DD: Alright, well that's all the time we have. Thank you so much.

WV: You bet.

DD: Really compelling, great information for our viewers. Thank you.

WV: It's good to be with you today. Thank you.

To learn more about Quantum Energy Partners visit hartenergy.com.

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