Brian Boulanger - ARC Financial Corp.

In this episode of the Canadian Equities podcast Brian Boulanger CEO of ARC Financial Corp.,  joins Robert Cooper as they discuss the energy industry. For the full length version of the Canadian Equities podcast connect with us at acumencapital.com/podcast.

Transcript

moderator 0:01

Welcome to Canadian Equities, a short biweekly podcast series, where we speak with top business leaders and hear their perspectives on the industries in which they operate for the full length version. Find our link in the podcast notes or connect with us at acumencapital.com And this episode of the Canadian equities podcast, Brian belonged Jay CEO of arc financial joins Robert Cooper. As they discuss private equity investing in the future of energy. Brian energy has changed a lot since he got started. What's been the biggest change.

Brian Boulanger 0:34

I think, um, I mean, it has changed a lot. I mean, I started in the energy business in the mid nineties and I'd say, um, there's probably three things that come to mind is big. I mean, there's been lots of volatility obviously, but big changes is the whole notion of scale. You know, what, what we were doing in the late nineties or early two thousands with small companies and small businesses. Has totally evolved. And a lot of it's just been in the evolution of the technology related to, you know, conventional plays into resource plays. You combine that with the infrastructure spend that is required, uh, and the, the new cost of a pad versus a single well, means, uh, businesses do need to be bigger and more properly capitalized. And, and that's a trend that I don't see reversing. And if anything, it probably continues to carry on. I think the other big change is the introduction of ESG and the whole notion that companies need to be experts, uh, in around ESG, in addition to the, the, uh, making money side of their business. And then finally, understanding the whole infrastructure side of the business, takeaway requirements, uh, the policy risks around that takeaway. Yeah, the whole marketing angle of these, oil and gas companies has really evolved. And I think if you ask CEOs, what did the marketing department look like 10 or 15 years ago, compared to what it looks like today? I think you'd see a bigger group with a lot more sophistication.

moderator 2:02

You mentioned USG. It's certainly a big theme. It doesn't appear to be going away. How does energy fit in there?

Brian Boulanger 2:09

Well, it, fits in, um, Very well, I would say, you know, it's, it's definitely not going away. If anything, it's advancing and it's evolving. I mean, um, the way I think about ESG and, and, you know, for the time being there seems to be a disproportionate amount of attention being paid to the E of ESG. And, um, uh, but I'll talk about all three of them as it relates to. It's interesting, uh, from an energy company's point of view, it takes energy to make energy. And so the less energy you can consume in creating that energy, um, one you'll the lower costs you'll be, but second of all, your environmental score will be better. And so it's just good business for, uh for an oil and gas company to do whatever they can on the east side to lower their carbon intensity, as it relates to their attraction. And so, it not only makes sense from an environmental point of view, I guess what I'm highlighting here is it also makes sense from an economic point of view and then, you know, onto the other parts of the S and the G I'd say, uh, and, you know, we could talk about this in more depth, but, I think this will evolve and more attention will come to it. Partly the companies just need to be talking about it more. And when I think about S for an energy company, it's things like safety and that safety track record and who wouldn't want to score high on that. And then also stakeholder engagement. And I think the energy business does a great job in this regard. They don't talk about it enough or it's not well, understood enough. I mean, for example, the Canadian energy sector is the largest employer of indigenous people in Canada. Uh, you know, and so that's, uh, another, uh, Piece of the asset, the energy business does well, but I don't think they talk about, and then with GE that is evolving. I think, um, the energy companies maybe have 20 years ago in Canada, didn't have the best governance. Uh, they've really, uh, built that up. I think more has to be done in the area of diversity for the energy companies, but that is going all in the right direction from my point of view. And it needs to happen

moderator 4:05

outside of EMPS. Where do you see opportunity and energy over the medium?

Brian Boulanger 4:10

Well, I think it's touching onto this notion of energy transition and, and where the market's going. And, um, I think, uh, it, is an exciting area. In fact, our latest fund, our investors approached us and in a conversation with them where we were encouraged and, and, and, uh, wanted to move where we would expand our fund into the energy transition space as well. So we were actively investing in upstream oil and gas oil field services and into the energy transition. We've got capital for all three. Uh, I'd say where we see opportunity is in the area of carbon capture, sequence duration, um, renewable developers, not necessarily for our capital, uh, wind and hydro, um, returns in that space. Rather thin, but opportunities in terms of energy storage and biofuels. We also see and are currently underwriting it a north of a hundred million dollar investment into a manufacturing business related to the renewables. So the whole ecosystem that supports a energy transition and renewables, like manufacturing and service companies akin to what oil field service companies do for the upstream business. We see great opportunity in that area. And as I said, we're about to play some games. And then also finally, uh, energy efficiency and whatever you can do to, create better efficiency in terms of the use of energy.

moderator 5:29

What are some of the challenges in terms of technology or consumer behavior or, for instance, just the supply of rare earth for, for batteries. That might impede the so-called energy transition that, if you listen to, some outlets is a tsunami coming very soon, but when you listen to others, it looks like this is something that will occur over a much longer time.

Brian Boulanger 5:54

Yeah, I think, I mean, it is a really interesting area. And depending on who you talk to, you can get caught up in the hype a little bit that it's going to happen. Yeah. More quickly, more dramatically, um, than I personally think is the reality. I mean, as much as people like to talk about energy transition in large part, I, I almost prefer the word diversification energy diversification, because we are starting to diversify our supply of energy. Away from coal, away from upstream into re solar and hydro. And it will just take time and a transition when the word implies that it may, you know, we're going to flick a switch and it's going to be an evolution as we diversify and grow into that, uh, these other opportunities. So, um, the, the challenges I see is, you know, managing your enthusiasm as an investor in some of these spaces, Some of them are just not going to live up to the hype. Uh, they may eventually, but they might take, you know, five to 15 years to play out. And so, as a result, you have to watch valuations with respect to that sector. And we're going to see a lot of volatility around, valuations, I think in the energy transition. As people try to figure out what is actually happening with the macro side of the business, how much pull is there, how quickly are there the opportunities actually coming forward, how real are there, those opportunities, and then trying to figure out what the whole technology landscape is with respect to that and how that's moving. So I think it's, it's, there's so much moving on. There's so much deal flow. That one needs to be careful that they're really filtering closely and carefully. There's going to be more ideas and there's going to be more, investment opportunities than there are real businesses that I think build out over time. So I think just taking a cautious approach to it and tempering that at times that macro enthusiasm into something that's more real, but there's still a lot of growth happening in this business. There's still a lot of demand, uh, neces on the energy side to go greener. So I, that will create opportunities. You just have to manage your enthusiasm, right?

moderator 8:08

Brian blond, Jay CEO of arc financial. Thanks so much for spending time with us today on the Katy and equities podcast.

Brian Boulanger 8:15

Yeah. Anytime Robert always happy to talk about one of my favorite topics, which is energy.

moderator 8:20

Thanks so much. Note that this podcast is not making an investment recommendation on any companies discussed. We welcome your comments on today's episode or any other episode. Connect with us at Acumen Capital dot com.