#387 - Ken Hersh - Co-Founder NGP Energy Capital Management - The Godfather of Energy Private Equity

Chris Powers: Ken, thank you for allowing me to come up today to your office. It's a pleasure to be with you. 

Ken Hersh: Thank you for being here, Chris.

Chris Powers: I wanted to just start going back before Rainwater, what was the period of time where you thought, I'm going to become an investor or I'm going to get into investing? 

Ken Hersh: There was never really a light bulb moment. I was a politics major. I was pre-law. I was going to be the next great litigator. When I was in college, I guess fortunately or unfortunately, Princeton didn't have a pre-law program and I got involved with a business organization, and then I really enjoyed that, but I was still going to be incorporating law somewhere because I liked the politics and the political theory and the arguing and all that aspect of it. And so, I was kind of hell-bent on law school, and because I was doing well leading this business organization called Business Today magazine in Princeton, I decided I would get a joint degree because I'm doing three years for law school and I looked it up and a JD MBA was only one more year. So going from three to four didn't sound like a big deal. So, I decided to apply straight out of undergrad to both business schools and law schools. And it was my first lesson in how the market works. I got rejected or wait-listed at most of the law schools. I got into a couple. And I got in or wait-listed at most of the business schools. So I went, huh, now the market's telling me something. Maybe I ought to pay attention. And one letter came in the mail that changed my life, frankly, and that was Stanford. And Stanford had a program where they admitted a few- I didn't know it at the time, but they had a few people that they admitted straight out of undergrad, I guess to bring the average age of their class down. They normally wanted you to go work for two or three or four years before you come back to business school, but there were a select number of people that they gave them the option. So, I get my envelope in the mail and it had a little card in it and it had two boxes – I will come next year or I will defer for fill in the blank. I thought everybody got this. I didn't know. And so, at that point, I said, well, I might as well see if I can better deal them, and I'll go interview on campus and see if I can get one of these two-year analyst jobs that everybody's talking about. Again, I was a politics major with no business undergrad at Stanford- I mean, Princeton doesn't have a business... Princeton doesn't have an undergraduate business program. And so, I went to interview. And of course, before I was interviewing, the comment for a politics major was, why business? And I was like, well, because I run this organization on campus and I kind of like it. And they'd say, well, do you know much about the buyout business? And I'm like, the what? And they said- Because it was just starting at the time. This was in 1984, ’85. Do you know much about investment banking? I said, what are you talking about? And I ended up going, saw an ad in the Daily Princetonian for a shrimp dinner hosted by Morgan Stanley. I thought it was a law firm. And I didn't have a dining contract my senior year. And so, I thought, this is great. I get to learn about a law firm and I get dinner. So, I go there and they say, we're an investment bank. I'm like, what does this mean? And so, I talked to the person there, and they said, well, we have clients. And I said, a bank, you mean like a checking account? And they said, no, we don't do that. We are a brokerage business, we're an advisory business, and we're an investment bank. So they kind of explained it to me and I didn't really understand what it was, but they did say they have a two-year program. And I said, aha, this is what I've been hearing about. So, I started interviewing on campus and I was having almost no luck with the investment banks until I got that Stanford letter. And my next interview was with Morgan Stanley. The guy said, why do you want to work here? I figured I'm getting dinged by all these other investment banks, I might as well just do the completely wrong thing that you're supposed to do in an interview. I said, well, I hear you guys have a really cool two-year program. I just led the witness. He says, well, yeah, we do. And I said, well, cause I am looking for something to do for a couple of years. He said, oh really, why? I said, well, cause I'm going to go to business school afterwards. He said, oh, you are? I said, yeah, I'm going to go to Stanford. And of course, the first round of interviews were done by second year analysts. So, these people were applying to business school at the time. And I said, yeah, I’m going to go to Stanford. He said, you are? And I said, yeah, I got this thing in the mail that says I could go next year, but I can defer it for a couple of years if I find something cool to do. So, I heard you guys are really good. And you could just see kind of the blood rush out of his face, like, oh my God, this guy could be one of my classmates. And I got whisked to the next round and then whisked to the next round. And my hit rate at places, at interviews after that envelope appeared was very high. And Morgan Stanley had a wonderful program and I ended up going there to learn investment banking, which was very transactional. It was not really investments. I was thrown in the energy group because I was from Texas. My parents, my mom was an economics professor and my dad was a podiatrist. I didn't know the difference between natural gas and gasoline. But they said, here, you're from Texas, you go sit there. And so that's where I went. And that happened to be where all the action was in the 80s. Chevron had just purchased Gulf, Boone Pickens was going after Phillips Petroleum, Texaco and Pennzoil were at each other's throats. All this stuff was happening and the Morgan Stanley Energy Group was involved in some of it. And so, in the trial by fire theory, I learned it. I learned the industry. I learned about investment banking. I learned about M&A and learned about how Wall Street works, some of which was good and some of which wasn't so good. 

Chris Powers: Okay, so you do that two-year analyst program, then you end up going to Stanford. When you went to Stanford, did you like energy at that point and that was going to be the career or that's just what I did for two years until I got to Stanford? 

Ken Hersh: It was really kind of what I did because that's where they stuck me. I go to Stanford. Stanford, again, doesn't have that much concentrations. So you- 

Chris Powers: Not a big oil and gas school. 

Ken Hersh: Not a big oil and gas school. But it was really more of a general management and a heck of a lot of fun. And I knew I didn't want to go back to investment banking. I didn't like the transactional nature of it. I remember working on a deal, and when the deal closed, there was a bottle of champagne. I walked in my office, there's a bottle of champagne on my desk with a little ribbon on it. I'm like, what's that for? I look at it and it said, oh, congratulations on the closing of project whatever. And then I looked around and everybody who was on that project team got this bottle of champagne. And we had advised a company, written a fairness opinion or something on a deal. And I remember thinking to myself, why are they celebrating? This may be a- they won't know for five years whether it's a good deal or bad deal. But the investment bankers got paid. And so, they got their fee and they planned the closing dinner and they put the little loo sites together and the deal toys. And next thing you know, everybody's getting champagne. And I just remember, that doesn't feel right to me in many ways because we were also working on deals that were divesting of deals that were five years ago and 10 years ago somehow advertised as great transactions that people got champagne for. And now there's a whole class of people saying they were terrible, lousy deals that almost trashed this company. We got to help them sell this division. I'm thinking why celebrate the day it closed? It's not a knock on the Morgan Stanley's of the world; they are in a transaction advisory business and they can't predict the future. If the clients want to buy a business, they will help you buy a business. They may find you a good business to buy given your parameters, but at the end of the day, the client is the one who has to live with it and their shareholders. So, I just didn't like that, it just didn't sit with me. So while I was at Stanford, for my summer job, I decided to do an independent job search, which meant I'm not going to interview on campus. There was just a thing emerging at the time called principal investing. There was no such thing. The terms private equity did not exist. I called back to Morgan Stanley to a buddy and said, look, I'm thinking about doing an independent job search for people who are looking for investment professionals. Do you have any leads for me? He said, well, you're from Texas. I had heard of the Bass brothers. He said, oh, the Bass brothers, yeah, in Fort Worth. But you ought to call the guy who left them recently, which is a guy named Richard Rainwater. He left the Basses a few years ago, just two years ago, and maybe he's looking for somebody. I said, perfect. I had this vision of a guy sitting in his office by himself waiting for me to call him. And so, I'm out in California. I dialed 411 information and I got the number. I asked for the number for Richard Rainwater's office, and I got a phone number. I called that number. Nice woman answers the phone. Hi, this is Ken Hersh. I'd like to send a letter to Mr. Rainwater. Could you please give me your address? She gave me the address, 201 Main Street, Fort Worth, Texas. So, I write a letter to Richard Rainwater, cold call letter. I mentioned that I was at Stanford because I knew he was at Stanford. I mentioned that I'd worked at Morgan Stanley because that was a big fancy name and enclosed my resume, referenced the guy that I talked to back in New York, and I would love to come talk to him about a summer job. That was the letter. And I sent it off in the mail. Then I'm waiting. When you do job searches, you put things in the mail, you don't want to be a nudge, so you wait. Let's see, it takes three or four days for him to get it. I don't want to call till he receives it, give him a day to have him with it. So, I'll wait about a week. That was what you did back then. But four days later, I got a phone call and I happened to be in the house we were renting, I happened to be in my room. The phone rings. Ken Hersh? Yes. Hold the line for Mr. Rainwater. And I'm like, oh crap, one of my friends is messing with me because I had told a couple of people what I was doing. And I really thought it was a practical joke. And it was Richard. And he said, you want the quote? That was his first thing he ever said to me, do you want the quote? And I'm thinking, did the market crash? We're out here in California, it's two hours earlier. What's happened? Because in October of ’87, a couple months earlier, the market had crashed. We woke up in California and the market was already down. All of the business school was panicked because their bonuses were invested in the market and it crashed. So, Richard said, do you want the quote? I said, sure, give me the quote. And he said, I called Tom, Morgan Stanley invented the analyst program. We've had more analysts than anyone and Ken Hersh is the best analyst we've ever had. I said, wow. And he said, sounds like I need to meet you. And I said, okay. And I'm thinking, well, like every other recruit, fly me down. He said, when can you get here? And I kind of looked around and went, let me get back to you. So, I hung up and I had been signed up back in the day when you could just sign up, I had signed up for interviews. My next interview was at McKinsey. So, I go to the McKinsey interview, and I remember this like it was yesterday, and I said to him, I might be interested in working for McKinsey for the summer in your Texas office, in your Dallas office. And they went, really? And as a sidebar, McKinsey always had trouble recruiting at Stanford because everybody wanted to go to their San Francisco office. And they had offices all over the country. And all these prima donna Stanford students said, I'll work with you, but I want to work in that office. So when I said, I'd like to work in your Dallas office, the guy went like, really? All day he's listening to my classmates saying, I will only consider an offer from you, this is for summer jobs, if I'm in the Bay Area. And so, I said, but I’d like to see it first. It didn’t dawn on him that I was from Dallas. So, I’d like to see it first. Do you think you could fly me down? And he said, absolutely. I said, when? He said, as soon as you want to go. So, I called Richard's office back, I said, I got my ticket. And I interviewed with Richard, I interviewed with McKinsey during the day, and I went over to Fort Worth in the afternoon. 

Chris Powers: And what happened in that interview? Because as the story goes, he sent you home with a stack of papers and said, well, he said, here's the latest report. And you made a pitch and you said, give me 90 days and I will tell you what the business idea is. But what happened in that hour you were with him? And one more question. What was the setup at that point? Was it just him in an office? Because I still haven't gotten a firm grasp on like what his business plan was. Was it just, I've got money and I'm just going to back the next generation of superstars? Or did he even have an actual plan? So that's two questions. What was his business plan and what did y'all talk about for that hour? 

Ken Hersh: Well, and what's the setting? 

Chris Powers: And what's the setting? 

Ken Hersh: Right. So, Richard's office, this would have been in 1988. Richard's office looked like a laboratory. Institutional gray, low rise carpet like you'd find in a workout room, white secretarial admin bays, an open floor plan with offices around the edge with white marker boards, floor to ceiling marker boards on three sides of the office and glass looking out into the center. And the offices were run, as you walked around the floor, you could see the people at the offices. And Richard's office had a white desk, a white horseshoe desk and two desk chairs right in front of him and nothing on his desk except for two phones and a picture of his family. And in the office at that time, his next-door office mate was Peter Juist, who was his right hand. Then there were at the time various other deal guys around the floor whom I had not yet met. I get shown into this laboratory, and I'm sitting there across from Richard Rainwater, and we talk. I could tell there were other people in the office, a handful of other people. I look on the marker boards and there was debits and credits writing on the board, revenues, expenses, values, plus debt, minus enterprise value. I didn't know what I was looking at. Anyway, and we talked for a few minutes, and he said, I really wanted to meet you, but I really don't have any employees. But I just wanted to meet you because back in New York, your former colleague sang your praises so much. And of course, I was like really dejected at that moment because I came looking for a job. And then he tells me he has no real employees. He said, I have people around here who just office here and we're all trying to put deals together, but I don't really have anybody who works for me other than Nancy, my assistant. So, I'm not really going to hire anybody for summer. And then, we chatted a little bit more, and in the completely serendipitous world of coincidence, his desk was not perfectly clean that day. He had a blue binder that was given to him by McKinsey. And I had been interviewing at McKinsey that morning. And I knew what their binders looked like because I could see them all over their office. And unbeknownst to me, that morning, a young associate at McKinsey named Jeff Skilling, yes, the Jeff Skilling from Enron, and John Sawhill, who was Jimmy Carter's undersecretary of energy, the Department of Energy, who was leading the energy group at McKinsey, had been in Richard's office that morning to deliver to him a study that he paid money for, which was their thesis about the coming popping of what they would call the natural gas bubble, that supply was declining and demand was rising because prices were low, that the market within two years was going to get caught short and prices were going to go from low to super high. And so, he basically spun that book around and put it on my lap and said, you were in the energy group, weren't you? And I said, yeah. He goes, what do you think of this? And I knew enough to be dangerous. I mean, remember this is a year out and I start flipping through it and I'm 25 years old. And I mean, I had this out of body experience. I'm flipping through it. I close it, and I say, tell you what, Richard, I called him Richard, tell you what, Richard, how about for my summer job, I will take this McKinsey view of the world that you paid for and design a study on who will win and who will lose from an investment perspective, given the McKinsey scenarios. And I can do this because McKinsey had given me an offer. So, I can work at McKinsey during my- over in Dallas during the day and I can work on this project. So, he said, write me a proposal. So, I went home that night on the airplane back to California, and I wrote it out and I typed it up and I sent it to him. Well, I wrote it out, but before I typed it up, I got back, told my buddies that I was talking to about this trip because I was kind of excited. I'm going to get to meet Richard Rainwater. I read an article about him. And I said, he told me to write him a proposal for this study. So, I said, this is what I'm going to do. I can work April and May, and then I can work at McKinsey June, July, and half of August. And then because Stanford starts so late, from mid-August to mid-September, I can finish up the study. So, I can get three months of work in on it. And everyone said, that's great. I said, should I charge him for it? What do you think? And one of my friends said, no, don't charge him. You got this job at McKinsey, they pay you fine. What if he says no? And just to have that on your resume is really cool. My other friend said, you should absolutely charge him because you're giving him something of value. If you give him something of value, you should get paid for it. So, I said, you guys are no help. And so, I went back and started typing it up on my little Macintosh dot matrix printer. And I got to the end about the logistics. And I don't know what came over me, but I said, as a stipend for this work, I’d appreciate- I think I said as a stipend for this work, I'd like to get paid $5,000 and I'd appreciate it getting paid in advance because I'll have some expenses. I faxed the letter off. The next day, there's a knock on my door. I don't know why I was home. I was rarely home, especially in the mornings. It was FedEx. I opened the envelope. There's a check for $5,000. There's no note that says, hey Ken, we got it, let's get going. It was a check for $5,000. I'm tearing the envelope, upside down, nothing in there. I said, I guess I have my first client, off we go. So, I ended up working at McKinsey and moonlit for Richard and put this study together, which ultimately became Natural Gas Partners. And that closed, the deal closed. I presented it to the office in late August of ’88. 

Chris Powers: And you were 26 at this point. 

Ken Hersh: I was 25 years old. And Richard said, I got a guy to do this with you, who was working in his Richard's Connecticut office, which was David Albin. He said, y'all need to meet. That was my introduction to my business partner for 30 years, who I never had a disagreement with in 30 years and never had a stitch of paper between us on how we would govern. And that's how, y'all need to get together. That was okay, that was it. I mean, the second best thing that ever happened to me. David Albin is the best business partner any guy could ever have. I had this study that I did, and not to go on too long, but the side story, the image of it is just kind of humorous, that when I came to present it to Richard the first time, I had gone to Alpha Graphics and produced three notebooks, three copies of my book. It was about an inch and a half thick. I was pretty proud of it. I went out three times the whole freaking summer putting this thing together. I show up and Richard goes up around his office. He says, y'all get in here. Y'all get in here. In walks Richard Squires, Rick Scott, now governor, senator, Rick Scott, John Goff, Tad Kelly, Peter Juice, and Richard. There's like seven or eight people in the room now, and I got three books. And we're sharing. It's very awkward. I'm flipping next to Richard and trying to share books across the table. And they had some comments on it. So, I said, look, why don't I go back and fix this up? They said, yeah, go back, fix this up, and we'll call you about coming back to the office. Okay. It was a good constructive conversation, but it was very awkward. I tell you that three books thing for a reason. So, I called back to the office and I said, when do you want me to come? They said, come a week from whatever. I said, that's perfect. That's the day I'm driving back to California. And so, we'll present the- you can present the final. Unbeknownst dick to me, Richard had called Dick Jenrette at the Equitable Insurance Company of the United States. And he said, we got this new deal. I want you to come look at it. And so, Dick Jenrette sent his senior investment team from the Equitable Insurance Company to Fort Worth to talk about, unbeknownst to me, to talk about an investment thesis around natural gas. So, I was not going to get caught short with books this time. So, I went and printed up 20 of these suckers. And I had a big banker's box full of these notebooks. I walk in to the room. They said, go to the conference room in the back, big long table, really long table, longer than the one we have here. And I situated down at the end, I'm the junior guy, and I put my books out in two stacks. And in walks three or four guys in suits, this guy, David Albin, Richard, and they have a stack of them, they copied the McKinsey report on the table, put it in the middle of the table. Richard stands at that end of the table. I'm at this end of the table. He puts two lines up there. Supply's doing this, demand is doing this, prices are going to go from here to here. This is easy. We're going to invest your money. It'll be a three-year deal. Prices are going to go from here to here. And if it doesn't work, we'll give you your money back. And we've done this big study, and then everybody looks at me. I look like I'm 12, and I'm sitting there buried behind these two stacks of books. You can't even see me. And Richard says, we have this McKinsey study and we have this huge study we spent all summer doing. Remember Richard saw it in my lap practically a week before. And again, unbeknownst to me, Dick Jenrette sent down a very senior team, those notebooks could have been the white pages from the Dallas phone book. I mean, they never cracked the book, ever. But they treated it like it had. That was in September of ’88. They said, thank you very much. I said hi to David, and I go back to school. I ran into Richard. He happened to be on campus for his 25th reunion in October of ’88, or his 23rd reunion. He was the class of ’68. I go up to him. I wormed my way into his talk that he gave. I went up to him afterwards – hey Richard, how are you doing? How's our deal working? He says, oh, you ought to call David because the documents are going. That was in October of ’88. November 16th, 1988, Natural Gas Partners was formed. The Equitable Insurance Company put up $97.5 million. We all put up $2.5 million. I had a job, we had a fund, we were off to the races. And that's how it started. And I actually went on the payroll while I was still in school. 

Chris Powers: So you started it while you were- you were working there at Stanford? 

Ken Hersh: Yes, and David Albin had gone- he was Stanford Business School class of ’85. So he was out in Greenwich, Connecticut, and he was our partner. And then Gamble Baldwin and John Foster joined from Credit Suisse and we had our four-person team, and we were off to the races, and we had a hundred million dollars to spend. And back in the day, it wasn't just in time funding like private equity is now. They wired us that much money on day one with an 11% hurdle rate. So, we were running a bond fund to keep income going to maintain that hurdle rate. So, it was- we were making it up as we went along. 

Chris Powers: And the thesis was principal investing in- what was the thesis? So what was the original thesis that you put together? 

Ken Hersh: Well, the original thesis was what kind of companies would win if commodity prices went up. Because that's what McKinsey- 

Chris Powers: So the whole bet was on NatGas going up? 

Ken Hersh: Correct. 

Chris Powers: How are you going to play that bet? 

Ken Hersh: We were just going to get long the asset. And because McKinsey said the prices are going to go up. Guess what? McKinsey was dead wrong. The price went down straight years, seven. Every year was worse than the one before it. We were sitting in year three going, this is terrible. This is terrible. And so we said, wait a minute, we had done four transactions. 

Chris Powers: Which were? What was the- was it betting backing teams at that point? 

Ken Hersh: We completely pivoted at that moment. And I said, wait a minute, we've done like four transactions, and one of them's done really, really well, one of them's done really pretty poorly, and two have done okay. Actually, two have done well, one poorly and one okay. Why did the two do well and why did the one do poorly? The one that did poorly had weak management, okay assets, but prices went down. So the asset value went down and the management was too mediocre to turn it around. The other ones, we had people who learned how to make lemonade from [?] lemons and they were good and they found better assets, and they were able to withstand lower prices. Now, I'm not that smart. For a liberal arts guy with no technical background, I looked at these models and said, wait a minute, this is not hard. It's revenue. Revenue is volume times price minus costs. That's your operating income. Volume times price minus costs. If price goes down every year, let's focus on increasing volumes and decreasing costs. Let's find P- and then that's reversing engineering, reverse engineering the deals that worked, we said, that's exactly what they did. They bought other people's trash and made it their treasure. We said, you know what, why don't we just change our business model, and instead of focusing on the assets that would do well if prices went up, let's focus on the people who can do well in any environment. And we completely pivoted our model in the early 90s and said, let's not do any more. And in fact, if there's assets in front of us, those assets can be distracting because we could get seduced by them and say, those are great assets. And we're missing the real bet, which is on the people. Because what we realized is that the assets that were in front of us in seven to ten years, when we go to sell, the assets we're staring at will be largely depleted. So, what's going to be there when we go to sell? It's going to be what the management team did with our cash plus the cashflow off of those assets. So, you have to be plus or minus close on the cashflow of the assets because that's your reinvestment dollars. But if you're 10% off on your reinvestment dollars, but management is great, you'll make it up in year 10. If you've absolutely perfected the valuation of the assets, but management is mediocre on the reinvestment model, in year 10, you're not going to have very much to sell. So we said, why don't we back people before they have assets? If the assets are less relevant, then why do we even need the assets? Why don't we find great people and just give them walking around money? And that pivot has turned into the single way that capital flows into the oil and gas sector today. Our model that we did was pooh-poohed by the couple firms that were out in the market that showed up in the marketplace a year or two after we did. They said, oh, you got to have assets. You can't do anything. NGP doesn't have any engineers. They don't know what they're doing. One by one by one, every single firm pivoted to our model. And then another 30 firms showed up. And guess what brought you the unconventional shale revolution 15 years later? Backing great entrepreneurs. The unconventional shale revolution was not brought to you by Chevron and Exxon and Conoco. It was brought to you by the independent oil and gas entrepreneurs who, through the school of hard knocks and trial and error and equity capital from the private funders that gave them that capital to try new things in old tired fields, in formations that they used to just drill through and get stuck in, the shale, now they were drilling horizontally in the shale, and it changed the economy, it changed geopolitics, it changed the US from being a massive importer going out of business to an exporter. I mean, you couldn't believe the world change. And if you ask me, when I look back on what I'm most proud of, I am immensely proud of the NGP franchise. I'm immensely proud of the people who've worked there and the businesses they've built and all the entrepreneurs we've backed and all those great people that I learned from. But I'm equally as proud, or maybe more proud, that we were one of the catalysts that changed the world. I mean, if you think about the United States and the natural resources picture going from scarcity to abundance and what that ripple effect did for our economy, for politics, and for geopolitics, I mean, it's world-changing. And it started about 30 miles from here in the Barnett Shale. 

Chris Powers: Yup. 2000, early 2000s. We're going to get to that in a second. I have a question. So you have this idea, and again, today everybody's- there's private equity everywhere. You got an idea, you go get private equity, you're a team. How did you get the message out to the world that, hey, we're this group that we don't care if you have an asset, we just care if you're a great team, come find us? 

Ken Hersh: I spoke at- well, the good news in the energy business, Houston, Midland, Denver, Shreveport, Tulsa, Oklahoma City, Calgary. You just did it. You just said- I just did it. Yeah. We could have two teams of people going out to those cities and start calling on people. And that's what we did. 

Chris Powers: And you would just call big companies and say, hey, if there's anybody here that's got an idea and wants to go do it, we'll back you? 

Ken Hersh: No, no, no, no. No, we didn't want to do that because those were their people. We spoke at every conference. We networked around as best we could, played in every golf outing. I'm not a hunter, but I went on a couple of hunts. We knew enough people and then you meet people and you could ask for other people. I used to go to companies and I would look in their M&A department and I'd look for my peers, the young deal team people who were out there working. You'd see them at business development functions and it wasn't the CEO, but it was people who were closer to my age. And then you say, what do you do? What do you do? Well, this is what I do. And I say, well, if you're ever interested. And what we found was, in the oil and gas business, there's this phenomenon that, again, when we reverse engineered the model, we said, there's a real opening to do exactly what we're doing and to scale it. And the opening was driven by two things. Number one was that all oil and gas wells deplete, every one of them. Yet a company wants to grow. So, as a company grows by drilling new wells or acquiring new wells, they push the old wells that are getting older and older and more depleted, they push them kind of farther and farther back in the filing cabinet. And most oil and gas companies have 80% of their value in the top 20% of their well count because as they age, these wells become marginal. And they just become little cash cows. And then when they get really old, they become nuisances. So that's fact number one, all oil and gas wells deplete. Fact number two, people want to move up the ladder. If you're a bright young engineer, you graduated number one in your class from Colorado School of Mines, congratulations. You're going to go to Andrews County, Texas, and you're going to ride a pickup truck with some other dude, and you're going to learn how to pump an oil and gas well. And you're going to sit there and go, wait a minute, I have my models, I have my fancy degree, and he's going to say, listen, son, this is how you pump an oil and gas well. And if guy doesn’t beat you up, in a couple years, guess what? They moved you to Midland and now you have 20 of those dudes reporting to you. And then five years later, they move you to Houston. And then 10 years later, they move you up. So guess what's happening? As you get older, you're moving farther and farther from the asset. Then when you get really experienced, when you're a 20-year engineer and you're in the height of your career and you're really a moneymaker, where does that company put you? Do they put you back in Andrews County, Texas, on a hundred wells doing five barrels a day? No, they want you offshore Gulf of Mexico, deep water where you can work on this billion dollar development that's going to produce a hundred thousand barrels a day, the needle movers. Or they're going to have you in management talking to strategy and budgets and... And so, what we found is there's a quality of person who misses those days where they were just working in the field. Not everybody, but there's that quality of person that we saw where they would talk longingly about those days and they would say things like, gosh, if I had my hands on that old field, knowing what I know now, those hundred wells that were doing five barrels a day, I could get them going to 10 barrels a day. Now my light bulb went off because as a middle manager at Chevron, if you walked into your boss and said, excuse me, sir, I got an idea on how to take that field from five barrels a day to ten barrels a day, and I've been working on it, moonlighting it for three weeks or for three months, and here's my idea, he'd look at you and say, what are you doing? I need you working on the thousand barrel a day stuff, the 10,000 barrel a day stuff. What are you messing around with that stuff for? In fact, you might get fired. Why are you using company resources on that stuff? That's our junk drawer. But I looked at it and go, wait a minute, five to ten? That's 100% move. Why don't we go bid Chevron for that old field? And they'll think we're crazy, bid them for it. And why don't you go run that field? And that's what we did. That's just a story, but we did that over and over and over again and said, we can take other people's trash in the hands of real money makers who then go shopping with our dollars and acquire and acquire and acquire and then enhance the value of those assets. Some of them were junk and they would be pumped, they would be plugged and abandoned, but they would say, I can cull this portfolio and really make it- I can go and improve production. I can find infill wells to drill. I can find ways that by lowering costs, we can increase the longevity of the field. Lots of different ways you can enhance an old field. And oh, by the way, the best place to find oil and gas is in old oil and gas fields. Guess where the unconventional shale revolution happened? In old oil and gas fields, and it's still happening. There were all these embedded options that we found by doing it this way, and we didn't have to pay that much of a premium over those five barrel a day values. Those two facts were powerful because when we went to go bid the big company for that asset, they would say, thank you. 

Chris Powers: Yeah. You're helping them. 

Ken Hersh: You're helping them clean up their portfolio. Their efficiency numbers improve. They would say, we've bought some deals where they said, I'll sell you that field only if you take that one with it. We say, okay. And we open up boxes. We opened up boxes from a Chevron acquisition that said Gulf oil on them and were taped up. The Gulf merger was in 1984. I mean, it was just that serendipitous time where we found a real opening in the field. We had no idea about unconventional shale. I mean, the shales, you drilled through them, your drill bit got stuck and you cursed because your well cost just went up because it would chew up your drill bit. This was not all planned, but what we were able to do was zero in on the real driver of value and that was people. We were able to create a business model that was really attractive to what we coined the phrase owner managers, people who said, can I put my own money in this? We said, sure. That's where Richard would say, Ken, whether you own 99% of the company or 1% of the company, don't forget, you work for them. They're the ones up all night if there's a problem. You get to sleep and they call you in the morning saying I was up all night, I took care of it. And that's why you want to be the best financial partner you can be, you want to give them all the rope that they can handle, you want to give them all the responsibility they can handle, just be a great financial partner and then get out of their way. And that's what we did. We zeroed in on the people bet. And then everything changed. 

Chris Powers: So if you had to say right now in a nutshell, and it's probably industry agnostic, obviously oil and gas, you had to be a good engineer, a good geologist, you have to have the skill set, but maybe some of the soft skills, like how do you know you're looking at A plus versus A minus? 

Ken Hersh: That's the magic, and we don't always get that right. I mean, in the early days, you could tell because you could see the gleam in their eye or how dull they were, I'm working at wherever and this is what I do, but they remember that field and, oh, if I had that field today, this is what I would do with it. You could tell the passion. I mean, I look for passion. What do people love to do? If you are going to be an entrepreneur, you better be all in. You better have a passion for what you're doing. You ought to be competitive. You ought to be resourceful. You ought to want to win, not lose, because if we're putting up the money, we want you to not lose it. That's a good rule. And so just the people who understand that, you can tell. There's a big difference between somebody who says, I would cash out my IRA, take my kids out of private school and buy this field. I just don't have enough money. I scraped together a half a million dollars, but I need 20 million. Can you put up 19.5? That's very different than can you put up $20 million? I'd love a 10% interest for free. And then I say, would you put up 500,000? Well, if I have to, I'm not sure. You can just tell when you ask people about the way they view their investment dollars, the way they view their time. 

Chris Powers: And would you want them to come with a team already in place? Or as long as the founder was passionate, you'd say, we'll back you, go build your team? 

Ken Hersh: Both. We did both. If it was just a single person, we had to pass judgment on whether they were good recruiters and retainers. Could they build a culture? Better yet, it's a lonely business, you're better yet to have a partner. We were blessed by having partners. If you had somebody with you, you're going out to dusty oil fields, you better be with somebody you like. 

Chris Powers: Well, it's in NGP's culture. It was in Rainwater's culture. It's like, let the entrepreneurs be entrepreneurs, don't get in their way. So the question is like, what is maybe something that other firms would micromanage or be involved in that you knew like we don't have to do that? Is there certain things? Is there a gut feel? 

Ken Hersh: Engineering. Some of our competitors had teams of engineers and drilling engineers and geologists on staff, and they would look at what the drilling plans were for their portfolio companies, and they would look at their well designs, and they would look at their geologic work and their seismic work and say, do we agree or not? And they were effectively running an oil and gas company. We had no capability to do that. So, my job was to write down, what do you think this well's going to do? If we drill this well, then tell me what success looks like. If we drill one well, is this one and done? Oh, no, no. If we drill this well, we got four more wells to drill and then it's going to... the field could expand, or this is just an infill well. So, you drill here, we have one here and one here. So, we're drilling one in between. It ought to get an average of these two. Great. And I write that down, and then they drill it, and I could say, well, this is what you told me. How come it happened? Or you beat it. Let's go do that again. 

Chris Powers: So you guys never had geologists or engineers on staff? 

Ken Hersh: No. In fact, that was- 

Chris Powers: People probably tried getting you to do it. 

Ken Hersh: Yeah. And we would hear people who would say, well, I understand you don't have any engineers. How can you possibly make this kind of return? And I had a chart at one point in time where, because our returns were as good as anybody's in the business and some are better. And I had value per engineer and we had zero engineers. And so, it was making fun of our competitors, but it's not a big deal. I mean, there have been some really quality competitors that had engineers. But we did hear stories from their portfolio companies who were frustrated by the fact that they had to be micromanaged. We micromanaged in other ways. We might have micromanaged on people, telling you, you've lost three people this year, what's going on culture-wise, listen on your finances, if they continue to drill wells and they're underperforming their projections, I mean, I can look at that and say, what's going on, what's happened. And so, we weren't disinterested owners and partners, but there's a way to do it. 

Chris Powers: I want to go back to the Barnett for a second. What is your recollection of how the shale revolution came about and how did y'all participate at that time? 

Ken Hersh: Well, the original light bulb moment was George Mitchell in Mitchell Energy. 

Chris Powers: Were you in that? 

Ken Hersh: No. And he- we were drilling horizontal wells. The industry was drilling directional wells at the time, and then they started to drill little horizontal wells, nothing like today. But it was not just drilling the horizontal wells. It was a combination of horizontal drilling and hydraulic fracturing. We've been fracturing wells in this country for 70 years. We were fracturing vertical wells. Every one of the wells gets fractured. But when you go horizontally and you fracture along the horizontal leg, you expose more of the rock. That was the theory. And George Mitchell did it in the Barnett Shale. And the Barnett Shale economics previously on vertical wells was terrible. And it turned out you can get more reservoir when you go horizontal. And all of a sudden, Mitchell Energy became a thing. But we were fast followers. Our portfolio companies were fast followers and then the private equity firms that copied us were fast followers. And the next thing you know, we're horizontal drilling all over the state and hydraulic fracturing and doing more acquisitions and re-entries in old fields and refracts. And so, it was really the follow-on, but the first guy was really George Mitchell. 

Chris Powers: When was the first time you all participated then? Was it watching him drill those wells and then all the teams that started coming to you started becoming these-? 

Ken Hersh: Yeah, then it became pretty commonplace. 

Chris Powers: Pretty quick. Going back to David- 

Ken Hersh: But the major oil companies all panned it. They said, this is terrible. All you're doing is acceleration drilling. The present value is terrible. You'll just deplete it that much quicker. Instead of these wells lasting for 30 years, they're going to last three years and be done. And then all the major oil companies were still selling their assets in the United States and going to Gabon and going to Kazakhstan and going to the Sakhalin Islands and going to the deep water Gulf of Mexico because that's where you could get big, chunky production. And remember, you're a big oil company and your assets are depleting. So if you're ExxonMobil and you're $100 billion of assets and you deplete at 10% a year, that's $10 billion of value. So, if you want to grow by 10%, you got to offset the 10% of decline and add 10. So, it's really a 20 billion wedge you have to fill. You can't do that drilling little wells. So, they have to go for bigger, chunkier things. So, in oil and gas, there were diseconomies of scale as you got bigger. And that's why they could divest of these old tired fields without really much second guessing themselves. So, there was a decade before the majors came back and said, I guess you guys are right. And now the majors are all back into the unconventional shales. 

Chris Powers: Is the market- so when you started in the late 80s, are those derelict fields, those tired fields, is that still the game today in 2025? How's the game changed? 

Ken Hersh: Well, now it's all horizontal drilling and maximizing production because we now know where the reservoirs all are. But the unconventional shale revolution didn't really take off till about 2009, ’10. And that's when it all started to change. So, you go from 1990 to 2010, it's 20 years. And so, you probably had- and then the majors didn't come back to the lower 48 in force until about five years ago, five to seven years ago. So, you really had these big chunks of time, but when the independent oil and gas companies had it for themselves, the majors were selling. And there were books written on how these unconventional shales are flashing the pan and they're uneconomic. 

Chris Powers: You think there's- now that everybody's focused on that, is there opportunity back in the old fields again, now that nobody's paying attention to them anymore? 

Ken Hersh: There could be. There could be.

Chris Powers: But they’re not sexy enough or they are not big enough?

Ken Hersh: I mean, there's always- the 80-20 rule’s alive and well that these wells deplete. Even the unconventional shales wells, those wells are 10 years old. They're still small little producers. But they're more complicated because of the stacked pay nature of these fields that you have. In the old days, you drill a vertical well, you go through all the formations. When you drill a horizontal well, you just go into one formation. You can go right next to it and go down into another formation. So, you would never sell that first well because it holds the acreage that allows you to go underneath it or above it. You usually go down and go above it. But you might see on the surface, you see two wells next to each other and you go, what do they have, two straws in the same glass? But they could have depths that are thousands of feet difference. That is like a hundred million years in geologic time difference. So, they're drilling in completely different eras, even though on the surface it looks like they've got two straws in the same glass. It's a fascinating business. 

Chris Powers: A lot of people that listen are entrepreneurs. Why was David a great partner for 30 years and what was it about y’all’s partnership? And maybe the question is like, if you were going to look for another partner today, knowing what you know about David, what matters in a partner, a day-to-day partner? 

Ken Hersh: Well, trust. There's no substitute for trust. And David and I had each other's back. I call it the foxhole. You're in that foxhole together. We never once, we had some near-death experiences in the firm's history, and never once did we talk about the divorce word. We were partners, and we were in it together, and we trusted each other, and if I needed something, he'd be the first one I called. It could have been very personal. When my then wife was suffering from mental illness and I had to be away for a while, the first call I made was to my business partner. I said, you got to cover for me, and I'll do the best I can, but cover for me. And that's what partners do. And David was absolutely phenomenal that way. We complimented each other. We had different kinds of skills, different kinds of personalities. We loved going back and forth and sparring with each other on ideas and challenging each other. And that trust and that bond was really super strong. And that to me is the essence. And then people saw that in our firm and that became the behavior that got modeled. And so, as we added partners and added employees, they saw that and that became the firm culture. We didn't study like what kind of culture do we want to build? It's just you just do it. We're decent people acting decently, and let's just do things the right way. And Richard, in the early days, we were in Richard's office and Richard would say things like, whether you own 1% or 99%, you work for them and stay as far away from the foul line as possible. Don't go near the gray area, life's too short. Those were great things to pick up from Richard at the time. And David was just a fantastic kind of alter ego. 

Chris Powers: I love it. You helped think about the Let's Back Teams initiative in the 80s. I guess the question is, is that model still good today or is there a new model that's emerging with the abundance of capital and industries are a lot more efficient now, capital aggregation is different than it used to be? 

Ken Hersh: I think it's the same. I think it's even more important because things are more efficient. So, you need people who can hang in there because they're not going to win every deal. Not everything's going to be rosy. You better find great people who know how to make lemonade out of lemons. You better have people who know how to treat their partners well and to be honest. Being intellectually honest is so important. How many times did we look at a deal and we like it, we like it, and we learned something, we don’t like it. But how many people get dug in and say I love it, I love it. Ooh, this information. No, no, no, that's not true. I still love it. Being intellectually honest is so important. That's the investment business. 

Chris Powers: You all have raised over 20 billion of capital. You raised your first fund. We talked about that with Richard. What is the key to success in raising-? I would imagine a lot of that was institutional, a lot of pension. 

Ken Hersh: Well, we had one partner originally. 

Chris Powers: Which was? 

Ken Hersh: The Equitable. 

Chris Powers: The Equitable. But over time, did you build a fundraising arm in NGP? What's your secrets for raising lots of money besides a good track record? 

Ken Hersh: Have a good track record. And be honest and be communicative with your partners. Along the way, very quickly, the Equitable went bankrupt in the early 90s. And so they didn't invest in Fund 2, we had to find another investor. And then we found another investor in Fund 3 and Funds 1, 2, and 3 invested side by side. And then in 1996, we were ready to raise another fund because we had invested all the Equitable's money and then the little Fund 2 and little Fund 3 we'd raised. So we went out to raise money. Now Equitable was back in business in 19… They had been bought by Axe, the French company, and they were back in business and they came back and said, well, we can invest again. So the returns from Fund 1 were decent, so they were back into fund 4. And then investors from fund 2 and 3 invested in fund 4. So, we said, okay, well, let's go get some new investors. And the university endowments were the ones who were in the market, so we called a few and a few people said, call so and so. And it was just that same networking that we used to build our profile in Houston, Texas, and Midland, Texas, and Calgary, Alberta. We used it in the endowment and foundation world and we built a following. 

Chris Powers: Do you think there's a modern day Richard Rainwater or there are lots of Richards now? 

Ken Hersh: I don't know. I mean, that's hard to say. Richard was so far ahead of his time. Richard had an electric personality. He was charismatic as nobody could imagine. He didn't produce anything. He didn't have a stitch of paper on his desk other than his yellow legal pad that he scribbled on. But he could get people excited, and he could put two people together, and he could see something and say, well, what if we did it this way? And people would come to Fort Worth, Texas, to see him and they would leave feeling like they got something. And I always tried to emulate that. And he never did- they might not have ever done a deal with them, but they walked out feeling like they had a new best friend, that he was so present in the room. And that was human to human. It wasn't email. It wasn't text. It was the day where you got on an airplane to go see somebody. And that's really changed. Are there modern day Richard Rainwater's out there? There probably are, but he was so far really as- he's really one of the godfathers of the whole deal business. If you think about the Bass organization that he helped form and all the people that emulated from that and then when he was on his own and the people that kind of sprung out of that, I mean, it's a real family tree of capitalism that he had something to do with. And we've all taken these best of Richards and put it with our own chemistry and try to do the best we can. But it was an interesting time. If he were here today, would he be as successful? With the information asymmetry not as great and with more being done on email and it's more- the fact that you don't need to see people and people are willing to write a check without ever meeting somebody and just having a Zoom with them, maybe Richard wouldn't have been as successful today. I bet he would have though, my guess. 

Chris Powers: We talked about the good deals. We talked about this earlier. I wanted to talk about just one that didn't go well. Is it Sonoma? Sonoma? Basically, the question is, what have you learned in how to handle a deal that's not going right? 

Ken Hersh: Yeah. Well, I wrote about it extensively in my book, The Fastest Tortoise. Gratuitous plug there. 

Chris Powers: We'll drop a link in the show notes. 

Ken Hersh: There you go. To borrow a line from Anthony Scaramucci, I've written a bestselling book and I have the boxes in my basement to prove it. The deal that- Sonoma was a good deal until it wasn't, and we learned something along the way. But it was just like every other deal. It was an owner manager, good track record. We gave him capital to marry up with his money and he started buying things. The first deal that we bought worked well, we put in more money. The second deal we bought worked well, we put in more money. The third deal we bought worked well, we put in more money. We're rocking and rolling. The fourth deal comes along, he says it's a good deal. We look at it and go, okay. Well, not everybody bats a thousand. And that fourth deal was so much larger than one, two, and three combined that the whole company went toes up with a little help from Chase Bank at the time because they didn't fund on half the loan that they were committed to fund. Why? Because the global financial crisis, the first global financial crisis of 1998 when long-term capital management hedge fund blew up and the Asian tiger currencies collapsed and Moscow defaulted on their debt, all happened over the course of about two weeks at a time when Chase decided they were going to renege on a commitment. So, we were undercapitalized while we were making our biggest deal. We could have sued Chase, we would have been toes up anyway, and then we would have had a lawsuit, fighting a lawsuit. Or we could have done the right thing by the company. So, this gets to what you should always do. Do the right thing by the company. Nobody stole, nobody cheated, nobody lied. The market went away from us and a big market participant called Chase Manhattan decided to look out for their own interests and decided not to fund half the loan. That's what happened. And so what did we do? We turned off the management fee and while we redoubled our effort of managing the investment. So, we did right by our LPs to say, look, this deal is not going well. We're not going to continue to charge you. However, we're going to still scratch and claw to try to get back to even if we can or get something back. We brought in new management, we presented new better business plans while the market was teetering. Meanwhile, we were still over leveraged from the prior deal because we never got the refinancing capital. At the end of the day, Chase's workout team who has, not the bankers, but the workout team has one role, work it out. They don't have a role of being nice to their client and sticking with it. Their role is to get back as many pennies on the dollar as they can. If they have to shoot everybody, they will, which is exactly what happened. Had they listened to us, they would have gotten more than their money back. And instead they got about 30 cents on the dollar back. We got wiped out. The lessons, number one is don't turn your brain off. Just because someone's bet has gone three for three doesn't mean they can't go three for four. Be mindful about investment concentration, be mindful about commitments from third parties. If it was a smaller deal, if that fourth deal was smaller, we would have been fine. The fact that it was so much larger than one, two, and three combined was a problem. But it didn't kill our franchise. The goodwill that we had built up along the way, when we said we're doing this, we were transparent with our partners, we didn't hide the ball. And in fact, not only did we not hide the ball, we reopened the next fund that we were raising, that we had raised $450 million for Fund 5. We told people in Fund 5, if you don't like it because of Sonoma, you can withdraw your money. We gave them an option that they didn't have available to them because we had legally closed the fund. Fund 5 went from 450 to 370. That fund became a seven and a half times your money fund. So, think about the $80 million that was pulled out. It was almost $600 million of opportunity costs for them. Oh well. But we did the right thing. We did the right thing. And so, I look at- and then the other thing on a micro level, the CEO of Sonoma, about 18 months later, I get a call from somebody, he's talking to somebody else about a new deal, I was on his reference list. So here is a guy that they lost the biggest goose egg we've ever had as a firm, almost tanked our firm, and I'm on his reference list. Why? Because we didn't fall out of friendship. He was in there with his dollars because he had invested, he was an owner manager. He had invested $3 million of his life savings in that deal. He was scratching and clawing right alongside us. Again, nobody lied, nobody cheated, nobody stole. So, why turn it personal? And we didn't. He was a solid guy. So, this didn't work out for a whole host of reasons, most of which were out of our control. And so, take the high road, play the long game. This was not something to get all emotional about. And I look at it as really a success that was embedded in a massive failure. It doesn't mean it was easy. Oh my God, those couple of years were terrible. But while we were working out Sonoma, we didn't lose confidence in ourselves and we didn't lose confidence in our business plan and we kept going. And we said, you know what, why did this happen? Did we lose that money because our business plan is flawed or did we make too big a bet right at the wrong time? Had we made the same bet, but financed in all equity, it would have been okay because it was the combination of factors out of our control. So, we stayed at it. And the same summer that we were writing off Sonoma, we had done three other transactions. That same summer, those three transactions became huge winners. And that next fund became one of our best funds ever because of that. So anyway, there's a whole lot of lessons embedded in failure. Today, you'd call it a pivot, which is common, a common term for failure. But we didn't really pivot our business plan. We just said, we're not going to rely upon third parties anymore. We're going to really treat people’s word with a grain of salt and make sure we always have a plan B. But the tried and true elements of that deal, backing an owner manager who puts up their own money alongside ours, who has that real partner mentality, turned out to be hugely valuable because he was in there scratching and clawing. In today's world, probably lawsuits would happen between the CEO and the private equity backers as they pointed fingers, or they would have bailed on you and said, my money's worthless and my options are worthless, I'm out of here. Here, you take the car keys, you drive the damn car. A whole host of things that would happen, but they didn't happen. And so, I'm proud of the way that we carried ourselves, and I'm proud of our partners who stuck with us. And there was a lot of lessons there, but in the passage of time, there were some blessings in there too. 

Chris Powers: I want to finish our last few minutes just talking about the state of energy today, more globally, not necessarily the business of it. Trump came in on kind of this drill baby drill attitude. Is that even feasible right now given the current environment tariffs, inflation going up, it's expensive to drill a well, people are more capital disciplined now than they used to be? Is drill baby drill even an option? 

Ken Hersh: Well, I think his feeling was that it's good to increase oil and gas production in the United States because he's a nationalist at heart and wants the industry here. He also sees that as a strategic asset if we're producing. He also sees that if we had lots, this is where there's a disconnect, you bring on lots of supply, the price is going to drop. So intuitively, I think they understand that tariffs are inflationary, so that they can bring oil prices down and gasoline prices down. Then somehow they can offset the inflationary aspect of the tariffs. And from a macro perspective, they can keep the economy right. Unfortunately, the math doesn't work. So, the average American, just the numbers are pretty simple, the average American, if you divide total usage by number of persons, it's 500 gallons a year. So, if you reduce the cost of gasoline by a dollar a gallon, it'll be $500 per head. If you increase tariffs 20 or 30%, if the cost of the goods at Walmart and your grocery store go up 20 or 30%, it dwarfs that number. So energy is just not as big a percentage of disposable income as it used to be. So, the math doesn't work. But he doesn't really appreciate that disconnect. And then he loves the fact that Saudi Arabia is increasing production to bring the price down. So, drill baby drill is kind of his mantra for reducing regulation and trying to remove the red tape. But so much of the drilling bottlenecks are at the state level, local level, infrastructure level. It's not as easy as just three words, unfortunately. If it was, then it'd be a different world we live in. 

Chris Powers: Do you think we are rebalancing? If we had done this podcast maybe three years ago, it was, we're getting rid of oil and gas, we're going straight to solar and renewables, do you feel like that narrative is shifting to where fossil fuels are becoming a more palatable not four-letter word anymore and people are getting a little more rational to the idea that they're here to stay? 

Ken Hersh: Yeah, because I think they can't deny the math. I mean, I've been talking about this for a long time, that no amount of solar and wind is going to really dent the market share of oil and gas. You can have coal and natural gas substitute and they have, coal has gone from 50% of the United States production or electric generation to about 15% to 20%. And natural gas has gone from about 30% to 45%. Renewables have gone up a little bit. But oil consumption is up, because oil and natural gas are not substitutes. And solar and wind produce electricity. And oil is used for transportation fuels. And the electric cars are cute, but they don't make a dent in the numbers. And then globally, coal consumption has gone up. So, the world has spent about $14 trillion on renewable energy in the last 15 years. And congratulations, fossil fuels has gone from 84% market share to 82%. Now, it would have been higher because demand has grown. So, the fact that it's roughly stayed the same means that that demand growth was fueled, was served by renewables. But we've gone from 6 billion people on this planet to 7 to 8 to 9. We're on our way to 10 and we have more gadgets. We have 2 billion more people who are living middle-class lifestyles with middle-class consumption habits, eating beef, turning on gadgets. It just- energy is on an upward usage curve, period. So, you need things that scale and scale easily. So renewables work. They work especially in distant markets, but we have not built an economy, an industrial economy around the world on five nines of reliability for no reason. So, the intermittency of renewables makes it almost impractical to run a sophisticated electric grid with much more renewables. So, people understand we need nuclear, we need natural gas. And if you want to get rid of CO2 pollution, the easiest way to do it is with coal, displaced coal. Unfortunately, there's plentiful cheap coal around the world and the world's emerging markets are going to say, you had your century, we want ours. And we don't have the populations you had and we're going to burn coal and China especially. 

Chris Powers: And do you see capital flows following that trend? 

Ken Hersh: Capital flows are different because there's so many politics, geopolitics and taxation and now tariffs that can impinge the free flow of capital. So that's a different equation. You saw China massively subsidize their renewable technologies while they were building a coal plant every week, because they're doing it all. And they're exporting their cheap solar to the rest of the world, keeping the solar industry for them while they're building more coal plants. So, and now we're exporting cheap coal to China, where the world is, because we've displaced their coal with natural gas and the cheap renewables that they subsidize to send to us. Anyway, it's just, the markets are not efficiently managed as a planet. They're efficiently managed by each individual actor doing what they think is right, but it's a very complicated equation. Right now, though, we are in an all of the above world, and we need- and what the platform that I've been on is, we need to appreciate that fossil fuels are not going anywhere. And unless we want to impoverish ourselves, unless we want to roll our economy back to the 1950s or worse, and we aren't going to do that. The American consumers aren't going to do it. The developed worlds aren’t going to do it. And the developing world is not going to say, well, you want to hold us down? You had your turn and why you're holding us down? So, they're increasing their consumption, period, full stop. So as a planet, we need to do what we do best and that's adapt. We know how to adapt. Adaptation should be where we're focused. Otherwise, you're going to have populations migrate. That's when machetes come out because land is no longer arable or there's massive drought in places or coastal populations can't live that close to the waterfront. Guess where they move? They move. And what's going to happen? There's going to be massive displacement. Well, we can adapt and it only takes time and money. And in my mind, we've wasted so much time and trillions of dollars on things that make almost no difference. Almost no difference. Solar power today is a couple points of our electric grid, a couple points. And the United States isn't even that important anymore to global electricity consumption. And yet we spent all this time and money on it. Maybe in 30 years... we should be focusing on leapfrog technologies and adaptation. And when that solar is ready to scale hugely because there's massive battery technology advancements that can back it up, now you're talking. But doing the little tiny stuff we've done has really kept our, taken our eye off the ball where we should be adapting – coastal protection, water resiliency, making sure that populations are protected. It's all on government websites. They show you. If the 100 year storm has become the 20 year storm, we got a problem. And that's what's happened, and you've seen the amount of damage that comes from the storms today. And that to me is the platform we should be on. And we should be diverting at least half our money of renewables towards global adaptation. Because you have something like a third of global GDP is located within 25 miles of a coastline. Those are staggering numbers. And yet we need to protect those populations. And guess what? We have the capability. It's just technology. We can do it. I mean, the Netherlands is built underwater. New Orleans is underwater. It's under sea level, below sea level. We know how to adapt massive populations to live in places that are in harm's way. We can do that. Anyway, that's my soapbox, but I've written a lot about that. You can look that up. 

Chris Powers: We will look at that. I think that's a good place to end. You've been gracious with your time today. Ken, thank you for having me up here today. 

Ken Hersh: Well, good luck. I love talking about this stuff and I appreciate you having me on.

Chris Powers: I appreciate it.