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Hello and welcome to Powering Sustainable Ideas. A new podcast series from RBC Capital Markets, where we interview the leaders and companies powering the sustainable future. I'm your host for this episode, Joe Coletti. Today, we're broadcasting from RBC's Global Energy, Power and Infrastructure Conference here in New York, and we'll be talking with Brad Childers, president and CEO of Archrock, as a 70 year old leading energy infrastructure company with a primary focus on midstream natural gas compression, aftermarket services, methane monitoring and carbon capture.
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Archrock is uniquely positioned to help power a cleaner America safely, efficiently and sustainably. Brad Childers leads Our track was a commitment to sustainability, emphasizing natural gas his role in the energy transition. In this episode, we look at how Archrock is capitalizing on sector tailwinds and investing in innovation to reduce emissions across the oil and gas industry.
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Brad, it's great to have you on the podcast. Great to be here. Thank you for having me. So I said a little bit about the company, but I want to give you a chance to give our audience a bit of a quick overview of who you are. You know, how you operate within the energy space, but also how you envision Archrocks role in the evolving sort of energy landscape as we move towards net zero?
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Sure. So first of all, we provide natural gas compression to the energy industry. What that means is that we provide compression that provides energy to move natural gas through the pipelines. We also use it to inject gas down the wellbore for oil production. It helps relieve the weight of the oil to aid in oil production. So those are the two primary businesses that we operate with our natural gas compressors.
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Our customers are the typical large ENP midstream companies. And what we love about this space is that compression is absolutely a required part of the energy infrastructure. You can have pipelines and without compression they don't do anything. You need to have the compression to energize the gas, to move it through the pipelines and down the wall more. And our commit to sustainability is to make sure that we are doing our part, as we like to say, we power a cleaner America.
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And we know what that means is not just using cleaner burning natural gas, but also making the right investments to help our customers and us do that in the most sustainable way. Can you talk to us about the role of natural gas in delivering the energy transition a little bit more, but also what progress is being made to address the emissions intensity of natural gas in the industry?
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On both questions, we have really good direction going forward. It's a super exciting time to be in natural gas. So first of all, when you think about natural gas, it is the cleanest burning hydrocarbon. In fact, if we really want to take on a reduction in greenhouse gas emissions and emissions of methane and CO2, we really should maximize the production of natural gas.
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By way of example, over the last 20 years, we saw the amount of natural gas produced in the United States increased by more than 80%. And at the same time reduced CO2 emissions by more than 15% through the displacement, primarily of coal fired power. So this is just one example of where we can see natural gas really making a contribution to a more sustainable energy infrastructure.
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At the same time, at our track, we've made investments in trying to look at how to reduce the amount of methane emissions being generated by compression in natural gas operations themselves, as well as looking at how we can participate in reducing CO2 emissions. You know, we've recently come out of reporting season. I mean, Archrock reported an impressive first quarter results there.
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Clearly, structural and long term demand drivers that are creating tailwinds and supporting the company's financial position. Can you talk us through how this earning power is supporting the execution and delivery of your strategic focus? The first thing to highlight is the market. We see a tremendous amount of growth opportunity in natural gas production in the US, driven first and foremost by the amount of LNG exports that we see ahead for projects that have already been sanctioned and that have already passed FID.
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And over the next, we think ten years, we could see 15% growth in natural gas production from LNG exports alone. Add to that additional exports to Mexico, continued growth in demand in the U.S. for power, including now something everybody is talking about, which is how much power is going to be demanded from all these data centers that are about to be built, which we estimate.
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And we see the market estimating could be between three and an incremental ten BCF a day over the next several years. So all of that sets up our business for really good revenue growth. As natural gas production grows, compression has to grow with it. It's a very linear relationship. Then you add to that the fact that we have just an incredible market position.
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We are operating in the best basins available in the space right now. We have a great customer base. We have fantastic employees with tremendous expertise. What we see ahead is just a tremendous platform, well positioned at the right time, in the right place to take advantage of and grow in this marketplace for the benefit of our customers, our employees and our investors.
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So in 2022, Archrock acquired an equity stake in Eco Tech, a global leader in emissions monitoring and management, and then served as a lead investor in a series A financing round for Iron Out Nada plc, a global carbon capture technology company. What's been the significance of these moves for Archrock in enhancing emissions management, supporting the company's sustainability goals?
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Well, let's talk about the two emissions that we're really targeting. You know, the first is methane. And methane is emitted at the compressor itself. And then the second is CO2, which is a byproduct of the combustion process in the natural gas driven engines that we use to drive our compressors. And so when you think about the goals of reducing emissions, you could summarize it into two nice sentences.
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The first is that for methane, we want to keep it in the pipe. And for carbon and CO2 we want to put it back in the ground. And ultimately that's where we think industry is heading. So first on keeping the methane in the pipe. There is a amount of discharge coming from compression operations and from oil and gas operations that are just fugitive emissions that need to be shut down.
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We need to find those leaks and we need to repair them. And the Oeko-tex suite of products provides monitoring as well as handheld devices that would help with detecting methane discharges and emissions, pinpointing then measuring them so that you can have better leak detection and repair. And our job right now with eco tech is to help take their suite of products to market and have a great suite of products that are well priced that could really help the industry and aid in leak detection and repair.
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The second investment we've made is a device that we have that would sit alongside our compressors and capture emissions that are not fugitive, but emitted in the normal course of compression operations. And this primarily packing leaks that happen and blow downs. And this device we call it the carbon shock sits alongside the compressor, captures that methane and puts it right back into the production line.
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The combination of these two technologies could generate with our customers a methane free system at the compressor site. So we're pretty excited about not just those individual technologies, but that combination. And then on the CO2, we're taking two steps really to help mitigate and reduce CO2. The first is we're working on electrifying our fleets because using electric motor drive compressors, there's no combustion at the site and no emissions at the site.
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So that's one step. And then with InnoDB, this is much more forward looking in that there's a lot of work going on right now to develop the technologies that can be used for carbon capture. And this one has the promise of being efficient and economic at a compression location scale. So much smaller scale carbon capture is harder to do economically.
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But the technology they have that we're going to look to pilot next year has the promise of doing it at that compression scale location. If we can do all this, by the way, just think of the power. If we can really impact and reduce emissions for this industry and make it more sustainable, we preserve the ability to use this very effective, affordable, abundant natural gas resource for decades to come.
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And we preserve the value of literally billions of dollars of infrastructure, of energy infrastructure for the industry for years to come. As well. So much innovative and impactful technology that you're talking about. Are there any other exciting partnerships or investments coming in the future with Archrock that you could tip us off to? Well, a few years ago, we established a new ventures team to take a very disciplined approach to evaluate those technologies that can really help the industry and help our customer base.
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And while we have other opportunities and ideas in the pipeline, all of this is still very much in the development stage. So hopefully more to come. So let's switch to digital transformation, something we talk about a lot at RBC. Something that's been a key theme for Archrock when it comes to delivering a sustainable future. Can you talk us through the opportunity landscape for you and your customer base?
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Sort of more broadly, when I step back and think about the combination of technologies that we just discussed and then other technologies that have been more present longer to look at how to digitize and how to automate and optimize the work in this space. I'm really excited about the investments that we've made and about the promise it has to both drive improvements, the level of service we can bring to our customers, as well as to the efficiency we can drive into our business.
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So the first thing is we've invested in symmetry across 100% of our fleet. So we have great data collection coming in from edge devices on every compression unit that we operate in the field that is connected to a very powerful data engine that collects the data, organizes it, and allows us to look at what's going on in a very transparent way from a remote location across the board.
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We can do it centrally. Our techs can do it locally. And that level of information just allows us to dispatch our work in a much more efficient way. It allows us to to apply predictive and preventative maintenance practices in a more systematic way, all of which is going to give us a better level of uptime to our customers and, candidly, a more efficient lifestyle to our workforce.
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And so we're pretty excited about how those technologies are going to accomplish both that enhancement for our customers and definitely the enhancement for our employee base as well. So I want to zoom out a little bit on the zoom out, look broadly at the energy sector, and get your thoughts on some of the key trends. I mean, some of them you touched on in some of your answers a little bit, things that you're focusing on, but what are some of the other trends that are most impactful over the space that you see, particularly in the medium to long term?
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And how are you guys continuing to position yourselves to try to capitalize on these trends? As we look at the landscape, the three trends that I think are the most important, and we just hit two of them. You know, one is the market position, which we find to be outstanding. We love what we see when we look at the market.
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And second, applying technology to our business, both to make it more efficient as well as to really work hard to make it more sustainable. But the third thing that we see as a major trend in the business, that's a nice change, is the amount of capital discipline being exerted overall by the energy sector, and the compression space is no different.
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So whether it's the MPs, the midstream or even the service providers and certainly the contract compression, service and infrastructure providers, we're seeing everybody focus on managing their capital to generate free cash flow, to generate better returns, and not to overbuild the sector. The same way that that cyclical nature of the energy space has shown in the past. That level of capital discipline, we think, bodes really well for industrial returns going forward.
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For our track. That's also translated into what we have is just an industry leading financial position, a balance sheet that is exactly where we want it from a leverage perspective and a targeted focus on capital allocation that is very investor leaning, where we expect to generate and deliver sector leading returns to our investors, both in the form of a well-covered dividend.
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We raised our dividend three times over the last 18 months. It's up 10% year over year. It's incredibly well covered. We have a stock buyback program in place, and we're going to fund our growth CapEx out of cash flow as well. So that level of discipline, we think is going to translate into growth in our business growth and our profits.
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And with that, we expect to also continue to grow cash returns to our investors. So we've talked about so much innovation, the vision that I think you and the company have for where you're going to be in the future. I think one last question, maybe to round it all out, are there any other trends on the horizon that you see shaping the future of natural gas compression and other related technologies?
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Anything that maybe we haven't mentioned, we've covered a lot of territory. And so when I look at the topics we've had, looking at a more digitized future, looking at more automation, looking at building a sustainable future, I can't tell you exactly what all is going to come next, but what I can tell you is that we're going to be watching for we're going to be investing in it.
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Our track has been around for 70 years. We're very proud of our operating history. And the one thing to have a 70 year old or seven decade company, we know that that has required and demanded a level of adaptation to industry conditions and changes. And so we're going to look for those we believe that that adaptation has become not just something we need to do, but a core competency within our track.
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And we intend to use that core competency to deliver for our investors and hopefully for the energy consuming public, a very sustainable business that's focused on great returns to our investors in a digitized, automated and emissions managed way. So we're excited about that sustainable future that we're going to help build. I think that's a great point to end on.
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Thank you, Brad, for being on the podcast. Thank you for being at the conference, and we hope we will see you again next year here. Thank you for having me. Well, that's all for our conversation. Thanks again for listening to Powering Sustainable Ideas, brought to you by RBC Capital Markets. Please remember to subscribe to get more great content and be alerted about future episodes.
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This episode was recorded on June 5th, 2024. If you'd like to learn more or continue the conversation, please visit RBC Cmcsa. Com forward slash. Powering sustainable ideas. See you all next time! This content is based on information available at the time it was recorded and is for informational purposes only. It is not an offer to buy or sell or a solicitation, and no recommendations are implied.
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