2019 OU Price College of Business Energy Symposium - Panel 1: Competition for Capital

2019 OU Price College of Business Energy Symposium - Panel 1: Competition for Capital

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Good. Morning everyone. This is actually, quite. A honor, for me I, get. To moderate, this rock band at rock stars that I brought from all over the country to talk a little bit about the. Competition. For capital, we're. Really excited about this panel I think Mike Ming and I talked about it in advance and and said, that we. Couldn't be more fortunate, to have this distinguished, group to come and talk about the competition for capital. Daniel. Mentioned about the Energy Institute and the mission of the Institute, and the things, that we've been trying to do over the last five years we've. Taken on some of the more controversial, subjects. Whether it be the. Handling of fresh water by the industry, or induced seismicity that. That, doctors. Or Bach played a key role in we. Pride, ourselves in taking on those issues in a way that constructively. Looks at the science and lets the science take us to where we need to be and. That. Conversation. Has not always been very popular but. It's one that we feel is it's, about doing the right thing in the industry and as, you can tell by doctors, or Bex comments, the, industry is very well positioned we're well positioned to be a part, of the solution but, the solution will only happen if we, acknowledge the, science we acknowledge, our role and step, up and take us a meaningful, leadership, position position. We. Have to acknowledge that there there is climate, change science. That. Supports the, issues that are being concerned around warming, we. Have to acknowledge there's, a role for renewables, and likely a role for nuclear as well. That. The the key here is to embrace the. Rapidly changing technology in. All, areas, of energy development, you know it's interesting only, ten years ago none, of us saw the shale revolution coming, I mean. Just think about all the changes we've seen in just the last decade now. What, does that mean for the next decade there's, a lot of uncertainty, a lot of unknowns but, there's no question that the oil and gas industry has to play a leadership role. Today's. Panel. Is designed to talk about the competition for capital there's, a lot of misinformation out there, people. Or the opinion that you know capital, is deployed and in some, kind of, shady. Way and that we don't really have an idea of what's driving it is that the economics, is it's tax benefits, what, are the unknowns, that are is it policy being, driven like we talked about in the state of California, the, reality, is I have a group of panelists here today that are the decision-makers, these are the people who make the decision as to where they're going to deploy their capital and I. Wanted them to share with you their ideas as to what drives it so, without, any further ado I want to talk about my panelists and introduce all three each, of them will have an opening remark and then, we're going to take questions and that from the audience I will remind everyone that this is a webcast, so, we'll ask our panelists to use their microphones, if we have questions from the audience we'll hopefully get you some kind of microphone as well so that we will be, sure that people watching, this online are able, to hear it so. Joining me first at the very far, end is Maynard, Holt CEO, of Tudor Pickering Holt Maynard. Has a BA in economics and. And speaks, Russian so I guess, we have that going for us if we, if only, after I drink a lot. Good. My. Guess is if you speak Russian you know what vodka tastes like so, all. Of this is from rice an. MS and public policy from Harvard. One. Of the things that if you google Maynard and learn a little bit about him he's, an outspoken industry, leader on the role technology plays, and, so, I find his comments, fascinating, in the. Middle is matt harris a close personal friend and, somebody who who's, been involved. In business with me for since, the early 90s i guess is the first time we met. Founding. Partner both infrastructure.

Partners, Is on the boards of in Linc Freeport, LNG Hess Infrastructure, Partners he. Has a Bachelor, of Arts from political science from University of California. Matt. Manages, with. His firm over 60 billion dollars, in investments, of, which renewables, is playing an increasing, role on, a global, basis, and then. Finally, we have Michael, Sullivan senior, vice president, of NextEra, Energy Partners, he, has a BS and civil, engineering from Notre Dame an, MBA from the University of Chicago it's. Interesting part about NextEra is they have over, 21,000. Megawatts, and they're the largest generator. Of renewable, energy in the. So, with that said I'll turn over to, Maynard for some opening remarks sure. Well thank, you Mike. Thanks, to everyone who, who. Pulled this together and it was participating. You. Know Mike. Referenced, it our. Firm is very. Similar to a typical. Oil and gas company. Which. Is up, until about three or four years ago, we. Really, weren't steeped, in, all the issues. And excitement, of the day and and. We started changing because. The. World was getting more interesting, and the, more we started looking into energy, technology. The. More excited. We got and, so. We today have about. A hundred and sixty people but. Four. People do, nothing but roam, around the world looking, at how energy, technology, is changing and this, has dramatically, changed our firm it's. Dramatically, changed, how we think it's. Dramatically, changed how we talk to clients, it's. Dramatically, changed, how we think, about the future and so, we're going to get into all that stuff I thought dr.. Joe Beck's lead-in. Was was was, fantastic. And. I think Mike touched on it too which is, you. Know there's a view of the world which is that oil and gas is sort of the, the. Buggy whip industry. And just, as soon as we figure out something, else to do we'll, leave it behind. The. Reality, is it's, it's. An incredibly, important, industry, it's, it's, gonna play a huge role in the. World and in fact what. Is stunning, is this gonna play a huge world role, in the and making the world better, right. And so. And visions. Just to Mike's point about what the world looks like in 10 years will all be wrong if we, all got out a piece of paper and guess, that and so oil, and gas and technology, and all, the skills that the industry, has I think, it's going to be stunning to us how. Many young people are going to be drawn to it and what, an important, role it's gonna play. That nobody's, really anticipating. Right now, well. Said Maynard Matt, give us your perspective well. Thank you Mike and it's a pleasure to be here thank you to everyone who's, helped. Put this on and all the effort that's going into it we're. Here to talk about energy today the energy is a central. Part of what we do at GIP. We. Have three sectors that we invest in energy, transportation. And, water, and waste within. Energy we're. Focused, on, six. Primary, areas crude, oil and refined product. Natural. Gas electricity. LNG. Metals. And mining and petrochemicals. And we. Focus, on the infrastructure. That enables all. Of that upstream, product, to get to market that's. Going to be pipelines, processing. Fractionation. Storage. Transmission. Distribution. We. Oriented. Ourselves, this way when we started, back in 2005. Because we felt there was a hole. In the market for. A, dedicated, provider, of infrastructure. Capital, and over the last fourteen or so years we've been able to carve out a niche for ourselves, focused.

On, Just, that. When. You think about competition. For capital, there's a lot of it despite the fact that the industry, is so dynamic today, and ascender going a tremendous, amount of change and, our. Focus, in trying, to put, capital work is, thinking. About it as follows what, do we want to own what. Do we actually want to own as, opposed. To what's for sale and I tell my my. Folks all the time focus, somatically. On what you see driving, the. Industry today is it, the globalization. Of the gas markets, is it the decreasing, cost of renewable, energy, is it all the infrastructure. That is needed, to enable all of the shale oil and, shale. Gas to, be commercialized, is it the, dislocation. In the traditional, utility model. Today what. About all of that excites, you what gets you excited would, you get up in the morning what do you want to own, as opposed, to what's for sale today and. Then. Focus, on how to structure. And, execute. A campaign, plan to demonstrate why, GIP is, the right partner, for somebody. When. They're thinking about how they monetize, or redeploy, capital. We. Try to do that every. Day and we try to bring our, operational. Capability. What we've discovered, over the years of, investing, is that infrastructure. Whether. It's an energy, or any other area has. Not typically, been a focus, of the, upstream, producer, and so we've been able to bring a whole series of operational. Techniques to. Help producers, and help ourselves to, be more efficient, so, when we think about it we think about those two things and we use that to differentiate, ourselves to, our partners, in what. Is a very competitive, marketplace, despite, all the change that's going on. Well. Said Matt Mike. Thanks. For having me today, it's always a pleasure for a donor to show up in Oklahoma, and not get run, out of town so, thanks for having me, I. Represent. Perhaps, the largest company ninety percent of you in this room have never heard of, we're. A ninety billion market cap company. That. Is the largest utility, company in the world by market cap. Globally. And probably, for about five years now, we've. Invested, almost, in, my 18 years I've had the same job for 18 years so we can decide later during the cocktail or excuse me the coffee break well then it's a good thing or a bad thing about me professionally, but we'll get into that later but I've. Had the same job for eighteen years since oh one in. That time we've, invested, through a blue pen or two on my desk over 40 billion dollars into renewables, and. You would sit here today and you know okay Mike's the token renewable, guy to balance, all this oil and gas stuff in Oklahoma, and I relish the opportunity and, it's not to convert you and make your green because we're not a green company, we're.

A Financially. Oriented, investment. Infrastructure. Company, that that's those are the buzzwords today, but, we didn't use him back then and we're not using him that often internally, we're. The second largest investor. Actually were between the second and fourth-largest capex. Industria united states the last five years and probably if we went back and looked larger. We'd probably be that when. You look at who's investing, ten to fifteen billion a year united, states each and every year it's Verizon. AT&T, Amazon. US and a couple of technology, companies in the US others. Are invested in sizable, capital, all over the world I'm not trying to say we're competing with the VP's or the exons, and nominal dollars. Another. Thing why, we're investing, in renewables, we've been doing it for about twenty years now or nineteen years is, it's. Good, business, for our customers, and it's good business for our, investors, it we had no idea the. Whole sustainability thing. Was gonna happen the last five or ten years we had no I put the Al, Gore was, gonna get in, the White House with mister Clinton and then pass, off to mr. Obama we had no idea of public policy, was gonna change and go green we. Were already in it and we probably had five, ten or twelve billion into renewables, before that happened and, the. Point I'm trying to make is we've been investing on behalf of our shareholders, and renewables, is good for cash returns, and good, front-end, loaded GAAP returns, for a publicly, traded public, EPS, oriented, company, that's, why we got into wind all, this other stuff happened after, it after. We made, a foothold or a beachhead or built a moat around it the. Other thing I think is most important, for deploying capital, or in tracting capital, and continue, to, earn the. Respect of. Such, investors, whether that's publicly traded capital, private equity capital or venture capital is, you've got to have a management team or a business, model or a business plan that is. Sustainable. And not in the way most. College, campuses use the word sustainable, anymore is credibility. And success. And it, makes sense and our, fundamental, belief is if we're investing at a good return and we're. Lowering customer. Bills at the same time we're gonna be fine because ultimately our company, is two large companies, the large renewable, and nuclear company, that, has assets, in 35, states now and Oklahoma. Several, billion of investment, here in this state and then. In. Florida. We serve about 60 percent of the electrons, that go through the meters and if not too many of you probably when I speak in the northeast I get a lot of folks that have a condo or something in Boca or Miami but the, point being is we have the traditional utility model in Florida which is about sixty, or sixty-five percent of our earnings and Eva does so with that we have that mindset to do what's right for the customer and the investor, and I think that's why we've been a reasonably, successful. Company. The last 10 or 20 years. Thank. You Mike, so as the audience here in the in the room warms up we had--we I do believe believe we have a floating microphone, if I'm not mistaken if we need one, but. Before we do I solicited. Some questions from our students, at, the University of Oklahoma and obviously. Maynard they they, see, your. Comment, as the, most powerful one and. I'd love to you to elaborate, a little bit why does, a student pick the energy industry today from. Your perspective.

You. Know I think that there's. Probably a few reasons so one, is. It's. It's it's dynamic. And it's challenging, and, it's interesting. And. It's hard, and, if. You can because. What what what we're setting, up I think is you think about the challenge, of the next. We. Call it twenty years. We've. Got people who don't have power now. Globally. So. We've got to get power to them we. Have more people coming. Okay. We're gonna have to get power, to them so, we're. Gonna need a massive. Increase in in. Power. Globally. And. We. Not only have to add that power in a clean way we have to clean up the power we're, already using. And. So this is a this. Is a huge you know the, goal is subject. To subject to subject to and when you look at that, the. Only way to do it is two. Ways one. You're going to have to challenge a lot of the assumptions, that you have right. Because it doesn't, work right, you look at some of this stuff and say okay it's not going to work if we just do it the. Old-fashioned, way and then. You, know the corollary. To that is there's, going to be a lot of technology there's, going to be a lot of change so, this, problem. Should draw. The. Biggest brains in the world it. Is also a. Forgive. Me for saying it's a it's a moral problem right. It's a problem, that, has. You. Know the comment, about how. Many people died from smoke. That. Comes from using wood, okay. The. Problem of the. Environment, and passing. On to. Future generations, the. Globe in, a way that is responsible. So. So this this has, got to be you. Know the, challenge, of. The. Next I said 20 years call, it the next century, this, is it and, and. Usually that draws you. Know I'm used, to hearing people. Talking about Millennials and trying to understand, them and and, and. How should we relate. To them and you. Know the thing that I find really striking, about Millennials is. They. Would like a job with a purpose. They. They don't just want to pay. Off their college. Debt and pay. Back their parents, and and, they. They don't think, in. The practical. Ways that, a lot of us thought, and, so sometimes we look at them and say yeah. You. Know but. But, what's interesting about them though is they say I would like a job with a purpose, I would. Like to know that when I'm coming in in the, morning or staying in till 4:00, a.m. or, whatever, I'm doing I would, like to have a purpose. To my life and so. Energy. And that. Concoction. I just went. Through that there's. No better one like, you want a purpose we. Got, a purpose, and. So. I think that's why the industry you know we got to work on how we're marketing, that and we, got a I think, a lot of the business models are going to change but, I would, dare say. 99%. Of this. Year's senior, class and, colleges, around the world none, of them have thought the. Oil and gas industry, might be the industry, that rejects, co2 and makes, the world a better place long. Before a lot of other industries do, so they, don't they haven't thought that and so, we got to work on the message but, I think at the heart of it if you, want to challenge. Energy. Is going to be top. Of the list. Well. Said, so. Matt when we think about these, young. People coming out and engaging this moral purpose gonna, take a lot of money and, when. I see the numbers, that Mark shared trillions of dollars and, lots, of new infrastructure, I guess two questions for you Matt, is. There enough capital and, is. The competition, for capital such that it, will find its way to this space I, think. The answer to both. Of those questions is definitively. Yes. It. Is going to take a lot of money there's, no question, about it some, of that will come from, from. Government. In. The form of incentives, and other things but you, know I certainly. Believe that private. Capital and partnerships, between. Governments. Communities, and the private sector are going to be central, to. This. This energy. Development. That we see over the balance of this century. I'm. In the world of private equity, private. Equity, is one of many, alternative. Asset classes and, candidly. The returns, in, in. Alternatives. Have been better than just about anything else out there whether it's fixed income public, equities. Hedge. Funds so, I, think when investors. Pension, funds the large investors, in the world of sovereign wealth funds will continue, to be attracted, to alternatives.

And This, is a great place for alternatives. To put to, put money to work main, are touched on this but you know at the end of the day, energy. And energy development, is still, the, best way to lift, countries. And populations out, of poverty and, we're. In a world today where globalization. Is is, upon. Us and it's, an unbelievable. Opportunity. To, use that globalization, of, the, energy, industry just look at LNG, as a way to deploy, the. Potential, for lifting. Societies. Out of poverty, so. No. Question, that the, the. The capital is out there will it find its way to this industry yeah I think it will you, know it's it's interesting because, there's a lot of change happening in the energy industry today, you've. Got, you. Know all types, of different issues, around, decarbonisation. And how large oil companies, smaller oil companies, are gonna position themselves for, this energy transition. Moving. Away from being entirely, dependent, on fossil fuels, to you. Know a business, model that's more focused on energy, and electrification, the, margins. In that business, and those businesses are, different, from, what's in oil and gas. You know operating. A. Utility. Scale solar business. Once it's operating, is different, than, exploring. And developing a, large offshore oil, field so the, returns are different and if you're a total, or BP or Shell how. Do you manage that that. Transition, in terms of returns. When. We look at this we we see all this dislocation, but, we also see opportunity, there's always opportunity. In dislocation. I think, you have to stick to your knitting and you have to make sure that, you're true. To. What you believe and why you're investing, in the first place but, as, I see it we have an unbelievably. Dynamic. Opportunity. To boy capital, over the next 25, years and, if you manage that transition well. There, are great opportunities, to make money for your investors. Well. Said so, Mike from a public, company perspective kind, of the same question you you, all have been a leader here domestically and, embracing, the renewable investment, but it sounds like it's more from a financial. Wealth game perspective than it was an intent to be green tell, us more about what you, see the investments, are going to look like in the competition of capital, here, in the US for somebody. Position, it I think, we're the second largest burner of natural gas in, Florida, in the country as far as volume and that's. Not going to change right and we own eight nuclear units and that's not good well we're retiring one next year but, on. The capital the flow of capital I. Would, second, what Matt said and, maybe say, there's too much capital, flowing. Into our, sector, as, far as renewables, and and and power, generation will call it and that's, and. I can support that under the premise. That returns. Are, unbelievably. Optimistic. And low the. Amount of money flying, in into, the u.s. into. Renewable. Technology, or in the M&A market the. Spread between that and the, greenfield, risk. Original, risk decision, is the. Widest I've seen in my 37, years let's, say the 18 years I've been and. What. A greenfield, effort. Will make, a 10, or 12 percent unlevered. Tax, efficient, return and the, M&A market is, clearing, at four or five percent on the same assumptions. That's, an arbitrage, gap, that, says there's. Excess, capital somewhere, or it's chasing yield, and what's we're in a low yield environment. Globally, in all asset classes and how. Long that. Persists. I'm not smart enough to tell you today and I doubt anybody, here is I'm, not trying to insult anybody I'm just trying. To point out you have a lot of capital flowing, into things and everybody thinks they're smart enough to get out when the bubble bursts, and I'm not saying it's a bubble either, because. Japan's had low interest rates for a low yield environment. For for 20 or 30 years and there's other economies, that are paying negative. Interest rates in Western Europe in it my, point is is in our sector there, are a lot of people flowing capital, in it maybe on a risk-adjusted basis. It's better than their alternatives, or what they can hold at pension funds or sovereign wealth funds or other entities.

That Are behind all these vehicles and that's. Flowing, very, there's. Plenty of liquidity this is not only liquid, in industry, either it's not something you can buy and sell quickly other than ETFs, and common stocks or bonds and these. Decisions, take months and the due diligence to make the investments is often millions of dollars buy a lot of these M&A. Type entities that are buying these projects, later in their gestation periods, and. In our business it's gotten more expensive difficult, I was listening, to the, opening speaker about, how hard it is to do oil and gas and fracking and shale gas around, the country I said welcome, to our world trying to permit a goofy wind or solar facility, in, rural America, we were welcomed, with warm arm open. Arms ten or twenty years ago today, we have a battle in almost every state including, here in Oklahoma, we have landowners. In rural Oklahoma, fighting. Wind farms that today. Oklahoma, is the second or third largest state in the country as far as percentage penetration. Of wind energy. To. The grid at the, total retail load so everybody. Almost, everybody, is fighting, everything, and that's a risk premia needs to be acknowledged. As capital, flows into those sectors there's new investment. Whether it's oil and gas or or. Renewables, and I think. Most people are discounting, those, risks. A little too lightly as. I see capital, flow in and not. Saying all of us are conservative, or all of us are right but I believe, the general trend, to get into renewables, or get into alternative, energy and get into something other than oil and gas for. ESG, reasons, or green reasons, or sustainability, reasons, our annual report reasons is. Noteworthy. And probably, positive but, I often think the professionals, behind that are not digging or peeling the onion back far enough to understand what they're buying or what they're investing in well. Said I'm gonna pose one question, last question from me to the all three of our, panelists, and then I'd like to take questions so please raise your hand if you have a question for our panelists so we can get a microphone. To you as I posed this last question so. Obviously. Energy has got many facets, both, from a demand-side management efficiency.

Technology. Is going to be developed, on not only the supply with, renewables, and and battery. Storage and, and and, wind's going to have its challenges. But, they all have. Their. Own unique cross, to bear. One, of the things that the, president, said here recently and rarely, do i comment, on Donald Trump's you know wisdom but this time I will, but. I will tell you that he made a comment to, a group of executives, from the oil and gas sector and, an API meeting, that I thought is important. And I'd share it with this group to see how you all feel. He. Said it's time for the energy companies. To get their act together and work. Together whether. It be fossil fuel renewable. Utilities. Etc. And create. A common message a common. United front how. Do you all feel about our, ability, to work together across, these various different areas of expertise. And. In order to be constructive. In public. Policy. Well. I'm happy to keep the same order. Let. The guys think come up with better answers but, you. Know I think what what, I've noticed in Mike just mentioned ESG, so. Environmental. Social governance. Pressures. That. Investors. Are putting on companies. It's. Really starting to change the landscape and it, could result in, us getting a landscape, that, is a lot like what the president just described, so, forever we've had this world. Of there's the oil and gas guys over here and there's the renewable guys over here and the oil and gas guys get their money here and the, renewables. Guys get their money here and this is the way we've, done things and then, the major started, doing of course some renewables, and. But. But what we're noticing, now, is the. Beginning of a real. Change and the, change is this first. Of all any. Energy company, but particularly, you. Know fossil, fuel companies, or service companies they, say I'm. Gonna get cleaner I'm, going. To get cleaner I am going to find a way to get cleaner so, technologies, and processes that make, me cleaner, I want. Those I'm. Going to find those and the, other one is they have to it's, been a rough patch, in, in, oil and gas honestly. Because of all the success, we've had finding. So much of it but. They're also going to try to get more efficient. So. The. Punchline on this happened. To be at sirrah this this year and Bob, Dudley from, BP, made. A great comment. That thought was really interesting he, said, why. Do I care if, it's, solar or, if it's wind or if, it's oil, and gas or whatever. That's. Just the flavor, what. I care about is. How. Much energy did you make how. Much money did you make and, what. Was the impact or footprint, of your. Processes. Production, and activities. So. Why do we keep talking about this. And III. Think it sets, up an interesting thing you know. We're. In the M&A business, and so. In the M&A business if you think of this a little bit in an M&A context, what. Does the existing. Large. Well. Capitalized. Company. Do, when. A smaller. Unique. Technology. Undercapitalized. Still. In the process of development, competitor. Comes along, you. Buy them and. So. I kind, of think, what's. Happening, is where it, is going to become one community. And oil. And gas companies, are going to use solar at the well site and all. Kinds, of things like that because, you. I think the world is moving to instead. Of thinking we. Used to do the dirty thing and, we're. Going to move to the clean thing I. Think. The thinking is becoming, a lot of we're, all going, to the clean thing and, by, the way. Different. Energy, different. Ways. Of producing power. You. Know that is a site-specific, use, specific. Situation. Specific, thing it is, not always the right answer to use one. Flavor or another, so we have to become, more adaptable, in how we think about flavors, so, I think well I don't know what the president had in mind when he was barking at. The oil and gas guys but. But. He, has a point because it's starting to happen, you. Know at the number of really. Small companies, who are thinking about how. Do I get cleaner how, do I tell my investors, that, I'm doing better on all these things that we all care about it's. It's happening and I think it's going to change the form. Of what. We think of as an energy company, dramatically. Over the next decade. Matt. I. Think, it's a great question and, I'm. Very, optimistic about. All. Of the constituencies. That make up this. This. Issue working. Together. It's, early days but it feels to me like. Government. Is. Finally, starting to, focus, on this issue, in. A. Somewhat. Bipartisan. Way I think we're starting to see the seeds of that I. Think. The point that Maynard, raised about investors.

Is. Critically. Important, and. You've. Seen evidence, of that recently, probably, the most significant, piece of that was, the. Investor. Base of shell requiring. That. The, pay, of the shell executives, be linked, to, achievement. Of their. Decarbonisation. Plan. We're. Seeing we're raising a new twenty billion dollar fund and for. The first time, we. Are having. Investors. Really. Scrutinize us. As it relates to the carbon footprint, of our portfolio. What. Does it look like today what, is it gonna look like in ten years and are, you prepared to commit, to that plan. And for. The first time. We. Had, three. Investors, very large investors. Mostly, focused, on the west coast of the United States and in Europe. Ask us, for, exemptions. From any investments. We make in infrastructure. That, carries. Hydrocarbons. That, have been, produced through hydraulic, fracturing and the. Institutions. Are name-brand, institutions. Now. Our own view is that the. Transition. That we make to, cleaner. Energy, has. To be accomplished, within the, envelope. Of the hydrocarbon, industry we are we are not going to turn off hydrocarbons. And turn on 100, percent renewable energy by 2030 it's, it's, not going to happen. But. We do have to work together, in. Order to accomplish that the. Other thing that I, think is going to drive this is the. Investor, perspective, not, just on ESG and, social, good but, on profits. One. Of the things that we're really focused, on in, this next, fund is, as. I look at an oil pipeline, I'm. Gonna probably be, pretty comfortable. If I do my homework based, on the basin, and the. Customer. That. The cash flows, that I expect, to achieve during, the life of that. Asset. And the ownership of it I had have. Are gonna be are gonna be good. But. What is much more uncertain. And, I, know we're focused, on I know our investors, are focused on I know investors, of other. Big, oil, and gas companies are focused, on is when. I go to sell that asset, in seven years or eight years and, if, I had assumed, that I was gonna make ten times for, it but. The investor, sentiment, has changed. And the, investor, that I'm gonna sell to is only gonna pay eight times for it because. For whatever reason they see clean, energy coming quicker or they see more. Regulation, they see a carbon tax whatever it is then. That's a problem so. We're spending a lot of time trying, to think about how we, bridge. That gap over, that period of ownership and I know the same thing is happening I'm going down to see Exxon, next. Week I know they're very focused on. I know their investors, are focused on how, do I make sure that. I, don't end up with a degraded. Asset, as this transition, takes place so. I think all these forces, economic. Social, political. Will. Come, together, it's. Never easy, there's, a lot of awkward moments. But. I believe, that, everyone. Will come together and, we're. An incredibly resilient, species, we. Will find solutions through, technology. And other means that. Find. A solution to this issue of of. Co2. And climate change. Mike. I. Think. Everybody's crazy thinking, that we're all gonna sing Kumbaya, and get along. Two. Premises, in the, electric industry we're 50 different states in the United States. Many. Of you don't know this the president, no that doesn't know this and maybe 200. People in our industry understand. This and only ten will probably, get, what I'm talking about and I'm not trying to stake, like, we, are 50 different countries when it comes to electric policy. What. Oklahoma does doesn't coordinate with Texas what Florida does doesn't even speak to the people in Georgia and Nevada, doesn't even know where California is when it comes to electricity, many. Of you in this room think of electricity is this harmonized, grid, which it is but. Like the interstate highway, system got. Built we all lean on each other we pay a federal gas tax we pay state gas taxes and we all get to use that system like, a grid. Daily. For, commerce and for personal travel, without, really caring which state built which pavement, because it's all kind of standardized, and the electric grid is built the same way with one caveat, it, was built in each of the 50 states to, run the electricity, in those states and then over a few decades 50, or 75 years ago we ran a line to the adjacent state every now and then for an emergency. It. Was not meant for a wholesale trading and moving of power over. The years that's adjusted, or tweaked a little bit but. That is not gonna change in the lifetime of any been in this room especially maybe some of the students that are in this room that are a lot younger than I am it's. Not going to change so we're not gonna sing Kumbaya on the electric side and I'll get along corporately. With, the oil and gas business we're gonna coexist. We're gonna fight technology. In ways to lower the customer bill where I think he, was going on if, the price is the right price and when, you impact, all the other social issues and public policy issues it's the right decision for society, whatever country or state you may be in people, will make better decisions, more informed decisions on which technology to go for and here's the financial, reason it's not going to happen the.

CFO, Of BP, or, Devon, or Continental. Or Exxon. Or Chevron. Or Chevron might be a little distracted, this week on what's going on newspaper, but even. Electric schmuck like me knows what's going on in the oil and gas business those. Men and women when you march into their office, and you want a billion dollars or ten billion dollars or a hundred million dollars to invest in some new technology. Whether it's wind or solar or oil and gas whatever they have an IRR or hurdle rate or risk premium they want for the shareholder capital because it's pretty much an all equity bet. When. You walk into our CFO's. Office or, i have done at least for the last 18 years we have the same dynamic, same capital approval, process whether you're investing in natural gas plant in South Florida to keep the lights on in Miami over, investing, in a wind farm here in the wonderful state of Oklahoma it's the same process, what's, our cost of capital what's the premium Mike you're gonna bring to us and what's the risk that you screw it up. In. Our sector that, risk premium, is pretty, thin, as. Evidenced, by some of the projects, his sector, is buying into our projects it's it's a very compressed, range, of returns it's not very it's not a very large risk premium, because, of the way our financial, structure is on the electric side of, the energy industry, but. The oil and gas industry, has a far, wider risk, premium, and that. CFO, that man or woman globally, or here domestically, occasion. Will let a little, token wind, or solar project, get invested in for, other reasons, by, an oil and gas company it is not for shareholder, value. We. Don't compete with these folks we don't see them because they have much bigger, elephants. To drill for or explore, for or find, or capital to play a much higher, premium, returns, they have to earn because, when they miss it's billions, when. I miss, it's, hundreds of thousands if I'm doing my job right and, I have a bad year it's a million or two and we, deploy a lot. Of you know four, or five billion a year in. Renewables, and, tens. Of millions or hundreds of millions of what I'll call GNA to try to make it work every year overhead to make it work, but, in Y all I get in the oil and gas industry it's an extra zero every. Decision perhaps the bigger decisions, maybe not the fracking and the shale gas in a more distributed.

Way But. Those return. Expectations. Are such a premium, to what the electric sectors look about I don't see those converging, I don't, see capital markets converging, on that I don't see everybody's. Singing Kumbaya, and say we're all in the same thing let's take a lower return oil and gas shareholders, because we gotta save the planet I don't see that happening in capitalism I'm, not saying it's right or wrong I just don't see it happen I just. I. Mean, I think Mike's making some great points at I think what's interesting you, know everybody knows that that great story about the, the. Two guys. Hunting. And, the. One guy starts, putting on sneakers, and, the. Other guy says you're. Not gonna be able to outrun the bear okay, and, he says I don't have to I justafter outrun. You. So. A lot of that's going on in oil and gas and here's the way that analogy. Works which is. As. An. Oil and gas company. You, know I'm, never gonna be like. Afforded. The save, the planet. Premium. I'm. Not gonna have that level of interest in me but. If I'm the cleanest. Oil and gas company, I am. Gonna draw more capital, than someone who's not and, so. If you're an oil and gas company that, goes to Europe and you don't, have an ESG, report, and you don't maybe have a little. Bit of solar here, and there and you don't have methane. Monitoring. Capturing. So on and so forth if you don't have that and do that you're. Not gonna get any meetings, and so. An entire continent. Is not, going to listen to you and so. A lot of oil and gas companies, again it's the same thing like I'm. Not going to be the cleanest guy on the planet. But. I'm going to lead my. Sector. Yeah the put the biggest problem that oil and gas has I think a lot of there there's a lot of social pressures, around investing in oil and gas but. The biggest problem that oil and gas has is it hasn't made money, how. Many of you own energy, stocks. Okay. Are. You, happy, with those investments. You. Don't have to answer. So. You can imagine in today's world if someone walks in and says you know, we're. Not making money, in this oil and gas thing it's been five years the stocks are down to, at best sideways. And someone. Says you know I've got it let's. Announce that. We're no longer going to invest, in that, dirty awful, thing, called oil and gas and. Everybody says this is awesome this is a winner right. Because. They don't want to do it anyway it's not making money so, it gets back to to. The point about you. Got to make money and you have. To be cleaner. I think. The last point that's really interesting and it illustrates how capital, markets are very different I totally, agree with everybody wants to make money well. Let's say you were an oil and gas company and you're. Producing oil and gas and to, the earlier discussion you, had another division, that, was taking co2 and. Sequestering. It. If. That second, division, grows over, time and. You. Were to take it public, the. Line to invest in that company would. Be like down. The street around, the block you, know to. The end all the way to Oregon, right. Because, there is a strong, social, taste, in what. You own and you know, a lot of people we always talk about shale, is the, source rock well. The source rock and the financial, community is you. Know you know universities. Pensions. A, lot. Of capital like that and they, have a strong view on what they would like to be invested, in and that, taste shows, up in where, it is easier to get money or where, it is harder, and so. I do think we're gonna see some real changes. And. I do think it's quite striking the, amount of capital, right now that, would like to do the right thing, that's. A strong that's a strong sentiment. In today's. World and it, means as a company, if you're. Doing the right thing as defined, then. You're gonna draw more capital, than someone who's perceived, to be not. Thank. You let's open up for questions in the audience anybody want to raise their hand and ask a question got, one right over here. I'd. Like to. Mike. You touched on this I'm. Less concerned about capital, and technology, than. I am about public policy, when, we can't even get a natural, gas line, laid. Through New York to, help the people in New England how. The heck are we going to get a bunch, of co2 lines laid. To West Texas to, the Permian through, a variety, of states because that co2 is generated, in not, in West Texas, and, oh by the way we're doing this for the good of the planet but, it'll also increase, oil production by, 50% that's. Gonna sound very self-serving, and and. Our. Industry is not liked I don't. See how we change, public, policy without. Stronger. Eminent domain. Requirements. I don't. See us getting there I don't know I don't, know how you change, those attitudes, to.

Allow. Us, to. Use the technology, and the capital, that we have to. Make a difference, well I agree, we have, our own pipeline, that's delayed, coming. From the Northeast down towards the south so. We live in it we're living that dream everyday and. The. Public policy part is only getting harder. People. Think because, we invest. More. Than probably anybody else and renewables, that, we. Understand, how the Dees think we're. As perplexed, by the DS as the ours and. The. Biggest change I've seen in our company in, the last 10 years by, our Chairman is a commitment, to, have boots on the ground understand. Public policy, in each and every state. Because. It is a state-by-state. Discussion, the. Federal government, is not going to step in and just blindly. Make policy, when, it comes to energy. Oil. And gas maybe, because, of pipelines being interstate, maybe, due, to some issues around, the, use on the retail side because oil and gas a lot more complicated from. Upstream. Midstream all, the way down to the retail level, but. On the electric, side when we consume, natural, gas in our sector when. We do things for example you touched on something on sequestration or, injection one, of the biggest mistakes, in our industry the last three to five years as our friends in Mississippi, were, actually, it was a Mississippi, project by our friends in Atlanta one of the largest most successful utility. Companies in our space the last 25 years made, a seven billion dollar mistake on a five hundred forty five megawatt, now combined-cycle project they should have been built for four hundred million dollars but, they spent seven billion dollars trying to inject. It in the ground and use you. Know to, be green they started, out telling her but it was two billion talk, about state public policy they, convinced, the regulators. In Mississippi. To do that ten, years ago and. They kept kicking, the can down the road and finally abandoned the project now it's a five hundred forty mega five megawatt combined. Cycle plant that can't do, the, high-tech stuff so. As far as capital, chasing, interesting. Green ideas sure, but that's venture. Capital that's private equity should be making up that bet and, that's the separation, we've had the sophistication, we've made as an industry the last ten years this. Type of discussion where every day wouldn't have happened fifteen years ago there. Was no bar in d going on in our space on the electric side this. Much, utilities. Aren't in the, business of doing R&D that's what private, equity and venture capital. And Silicon. Valley have created. Globally. And narrowly in the energy space the last ten or fifteen years and it's the right way to do it so right way for that risk capital but back to the public policy it. Is, a it is true Rubik's, Cube of how we decide, where we go and what states we put investment, in and there are certain states. Twenty-five, states I won't even try to permit a wind farm in right now we don't know anybody on the ground even chasin wind farm opportunities, for the next five or ten years because, it we just noise, it's crazy it's nuts I don't mean crazy economic, I mean just crazy we're just not gonna get the permits whether it's a state level the county level or local level and public, policy, has been emboldened which i think is good from adamak democracy, point of view I hate to see it because it cost me money and drives me nuts commercially. Speaking but. What, we've done is we've allowed people to speak whether it's the internet or public hearings those things have been going on for decades and now, people are much more informed, and local. Opposition is, is deep and I I don't, know how to stop it change it or twist it I just know it's reality and it's gonna get a lot harder for all of us no matter what sector we're in I just. Want I want to attack onto that you, know over. The last two, or three years we've been, spending. A lot of time trying, to think about. Investing. In infrastructure, in Colorado. And Wyoming and, what are the risks associated with that given, the legislative movements. Out there, you. Know five years ago I never would have thought I wouldn't even have thought about that the Northeast, has always been you know that, that's a nettlesome, place. I, remember. When, Audrey. Told me in 2009. That the, Marcellus, was going to do seven BCF a day and I said you're absolutely, crazy, we won't we won't to invest on that basis, and what is it thirty thirty, something today whatever it is it's unbelievable. Even. With all the permitting, issues in the Northeast but I I really. Agree with Mike on this I mean climate, change, for. Better for worse was. Always, tomorrow's, issue and. Given. What's happening, in the world both in terms of the events were seeing but also, the. The Millennials, the Gen X the gen Z they have a different, view on this issue certainly.

Than I do I only have to listen to my kids talk about it and. Policy. Is gonna reflect that I think we're seeing that in Colorado, and Wyoming and. It's. Not necessarily gonna happen overnight but it's gonna it's gonna shift and I. Think the people who, are most successful in, deploying capital, whether it be in oil and gas or, an electricity, renewables. Are. Going to be those people that figure, out how to play within that set of rules now, the president, has been trying to do something about some of that here in the last couple of weeks but we all know administration's. Change they, have different viewpoints and, at, the end of the day, it. Is democracy, I agree, with that we have to work within the system that we have now that doesn't mean we don't advocate we don't work, really hard to get, the rules we want but I. Guess. I would say it's. Gonna become more rather than less difficult. Well. Said Matt and comment. You made about your investors. Concerned, about hydraulic fracturing there's there's, two parts, of this equation, there's education we, have to educate people because sometimes those. Positions are misinformed but. Then there's also. Conforming. To the, new world we're in and recognizing. That we're in sight you are obviously leading a public. Policy, conversation. This afternoon did. You have a question for this group because it seems, like that this has been a perfect lead on to what you're gonna be talking about this afternoon, well. I thought it was appropriate to talk to the capital, providers, for. The industry, and in, my. Professional, life outside of my, volunteer, work with oh you I run, an agency that's, built around the, idea of how, to help energy. Build the projects, that wants to build we, call it social permitting, what. I see. Time. And time again is. Energy. Firms, and, capital. Where we'll invest a half, a billion dollars a billion dollars in big, projects, and. Massively. Under. Invest in, getting. Permission, to build those projects, only. To later have protests. Policing. Regulatory. Delays. Caused, by, engaged, stakeholders and. And. I. Would love your opinion every. You've been talking the entire time about, education, of the public and engagement, of the public what. Is the appropriate investment, of public. Into. This space, from a financing, standpoint. More. More. A lot more right lot more. 15. Or 18 years, ago. In. A place like Oklahoma, North Dakota Kansas. West. Texas I would spend on behalf of the company my wider team. Anywhere. From 50 to 250, thousand, dollars of resources, to get a project permit, and ready to go. Places. Like California. And the Northeast. Maybe. A million or two same. Kind of project whether it generally, back then it was wind or natural gas project but generally, that. Order of magnitude. Today. Nothing's under a million and if you go into the Northeast, or. California. You're looking at 10 or 12 million before you get the, permission to put a shovel in the ground on. Top of that is the, county state level local level interaction. Communication. Networking, with the officials, before you ask for a vote before you ask for this what's. Also been added is more, active tribal, issues with your, in the oil and gas industry, learned this a little more at least on the front page and North Dakota a couple years ago we've. Been living it for a long time since. 2010. Or 2011 when I add a, lot. Of effort I had to personally put into LA and I excuse me California, and Arizona out near the border with tribal, issues we now have a giant tribal relations group, that. Now knows hundreds, of tribal members in, 20.

Or 30 states we. Treat them just like elected, officials, they. Consider, themselves sovereign. Lands in many jurisdictions if, not all no. Different than we treat the governors and the elected officials in every major state or all the states were making, major investments and said we. Are probably under staffing, or under resourcing, that. And. And then the I I don't mean opposition, I think people, want to see new energy but they just want to see it done smartly, most, don't want it in their backyard but I, do. Believe most, companies, underestimate. That I know. We probably did because of we. Were blinded by success right, if the, business kept working the way it was working for a decade, why change right if it ain't broke don't fix it the old adage. We've evolved, quite, a bit I think the big new element, that I'm learning real-time, the last two or three years from. A permitting, point of view and of social policy, point of view is this thing called social media. We. Saw in the last two or three election, cycles or maybe just the last two or three years how social media ran, the election cycle in that industry that business that affects all of us our. Businesses. Are much, more impacted, now and I don't mean the marketing, of discount. Coupons for diapers I mean that's definitely been going on for a while but the permitting, on-the-ground, activity. The battle Pro. And against a project, social. Media is a, big, piece of it the last 24, 18 months and I think all of us are gonna have to figure out how to get better at that also and, that's a real-time, thing that. Many of us are under at under investing. In from, the Greenfield point of it you know the equivalent of EMP in our space right. From. An M&A point of view ownership, who owns the actual asset who's the corporate, entity that owns it that's a whole different education. And social construct, right you're keeping that quarters, in Oklahoma. City or you're moving them to Tulsa or Maine you know out of state is, that that's a whole different social, negotiation when, companies change ownership or change management teams or change who runs the show but. In our industry, I am taking your question is the granular, this question, on how do you get the approval, at, the low level it's far more expensive it's. Not gonna get cheaper it's not gonna get easier but that's why we get the risk premium for the return we're getting if it was I always, tell everybody works for me if it was easy you'd, be down the street flipping, burgers. Cuz. That's a risk-free job you don't have email phone you don't have stress you don't have pressure you're not to get a risk premium for your investors, the, reason we're paying you that risk cream is to solve those problems and, I think that harder problems today are. The logistics and getting permits, and getting permission, to build with public policy than, it is public policy saying, well we want a little less, emissions, or we want more green I think that ship has kind of started turning or has turned already but. To get that implemented, I think. Is underestimated, by investors, right now I would. Just let me just say add one thing to that is I, think, when you think about competition, for. Capital. Given. How attractive. The. The. Environment has been until recently for energy companies to raise money. The. Way I traditionally, have thought about competition, capital, is is the competition, amongst, the providers. But. In this world today you. Have to think about it as you, know, what. Is the competition, amongst. The users of that capital, we, built a pipeline, in 2009. From, Wyoming, to Moline, Oregon serving, PG, and E's low the Ruby, pipeline and. We. Had all our permits, in place and, we built this in partnership with El Paso, and but. What we completely. Underestimated. Was, the ability. Of, some. Constituents. Along the pipeline. Right away to, slow the process down and. We. Had a we. Had a point in time when we probably could have settled that. Disagreement. For 25, or 30 million dollars, and. Everybody. Thought that that made no sense, we.

Ended Up, being. A billion, dollars, over budget on that pipeline because. Of, our. Unwillingness. To, really invest, in the local relationships. You. Know this is a this is a really, important. Point because you. Know we're looking at a couple of really, interesting, crude. Oil pipelines, today and one, of the things that's really causing. Us to delay. Making any decision, and leans towards, not doing, it is what. Is going to be the social impact, are, they, going to be able to mobilize the, way that people, mobilized, on dapple, and, what what does that do reputationally. For us what do our investors, think there's a whole cascade it's not just, about economic. Returns it. May get built and it may be a really attractive return. But, what reputational. Damage do. I suffer, it is my firm suffering, in the interim in the intervening period these, are all issues that are only going to be more germane I just. Maybe. Throw in one comment, which is, you. Know economic, alignment. Is Sookie. So. I was a young guy in the late 90s, and we were working on a project for noble. Energy. And. They had a project offshore, Israel, at the time it was just. You. Know concession. Nothing, was really happening and I was looking at the map and there, was a little, block this. Part was Noble and there was a little, block over here I couldn't, wear it right couldn't. Read the name and I said who's whose block, what, percent, is that and. The. Company said well that's the that's, the plos, part. And. And. So Israel and the PLO and all the terrible stuff that's happening on Shore they, were partners. Offshore, and, everybody. Was on the same page this is definitely a good project. So. My point is you. Know sometimes the companies get beat up for you. Should have done more fliers you should have done more community, meetings you should have done more visits, you should have done this you should have done that the. Truth is you, need to find a way that. The people you're dealing with will benefit, economically from. Your project, and. These. This is the problem you know when when somebody's, up, in arms you know what's the great joke about farmers. In the u.s. they meet, the oil and gas company, at the gate and say please drill here can't. Wait for my check and farmers. In France meet them with pitchforks, because. They don't own, they. Don't have any economic interest, so economic, interest in getting people aligned, is the key thing you know, it's a tragedy, what. We're spending in the country, I'd. Mike. Might know the number but you know Dan Sullivan from Alaska, had an infrastructure, bill that he introduced, and the. Number was something like for every dollar we're trying to spend on infrastructure, we're spending 40 cents on legal bills. So. The tax on the nation, of. Putting. Up with all of this, stuff. And not reforming. It is huge. And it. Is very sad to this point earlier that, the people in Massachusetts, are paying $12.

And M, or whatever it is for gas and the, people in New York I have a from upstate New York, it is a devastated. Place economically and, just, across the border in Pennsylvania. They've discovered this thing called the Marcellus Shale which, happens, to run into New York and they, won't let them drill it so, I think we are definitely going to need better leadership, my. Last point is I actually think, all this is getting better, because. I think the anti oil and gas anti-development. Anti. Anti anti crowd. Has, overplayed, their hand and. When. You get this debate the good thing about the ESG debate, is it's, creating, more debate, and every place we go. But. Inevitably. It's going to become a more honest, debate in, the. First speaker. Slides, there. Seems to be one country, that reduced, their, co2, emissions. And, it's. Us, and. It's because we're fracking, and using natural gas so. This storyline I would be optimistic, it's going to change because. It's, not rational it's, not right and my. Favorite thing to tell my son when he calls me and, asked. Me about something, he doesn't understand, is I, like to say stupid stuff does, not last, and. We're doing a lot of stupid stuff in this in this category, and I'm just optimistic it's, going to change yeah. Well said got a question right over here, Mike. How are we doing on time. Okay. Thank you questions still on okay. I'm, just curious. Matt you mentioned, in. Raising this new fund, some. Investors. Asking, for carve-outs about fracking do. You have views on the. Spirit of what Manor just said about overplaying, the hand do, you have use on how far the, campus. Based divestment. Movement goes, how. Material, it is to, the supply and character, of capital in the industry. You. Know I I, think, that. Movement. In movements, by you. Know sovereign, wealth funds in certain parts of the world about divest, themselves of, hydrocarbons. I think that's going to continue I think, will actually accelerate. I'm, not sure that will, be there's, so much capital, potential. Out there and. Just look at you know at my world and all the, you. Know pension, fund capital capital. Coming out of Middle East China, Singapore, I, don't. Worry about there being a dearth of capital, for the things that need to get done I think. That the you, know I think the biggest. Thing. To watch and, Mike was talking about this and I agree. With him the. Oil and gas you know companies, he like the, electricity, companies are not natural, bedfellows, they're not you, know that's, not a marriage made in heaven but. I do believe that, the pressure. Well. It will be long dated, for, the oil and gas companies, to change, will. Continue and I, think it will be political, I think it will come from, the, investor, basis. ESG, in, other other, places. And. I think ultimately. Dislocation. And change, yields. Opportunity. And I, think there's, a reason, why, BP. And she'll and total are trying to figure out you. Know where where can I create, a business, model using, the asset base I have and. Investing. A billion to two billion dollars, a year in different technologies. Trading. Customer. Positions, to try to understand, how am I going to make this transition. You. Know I see the CEOs, of those companies on a regular basis, and they're, certainly not gonna compromise what, is an unbelievable. Business, in oil. And gas but. They're they're, aware of the change and you don't want to be the CEO that missed the change that, was led left. With a set of legacy, assets, that didn't make the transition, and I'm not argument, I'm not arguing that it's gonna happen you, know right, now or even in the next 20 years but it's gonna happen by the end of the decade by the end of the century. Well. I think as. We conclude, I think we can take one more question if there is one out, here no putting in right here Henry we.

Get A microphone to Henry Wow while, he's doing that I think it's important to recognize although, I don't think we'll be doing kumbaya like mike says it, is important, that we maybe lean more towards that than coexistence, there's there's a lot of cooperation, that's gonna have to take place to do the things that all three of the panelists are talking about so let's I keep. Wanting to be hopeful and be encouraged, Henry. All, right thank you, four years we have been talking about natural, gas as, being the bridge fuel to get us to our needs. For a. Reduction. In co2. We. Talk about it as being the only clean alternative, for fossil fuels that's, reinforced. Today by a Stanford professor. But. We have a problem in the market today that. We have essentially to gas markets, we, have gas being produced by, companies who produce. Gas for a living and need. A reasonable, rate of return to justify, continuing, investment, and then, we have gas being produced by, oil producers. As a by-product. Where. They have already recoup, their investment through. Oil production, and they're flooding the market, with, essentially. Waste, product, so, how. Do we, reconcile. This and how, do capital. Providers, see, this. Dichotomy. Going. Forward and and picking, an, investment, choice to, ensure, that we're gonna have natural gas produced, in this country to meet the needs that we're talking about let, me ask answer from the electric side. 15. Years ago in this country. Nuclear. And coal was 70% of the electricity today. It's about 50. It. Doesn't matter who's in the White House or who's running Congress, the. Next 10 or 12 years that. 50, is going to drop to about 30. There's. Nothing to do with tax policy as nothing new renewables, has everything to do with cheap. Natural gas and, cheaper. Renewables. Market. Share of that, and load growth in the country in the u.s. from a natural gas nuclear, coal, renewables, purview is relatively, flat the last 10 years in u.s. and we can argue that's a whole different conference, why, that's happened it

2019-06-07 21:37

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