Scott Gale, Halliburton Labs
Scott Gale is Executive Director at Halliburton Labs.
Halliburton is a complex company. It’s a 100-year-old oil field services giant, known for its extensive fracking operations and infrastructure expertise in the oil and gas sector. It is not an oil and gas distributor like Chevron or Exxon, but it is a powerhouse nonetheless. With their Halliburton Labs program, Scott and the team are actively investing in and supporting the innovation ecosystem around clean energy and climate tech. They specifically focus on technologies that are outside the purview of Halliburton's core businesses.
Cody and Scott attempt to address all of this. The conversation covers Halliburton Labs' startup collaborations, the interplay between its core business and these ventures, Scott's views on Halliburton's past controversies, hydrocarbons' economic role, and the energy transition's trajectory. They conclude with reflections on Houston's evolving innovation ecosystem.
*We encourage you to share feedback on episodes and suggestions for future topics or guests at info@mcjcollective.com.
Episode recorded on Dec 19, 2023 (Published on Jan 22, 2024)
In this episode, we cover:
[04:00]: Scott's role and the founding of Halliburton Labs in 2020
[05:18]: Halliburton Labs supporting diverse energy sector startups
[07:01]: Unique engagement and equity model with startups at Halliburton Labs
[09:00]: Strategic differences between Halliburton Labs and typical corporate venture
[11:36]: Halliburton Labs' approach to IP rights and founder-centric model
[13:10]: Halliburton Labs' stance on supporting geothermal energy startups
[14:06]: Scott's vision of a diverse future energy system
[17:47]: The strategic origins of Halliburton Labs
[22:18]: Scott's perspective on Halliburton's evolution and its impact
[27:11]: The difficulty of eliminating industries in energy transition
[33:18]: The balance of cost, reliability, and sustainability in energy systems
[36:19]: Scott's outlook on the oil and gas sector's future
[39:28]: Challenges of reliability in transitioning to renewable energy
[41:56]: Various technologies' roles in the future energy landscape
[44:17]: The changing energy and climate tech ecosystem in Houston
[50:24]: Challenges in early-stage infrastructure finance
[53:47]: Scott's additional activities beyond Halliburton Labs
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Cody Simms (00:00):
Today on My Climate Journey, our guest is Scott Gale, executive director at Halliburton Labs. I met Scott earlier this summer in Houston as the MCJ team spent time there, getting to know the local energy innovation ecosystem. Halliburton is a complex company. They're a 100-year-old company and are one of the world's largest oil field services businesses. They have one of the world's biggest fracking operations. They're not an oil and gas distributor like more well-known oil and gas companies such as Chevron or Exxon, but they are a powerhouse nonetheless in the business of infrastructure around oil and gas.
(00:41):
When I personally think of Halliburton, I immediately think of the multi-billion dollar contract they received during the Iraq war of the mid-2000s. And the question marks surrounding that, considering that then US Vice President Dick Cheney had previously served as the CEO of Halliburton, and yet with their Halliburton Labs program, Scott and team are actively investing in and supporting the innovation ecosystem around clean energy and climate tech. They specifically focus on technologies that are outside the purview of Halliburton's core businesses.
(01:15):
Scott and I attempt to address all of this. We talk about Halliburton Labs' area of focus, how they work with and support startups, and how the initiative came to be. We also talk about Halliburton's core business and the relationship between that and the startups that Halliburton Labs backs. And Scott spends time with me talking about his personal views on some of Halliburton's controversial prior episodes, his perspective on the role of hydrocarbons in our economy and how he imagines the energy transition is likely to play out. Lastly, we conclude with a bit of a discussion on Houston and how the innovation ecosystem there is changing. But before we start, I'm Cody Simms.
Yin Lu (01:58):
I'm Yin Lu.
Jason Jacobs (01:59):
And I'm Jason Jacobs. And welcome to My Climate Journey.
Yin Lu (02:05):
This show is a growing body of knowledge focused on climate change and potential solutions.
Cody Simms (02:10):
In this podcast, we traverse disciplines, industries, and opinions to better understand and make sense of the formidable problem of climate change and all the ways people like you and I can help. Scott, welcome to the show.
Scott Gale (02:25):
Cody, it's a privilege to be here.
Cody Simms (02:27):
Scott, I'm intimidated already because I know one of the things that you told me in a fun fact session this summer when we met at a dinner was that you are a professional voice actor. So given that people are experiencing this just through their ears, I already know you've got me beat in that regard.
Scott Gale (02:44):
So what you're saying is this voice is for sale. This is true. I do some voice acting, and I do a podcast as well, and then also help Rice Business with their podcast. So I find myself behind the mic on occasion.
Cody Simms (02:57):
What are your podcast?
Scott Gale (02:59):
Curiosity. I co-host with Brad Rossacci, who is Day Job's creative director over at Accenture. We've been doing that for a couple of years. We're working with season three right now on Spotify and other places. We've got an Instagram and TikTok. It's a video podcast. And then Rice Business has a podcast called Owl Have You Know, which is a pun because it's the Rice Owls, helps to support that as a member of the Rice Business Alumni Association Board, was a board member and then got wrapped into being a host as we were doing some things. So Maya Pomroy and I co-host that. We don't record episodes together, but every other episode you can find me out there, and that one's a ton of fun.
Cody Simms (03:39):
Can you at least give us one movie trailer classic type of line in your Scott Gale voice for us?
Scott Gale (03:45):
"There was a time, long ago." I don't know.
Cody Simms (03:49):
That's fantastic.
Scott Gale (03:51):
I mostly just do explainer videos.
Cody Simms (03:54):
Well, hey, pretty good. Well, why don't we dive right in? What is Halliburton Labs?
Scott Gale (04:00):
So my day job is executive director over at Halliburton Labs was part of the founding team back in 2020. And for those that are familiar with Halliburton as a primarily an upstream oil field services company, been around for a hundred years, 45,000 employees around the world operating in 70 countries. One might think of us as an oil and gas company, but what's interesting is we're a services company, which means that we do work for the big companies that you've heard of, the BPs and the Shells and the Chevrons of the world. Those are actually more real estate and oil and gas hydrocarbon companies.
(04:38):
And we bring a bunch of manufacturing scale-up engineering disciplines to that problem and in discovery exercise around what are the capabilities that we have embedded in the organization that might contribute to the energy system of the future. Pick your timeline. Five years from now, 50 years from now, the energy system requires engineering and material science and all of these capabilities, and doing that at scale and in complicated areas where it's really cold or it's really hot or it's dusty or windy or all of these things and require total cost of ownership, maintenance cycles on and on and on.
(05:18):
We built an environment for early-stage companies that are working on, I like to say, anything in energy that Halliburton isn't already working on. And so it is a really wide aperture of things that Halliburton Labs seeks to be helpful around. So we're like an accelerator but not an accelerator. We're like corporate venture but not corporate venture. But we're a community of doers that help startups get scale done. And we have 32 participant companies from all over the world solving challenges like industrial decarbonization, grid-scale energy storage, even enablers like drone infrastructure, advanced mining.
(06:03):
Obviously, as the world moves towards electrification broadly, the amount of rare earth minerals that are going to be required, the mining industry has got a long ways to go on how to make that more efficient. So we look through a really wide lens wide and focus on helping these companies who have solved the science, if you will, for the thing that they're working on. But now they're dealing with the engineering problems of, "Okay, I've demonstrated this at watts or grams or whatever it might be, and now I got to make a thousand of them a week." Well, that's a different challenge. So Halliburton Labs is an experience that we've built for early-stage companies to take advantage of those broader resources that Halliburton have at its disposal.
Cody Simms (06:42):
And what does that engagement look like? You said it's not an accelerator. It's not a corporate venture studio. You said 32 companies, I think. How do they engage with you? Is there investment involved? Are there resources available to them, access to Halliburton staff and personnel? Share a bit more.
Scott Gale (07:01):
All of the above. So we just pushed a press release recently. We do that with each cohort. Seven companies have joined, which has gotten us to 32. And the average transaction or deal, if you will, is a safe document, a simple agreement for future equity or a convertible note, depending on where they're at in their race. Typically, a seed to series A company, and we take a small percent of equity as a part of that. We put $100,000 on the table. And then the balance of it is unlimited access to the services and resources and capabilities that we have at our disposal.
(07:39):
And the way to think about it is it's a custom experience for every company. So when we, air quotes, onboard a company, we sit down with them, and we say, "Hey, what does the next 12 to 18 months look like? How do you define good?" And most of them are like, "Hey, we need to raise a round of funding." Or, "Hey, we'd like to get this thing that works at the skid unit level, and now we need to think about making 10 of them, or we need to get demonstration."
(08:03):
Whatever that might be, we create a playbook with them, and then we go to work. We're extensions of their team and get them connected to whether it's internal Halliburton resources that might be helpful, whether it's people in our extended network. So seeking to be actively useful defined by the participant. And so it's unlimited curated problem solving. So it looks different in each case, but that's the transaction. It boils down to a services for equity agreement, but that's the average transaction.
Cody Simms (08:35):
And you mentioned that most of these companies are working in areas that Halliburton is not operating in today from a core business perspective, given that it sounds like there may or may not be direct business development pathways for these companies at Halliburton. But there are presumably functional expertise, support, and resources available. Would that be a correct assumption on my part?
Scott Gale (09:00):
Yeah. I mean, I think this is one of the reasons why we're not corporate venture. A typical corporate venture approach is looking for some strategic tether back to the business. One of the trade-offs in doing that... Respect all of our corporate venture friends that are out there and what it is that they're solving for. One of the trade-offs is that you have to have line of sight to how this technology is going to impact the business, how you're going to get financial returns out of it, et cetera.
(09:26):
And so that naturally constrains the horizon. And so for us, strategically, we're doing this to illuminate, if you will, the value chains that are developing around the energy system of the future. And so it's a bit more of an emergent strategy approach. In that way, we're different. So yeah, I think if that's helpful. I feel like I missed the second half of your question, though.
Cody Simms (09:49):
I would presume you answered my question about are there direct business development pathways. And it sounds like, for the most part, maybe not so much. But I asked if there are functional experts in the company that these startups may be looking to get access to. So, for example, I'm going to make this up.
(10:06):
I don't know if you have a company working in this space, but as I understand it, Halliburton builds a lot of wells around the world from an oil perspective or a gas perspective, and the actual infrastructure of the well itself, the concrete that needs to go into it and the physicality of it. So presumably, if you're a startup in geothermal or in carbon capture that needs to sequester CO₂ down into a well, there are related functional expertise, even if some of those areas may or may not be the areas that Halliburton itself focuses on right now.
Scott Gale (10:42):
So we seek not to be the first customer of our participant companies. And so we actually encourage companies that have expressed interest or have applied who see us through that lens to maybe go spend some time somewhere else and then come back around, maybe have a conversation with our technology scouting organization, which continues to exist that does that work to identify technologies that might improve the run rate business. And one of the reasons that's really important just tactically is around intellectual property. So that's something that we've been very clear about and very founder-centric on is that we don't take IP rights or RoFRs or board seats as a part of this transaction that I was describing. And one of the things that we've put in place that enables us to do that is we keep a distance from creating net new technology together as a result.
(11:36):
But in terms of bringing an expert, for sure, that's a feature of it. And so if you're working on some extension of a product and you need maybe a Ph.D. in material science or specific expertise, then we curate that meeting. And it's something that, "Hey, we're not here to solve your specific issue, but as an expert in the space, here's the things to think about or consider. Here's the design of experiment that you might go and do. Here's some of the principles at hand," and seek to put useful information in front of them in the flow to help lower the friction of where they're going on their journey. And so, certainly, when it's connected to the science of things, sometimes we actually will sign some kind of JDA or something with Halliburton to enable that engagement further if that's something that the startup express is interest in.
(12:26):
But otherwise, our manufacturing organization or our supply chain organization or whatever that may be, can be very helpful working in the flow. These are practitioners whose day job it is to solve big issues and challenges in the energy system at scale. Having a 30-minute conversation with that person can really make a big difference in terms of the problems that they're thinking about and solving and what they go and do. And so it's definitely case by case. But there are some lines of demarcation that we've drawn that are outside of the scope of Halliburton Labs. And actually, one that you mentioned, geothermal, is one because the run rate business inside of Halliburton have done work in geothermal for 35, 40 years actually.
Cody Simms (13:07):
Hah, got it. Sorry for the bad example then. Okay, got it.
Scott Gale (13:10):
No, it's okay. I think it's a really good one because, I think, there's a ton of opportunity in and around geothermal. That's just something that the run rate business is solving for. And so, to the extent that there are early-stage companies looking to do something there, Halliburton labs wouldn't be a fit, but we would help to make connections to them as needed.
Cody Simms (13:27):
Looking on your website, you have some of the recent admits, I guess, or investees to Halliburton Labs.
Scott Gale (13:35):
Participants we like to call them.
Cody Simms (13:37):
Participants. And it looks like you have a few in hydrogen. You have a few in long-duration energy storage. You have one in Perovskite solar panel technology, for example. So you can see how presumably these are companies. As I understand it, Halliburton today itself does not operate in the business of building energy storage, for example. And so you are actually looking at totally different parts of the energy ecosystem for the types of companies that you're bringing in.
Scott Gale (14:06):
It's really just rooted in a belief that the energy system of the future is going to be made up of hundreds of new technologies that, in some cases, don't exist yet. Or one of my favorite quotes is, "The future is here. It's just not evenly distributed."
(14:19):
And so as those technologies scale and start to get distributed across the energy system, not just here in the US but around the world, they're going to face all sorts of different challenges, and there's just not the support infrastructure that's in place for a lot of these.
(14:33):
So as that develops and as that starts to attract the capital that's going to achieve scale, those are areas that we think are unique business opportunities. And so, by working with these companies, we can help them on their journey and illuminate where those opportunities are.
Cody Simms (14:48):
And how did this come to be in the first place? We talked a little bit about Halliburton's core business, but as I understand, it's one of the biggest fracking, for lack of better term, businesses in the world. It's one of the biggest we called it oil-filled services, but as I understand it, that means building wells with concrete and physicality as a contractor to a large oil refinery type of company, for example. And so this extension of its focus into clean energy technologies, solar, hydrogen, et cetera, is not really a big part of the core business of Halliburton today. How did this all happen in the first place?
Scott Gale (15:25):
I would say it started from a strategic question of where is the energy system of the future going and for Halliburton shareholders, what does that mean and what does Halliburton have at its disposal that could add value to that energy system. Then you take a step back and say, "Where does innovation come from broadly?" And there was an effort to look back into history and to study corporate innovation and what works and what doesn't work. And I spent my whole career in big, established organizations. Halliburton's the youngest company that I've worked for in my career, but all doing jobs that didn't exist until I stepped into them.
(16:04):
So this intrapreneurial background and you start to build some patterns and things where I like to call it the weight of incumbency of an organization. The big established companies often have a convergent mindset. They have to, especially when you're setting expectations with your employees that they come home safe, and there's got to be process for things to work the way that they do, and they work on that over time. That doesn't create a lot of opportunity for creativity to come and do something completely different or whatever that might be. And so it's this conversation about how do big organizations innovate.
(16:38):
Why couldn't Marriott have come up with Airbnb? Why couldn't Ford and Chevy come up with Tesla? So a bunch of effort to look back, we looked at Bell Labs and Xerox PARC and these things, and so it was an effort to how do we unlock these capabilities on behalf of early stage companies without messing them up, doing damage? And so the founding principles of Halliburton Labs are founders first giving before you get and learning by doing. These are, in many ways, decidedly not corporate traits in an effort to ensure that we're adding value to the startup community that we're supporting, which we've got a couple of companies here in Texas, but these companies are all over the world.
(17:21):
They're in India, Singapore, Finland, the UK, and so very much a global mindset. And so I think it was originally rooted in a strategic effort to say, "How do we extend the boundary conditions of the organization outside of taking a 50 million dollar rifle shot into the dark on all of these different things?" We can actually activate the capability that exists inside of the organization and start that migration. So I think it was a measured strategic approach.
Cody Simms (17:47):
That's an interesting... It's interesting trade-off for the startups because they certainly don't want to be the information that allows Halliburton to expand its business into new categories. They want to build a giant business themselves, and yet, for them, it's a stamp of approval that this giant energy company sees something in what they're doing that could be the future and wants to lend its resources to helping those innovations expand and grow.
(18:15):
It's an interesting tension in any corporate don't call it accelerator type of engagement because, on the one hand, a lot of these companies are going to win because they can ultimately do business development and grow together. On the other hand, as an investor, you actually are hoping some of these companies break out into massive category-winning successes and maybe unseat some incumbents 10 years, 20 years down the line. You have to believe that's going to be the case. Otherwise, why do it in the first place.
Scott Gale (18:47):
100%. I think that some of our participants have the potential to be big Halliburton customers in the future. I think that the way that the, I keep calling it the energy system of the future just to be inclusive of all of the things that that's going to include is going to require a bunch of different companies that didn't exist 10 years ago.
(19:06):
And so what does that mean? I mean, I think it's an approach, and I think it fits because, at our core, as Halliburton, we're service-oriented. And by making an environment where these startups are effectively our customers, we respond to them effectively, we listen to them effectively, we bring solutions. It's a every problem-solver organization, and to create an environment where startups can take advantage of that, that's been the goal. And now that we're three-plus years into it and eight cohorts and 32 companies, I think that we're proven that out.
Cody Simms (19:37):
And Scott, you were on the global strategy team at Halliburton prior to Halliburton Labs. Was this part of a project that you did in strategy to say, "Hey, we should set this up," and then next thing you know, you're setting it up and getting it off to the races?
Scott Gale (19:51):
So if you touched on a couple of business units that Halliburton have 14 different business units. Certainly, the fracking business, which we call production enhancement, and our drilling business are well-known and appreciated services that we deliver, but completion tools and baroid and cementing business in a number of different groups. Each of them have a global leadership team. I was on the global leadership team for our hydraulic fracturing business. I used to joke that I managed everything that we didn't drive away with after a frac job around the world.
(20:22):
And so, particularly at the time, was a big job. Frac is about as big as the other 13 business units combined. So that ebbs and flows with where we're at in the broader cycle, but was part of a leadership development team that was looking at the core competencies of Halliburton. And the question was how might they be applied outside of oil and gas? So we were looking at stuff like space drilling and all of these different things, lots of different things.
(20:51):
Don't need to articulate all of those. But it was clear that thinking about our core competencies differently versus just the things we do, but what underpinning those things was a project that I had been pulled into, and shortly after got a phone call from the CEO of the company to come and think about it maybe more deeply and stepped out of that role in early 2020.
Cody Simms (21:14):
And I have to ask. You joined Halliburton in 2014. For me, as someone who grew up professionally in the 2000s, I think of two incidents related to Halliburton from the 2000s era that stand out in my mind. One was the Iraq war and the ties to this no-bid contract Halliburton got in Iraq, knowing that then VP of the US is Dick Cheney, who previously had been the CEO of Halliburton. There was a lot of controversy around that at the time, and then Deepwater Horizon in 2010, where Halliburton had been involved in, I believe, working with BP around that well that ultimately had a horrible tragedy there. I'm curious, and there are other things that a Google search about Halliburton can reveal in terms of past issues, every company has them. Halliburton's were very public and relatively recent, relatively recent. How did those things impact your thinking about joining the company when you joined, and do they come up today with startups? Do you feel the company is different today than it was 15, 20 years ago in terms of how it views its own responsibility in the world?
Scott Gale (22:18):
I think, as you've said, the two events that you've referenced predate my time there at Halliburton. But the question being around how did that influence or how did I think about coming to the organization and what might that look like. Certainly, the Halliburton of 2024, I'm assuming when this airs, is quite different than the Halliburton of 20 years ago. Just from leadership tip to tail, the structure of the organization. KBR is no longer part of Halliburton, hasn't been a part of Halliburton for well over a decade.
Cody Simms (22:53):
What was KBR?
Scott Gale (22:54):
The EPC contractor that you were referencing with the Iraq work that was done. So a different organization that is not part of Halliburton moving forward. And as you say, for you pick your big company, people that are doing work to further the quality of life of humanity around the world. We move things. We build things. Whether it's cars or homes or shipping vessels or whatever that might be, there is certainly the work that's done offshore. Oil and gas development is not only one of the... I think major achievements of humanity is our ability to get hydrocarbon out of the earth out in the ocean. If you've ever seen those videos or those environments, I mean the amount of science and technology and rigor that go into achieving something like that, I think there's a lot of analogies that could be made.
(23:50):
And so these are tragic things that happen across different activities in industry broadly. We do everything we can to ensure that those things don't happen, and if they do that they're contained and managed quickly to ensure health safety environment. So again, that specific event I couldn't comment on or the specific activities there. And so asking my opinion actually goes back to a little bit of who I am. Grew up in the Pacific Northwest, Eagle Scout, environmentalist, grew up in a paper mill town, you were either a lumberjack or you were an engineer at the plant. I chose the chemical engineering route and grew up in petrochemicals and developed a deep understanding for the direct connection between quality of life for humanity, whether it's medical plastics or food preservatives or car bumpers or whatever it might be, the problems that we were solving for extended human life.
(24:54):
And that was something that I got really excited about and was in the petrochemical world and saw the potential for US energy independence through the convergence of hydraulic fracturing and horizontal drilling and made a decision in the late aughts, early 2010s that I wanted to get closer to the wellhead to understand what that problem was. And as I did that, discovered that by eventually owning the portfolio that I did, that I could actually make decisions around the portfolio and the makeup of the portfolio that would have a meaningful impact and an immediate impact versus maybe standing outside the fence line, so to speak. And so that's been something that has been a feature of my career is exacting change organizationally and broadly through those activities.
Yin Lu (25:47):
Hey everyone, I'm Yin, a partner at MCJ Collective here to take a quick minute to tell you about our MCJ membership community, which was born out of a collective thirst for peer-to-peer learning and doing that goes beyond just listening to the podcast. We started in 2019 and have grown to thousands of members globally. Each week, we're inspired by people who join with different backgrounds and points of view. What we all share is a deep curiosity to learn and a bias to action around ways to accelerate solutions to climate change. Some awesome initiatives have come out of the community.
(26:16):
A number of founding teams have met, several nonprofits have been established, and a bunch of hiring has been done. Many early-stage investments have been made, as well as ongoing events and programming like monthly women in climate meetups, idea jam sessions for early-stage founders, climate book club art workshops, and more. Whether you've been in the climate space for a while or just embarking on your journey, having a community to support you is important. If you want to learn more, head over to mcjcollective.com and click on the members tab at the top. Thanks, and enjoy the rest of the show.
Cody Simms (26:48):
It's interesting. It goes to the root of even in financial world, there's the question of when it comes to parts of the economy that you may want to see change, is it better to engage or is it better to divest? Is it better to lean in and try to affect change, or is it better to try to starve that thing of resource? It sounds like you lean on the side of lean in and try to affect change.
Scott Gale (27:11):
Well, I'm just a believer that it's hard to just delete an industry. Addition by subtraction is pretty tough, especially when you're talking about energy broadly. I mean, there's trillions of dollars that need to be spent and allocated, and there's a sense of urgency to do that. And the skill sets that are required to go and do that are found in incumbent industries. And so re-skilling people and driving that toward nothing affects change like a scaled organization that's resourced that is making things happen through the channels that they've got.
(27:46):
So I do believe that, and I do think that big companies, in many ways, are in the pole position for making those changes. And I also believe that most humans on the planet are trying to do good. So I straddle both of those worlds, I guess, in that sense in an effort to make that a reality because, yeah, there's a sense of urgency around it. Probably hear this all the time. [inaudible 00:28:07] got four kids. I've got some things that make me think about life through a different sense of urgency. And so where the skillset that I developed and the things that I think about and where I could impact, that's the arena that I chose and came to me and try and make the most of what's in front of me.
Cody Simms (28:23):
I recorded yesterday with a fellow Houstonian, Barbara Burger, who I met at the same dinner where you and I met.
Scott Gale (28:31):
Hey, Barbara.
Cody Simms (28:32):
And Barbara was the former president of Chevron Technology Ventures, and one of the things she said toward the end of our interview really struck me. I don't know if her episode will air before or after yours, so listeners, go find Barbara's episode two if you haven't heard it.
Scott Gale (28:45):
Little Easter egg.
Cody Simms (28:46):
Exactly. But she said, "Look, when it comes to the energy system, we, as humans, collectively we have decided that we want energy to be cheap. We want energy to be reliable." And she said, "And we've added a third requirement, which is that it needs to have minimal footprint. It needs to get to the point of being low to zero emissions and not just emissions but broad environmental footprint." I'm curious how you view that thinking of that as a requirement of the energy system and as something that is a relatively new requirement. Does that align with your way of thinking about it too?
Scott Gale (29:21):
Absolutely. It aligns. It's hard not to agree with Barbara on a lot of things. She's got some really great perspective on it, and I think part of it is sometimes it's easy for us to get in our own world and space and echo chamber and just appreciate that we plug something in, and it turns on and just access to electrons. In many ways, we take for granted broadly the royal we. If you look across the world, you see different numbers, 2 billion, 3 billion people whose annual electron consumption is equivalent to my refrigerator. And there is this human nature of wanting a better quality of life.
(29:59):
You want access to clean air and light in the evening that I can study or electrons to power a water pump so I don't have to go spend seven hours a day delivering water to my community or whatever that might be. That pursuit of electrons and the materials that are required to make all that happen is this constant drive across all of the things that we're talking about and inherent in that is low cost and affordable. So it's difficult to go pay more for if you've got an option. And so the cost of it's got to be there, the reliability of it's got to be there. Obviously, power outages and things are issues around the US and around the world.
(30:43):
Certainly, here in the Texas region, we experienced a freeze which was very well publicized, and that access to electrons is critical, and the responsibility or the sustainability piece of it is important. And it makes me think back to my engineering studies. You draw some boundary conditions around a problem that you're solving for. And if you're balancing a refinery or a chemical plant or whatever it might be, it might be easy just to say, "Well, there's this infinite sink of the atmosphere that is CO₂ where all that's going to go."
(31:13):
And so I balance the plant around that. And what's clear is this idea of carbon accountability, all of these activities that we're talking about, access to healthcare, access to education, access to clean drinking water and food and all these things, it generates fugitive carbon and that carbon we need to be accountable for broadly as humanity. And one of the challenges I see is, Cody, you appreciate if you go and you buy some food at the grocery store, you can see where the calories are. We've got some information around that. But this polo that I'm wearing or the set of sneakers that I'm wearing, I don't know what the fugitive carbon input was as a result of that decision.
(31:53):
I made that decision as a consumer based on limited information. Basically, do I like it? Do I think it fits me? Do I like the style? But I didn't make that decision based on the fugitive carbon that it generated. And one of the things too, I love this, Google search generates an amount of fugitive carbon. An AI-enabled Google search is five times that amount of fugitive carbon because of the server time and all these things on the cloud, and those are things that we don't really talk about or think about enough. So I do think a carbon accountability conversation, particularly at the consumer level, which I think will then be from grassroots up start to drive behavior around that.
(32:39):
And I think if we're able to marry all three of those things that Barbara's talking about, then I think the carbon impact of a decision measured against the reliability and the cost of it, we might make some different trade-offs and say, "Okay. Well, I'm going to choose the bit more expensive lower fugitive carbon option because I can rely on the information around that." And so I think until we get there, it's going to be difficult to achieve that at the scale of humanity. I think we'll be able to do it in certain states where maybe legislation drives that or subsidies drive that, but it's a root cause of the problem that we're all trying to solve.
Cody Simms (33:18):
I mean, to get to that at scale where every human can make an informed choice requires the data to be there, which some companies are going to fight tooth and nail around, even if they're the most well-intentioned company in the long term. In the short term, they may be behind the eight-ball in terms of their data relative to their competitors. It feels like we're in the world of regulating that type of data to become available if you ever want to get it to a tipping point of happening. Do you disagree with that?
Scott Gale (33:47):
I don't disagree. I think there's definitely barriers and challenges to it, and I think there's going to be advantages and disadvantages of how that data is ultimately aggregated and shared and buying decisions are made. But I think that it should be a self-reflective thing for each of us. The daily decisions that we make in excess are contributing to fugitive carbon broadly, and consumer behavior is ultimately going to dictate where all of that goes. If I buy a EV just broadly, well, that purchase drives downstream effects across the value chain because I bought some tires and a drivetrain and a battery, and there's glass in there and all those things. Well, all those materials had to come from somewhere, and they were manufactured at scale somewhere.
(34:32):
So if I choose a different decision, maybe I'm going to set up my life in a way where I can ride my bicycle, then that decision will have those trickle-down effects. I'm voting with my dollars. It's not a solution to the entire thing. But I think that it's contributing in such a way that it's easy to forget that, hey, there's a US or a Europe challenge where generally the quality of life is at a different threshold where other countries around the world maybe are thinking about it differently, and they don't care if those electrons are coming from a coal-fired power facility. It's I no longer have a lung disease from burning animal dung and biomass in my home. So lots of problems to address, but a long way to say that I do agree with Barbara that those three things have to come together.
Cody Simms (35:19):
When it comes to emissions, though, energy is obviously, by far and away, the largest contributor to carbon emissions in our environment today. What do you think the role of oil and gas looks like in society from an energy perspective over our lifetimes? Do you believe there is a phase-out of oil and gas to use the COP 28 language I guess that was adopted that's realistic to see in our lifetime? Or let me put this a different way.
(35:48):
Over history, humans have been really good at adding new sources of energy. They've been really bad at retiring their use of any source of energy. Biomass has actually held a fairly consistent amount of usage over the course of human history. We've just tacked on coal, and then we've tacked on oil, and then we've tacked on natural gas, and now we're starting to tack on renewables, but the curves almost never bend downward. I'm curious how, in your perspective, what you think that will look like.
Scott Gale (36:19):
I do think that a lot has to go right if you're just going to delete the existing oil and gas industry in part because at least the conversations that I've heard of and I'd be interested in your thoughts on it, is we talk about the electrons part of the discussion is how do we get power delivery and the role of wind and solar and chipping away at that, which we've made a bunch of great progress on. We forget about the molecule side of that. And if you're going to trace back, pick your favorite product in your home, whether it's clothing or food packaging or the roads we drive on or whatever it might be, hydrocarbons play a really important role as a feedstock in all of those.
(36:59):
And I think we've made less progress around that at scale. And so that certainly leads me to believe that hydrocarbons, as a part of not just the energy system, but broadly contributing to the quality of life of humanity will probably play some kind of role into the future. I think even if you look at the 2050 scenario, the size of the slice of the pie that hydrocarbons take will be smaller, but because the pie is growing, to your point, it will probably experience growth, and that might upset some people and feel like we're moving in the wrong direction in that sense.
(37:35):
But I think if the population of the world continues to go in the direction that it's going and the demand for things that we're talking about continues to move in that direction, I think we need to find a way to get to a fully decarbonized future. And that 2050 slice needs to be made up of activities that are fit for this carbon-accountable future, so to speak, is my opinion, Scott Gale's opinion around that. But I think that it's real, and I think that there's things that are moving in that direction. Again, this is an aside, but I think that nuclear has to play a really important role on the electron side of the equation for us to make a dent in that.
(38:15):
And there's in that, I think, there's a lot of interesting technologies that are out there that are going to help us make some progress in that sense. But yeah, I think hydrocarbons are going to play an important role in industry and the generation of electrons in my lifetime, probably my kids' lifetime. Now, is the fugitive carbon associated with lifting a barrel or producing a finished product? That needs to go to zero. I mean, I do think that we need to get to this net carbon space, but I don't know if all those technologies exist yet, but I think we're solving for the right things.
Cody Simms (38:48):
So that would lead me to assume that, in your opinion, then that requires significant investments in carbon capture and storage in order to help the existing hydrocarbon industry operate with a lower emissions footprint, getting to a zero emissions footprint as much as possible.
(39:08):
And to the extent it is going to require either policy levers to enable that to happen because just adding expense onto the current load, and we already said one of the requirements was cheap of energy, or it's going to require these technologies to get supplanted by renewables, almost one of the other it would seem.
Scott Gale (39:28):
I think the reliability piece of it is going to be one of the challenges. Dispatchable electrons is something that, unless you believe in long-duration energy storage broadly, but there's challenges around the technology. I'm optimistic that I think that we'll figure it out. But if you look at the technologies that contribute to that, I mean, those are significant barriers. I think that thinking about that at scale is going to be difficult. And if you trace that back to, "Okay, well, is it battery-driven? Well, what's the volume of rare earth minerals that are going to be required to make that happen?
(40:00):
Do we even have the mining capacity around the world to be able to do that and achieve that?" I think some of those questions start to come in mind. But reliable dispatchable energy, again, I think that's where nuclear helps because to your point of the hydrocarbon's contribution to humanity's fugitive carbon problem, even if you deleted the oil and gas tomorrow, it probably solve less than 30%. So you still have steel and concrete and ag and all these other things that are belching CO₂ into the atmosphere, which we got to go, whether it's capture or upcycle or figure out things to do around that.
(40:35):
So yeah, I do think that carbon capture will play an important role. I love technologies that are doing things that are upcycling that carbon and making use of it, and I think that having more of a circular approach to what we do as humans, I think, is likely to be the more sustainable feature of it. I also think that there's going to be a lot of money that's spent on a lot of things that are going to prove to not work when it's all said and done. And so I think that we have to maintain the urgency and then also be mindful about where is all of this leading. And those, I think, are important questions to really flesh out where the trends are going to head.
Cody Simms (41:15):
Well, I appreciate you sharing your point of view on how this all happens. And each one of us has our own opinions and points of view, and it's going to take lots and lots of people and opinions and points of view to drive change because we're talking about massive global systems-scale change here.
(41:31):
But you sit in a fairly highly leveraged place in that you are doing this together with Halliburton, which is this very large business in the hydrocarbons world. And so, given all of this context, can you share a bit more about specific technologies. As you look forward in the next few years of the work you do at Halliburton Labs, what are things you're really excited to see more of out there?
Scott Gale (41:56):
I take a pretty agnostic wide aperture lens on it because I really do think that for the demand on electrons, the demand on materials, all of these things, I think it's a yes and approach. I think the more that we're delivering around that and the more conscious we are of the footprint associated with it is going to lead to a better space. I've talked about nuclear. For me personally, I just think we've never created anything that is that energy-dense as humans. And when you just look at the footprint and all of the, I like to call it the carbon outlay that's required.
(42:29):
If you're going to put a wind turbine in the ground or solar panels or a nuclear power plant, you're going to get the carbon payback faster as a result. Again, there's around that. I do think that in the near term carbon capture and where 45Q and the IRA and the opportunities to subsidize or ensure that that starts to achieve scale, I think there's going to be a bunch of money made in that space. But I think too, again, the materials side of it is something that we need to make progress on. And so I think certainly we've got an electrons challenge, but the materials piece of it is going to be tough.
(43:06):
And that's one thing about the scope of Halliburton Labs that is implicit, but just to make it explicit is we are focused on hard tech, the ones and zeros, the software. There's lots of technology that's being developed. There's a lot of humanities. Brain trust is focused in that space, and it's just a smaller community that's focusing on the hardware broadly. And so I think that there's a bunch of opportunities to solve challenges and issues there.
(43:30):
It just takes time. It's tough to prove that out and build that up at scale. So energy storage, managing and dealing with fugitive carbon broadly. I think decarbonizing existing industry and being smarter about, I think of the opportunities in concrete, in steel, in ag to do all of those things more sustainably, I think are going to take really big swipes at the carbon problem broadly. So I get excited about a lot of those things.
Cody Simms (43:56):
Scott, you are in Houston. You're running this program that you mentioned these companies are global, but Houston is the epicenter of this program. What are you seeing in terms of the innovation ecosystem around energy, around climate tech, if you want to call it that, in Houston, and how has it changed in your time having lived there?
Scott Gale (44:17):
Man, I'm super bullish on Houston. Literally this week, a bunch of co-conspirators and organizations around the Houston community the week of September 9th in 2024, we're going to do a name pending, but like a Houston Energy Startup week that's focused on climate and sustainability and energy technology companies. And so the collaboration that I think happens across Houston is such a key feature, and that's just inherent in the way that these big energy systems are invested in and run. There's no single organization that's going to be able to get it up and off the ground.
(44:53):
And so there's all of these people, and employees and companies, and they're all used to collaborating. And so it's a really easy thing to make work. I think that the incumbent skillsets that are here in the Houston area particular, but across the Gulf Coast, like to call the third coast. Senator Mary Landrieu likes to call it the first coast, but the skill sets that are here, people that understand energy at scale, and the deep science and engineering skill sets. Houston has the largest medical center in the world. It's got NASA. And so, the talent density that exists here, I think, is a super interesting ingredient.
(45:31):
I think that raising awareness around the capabilities that are here is a big part of what's going on. I think that you've also got organizations and people that are just accustomed to delivering cheap, reliable energy around the world and ready to do that in whatever form the future system looks like. So I'm really bullish. I think you've experienced it. You've come to Houston and seen some of the action and the activity, and I think it's maybe discounted from those that maybe think that there's not anything to offer because it's those guys and gals.
(46:02):
But I think that if people will spend the time here, and that's one of the things we're trying to do is make it easy. Don't miss it week in Houston [inaudible 00:46:09] be the week of September 9th. Halliburton Labs will do our finalist pitch day event. Rice does a big energy tech venture forum. Greentown Labs and other co-conspirator organizations will do some things to convene the startup community.
Cody Simms (46:21):
And I'm curious building startups so hard, and when I think of what it takes to build a successful company, there are a few different ingredients. Certainly, if you're in hard tech, you need to understand the actual technology that you're building. You need to have the partnerships and relationships with industry. In most cases, most of these companies aren't going to build in a garage in a corner and launch and go disrupt the world like maybe a software company can do. They actually need to build and engage through partnerships and co-development and things like that. And then you also need that entrepreneurial assumptions-driven quick to learn type of skillset.
(47:00):
And frankly, in many cases, the ability to raise a ton of money. And I've seen different, very high-level generalizations that if you come out of Silicon Valley, you're probably fluent in the world of venture capital. You're fluent in the world of build, iterate, quick learn. If you come out of academia or industry, you're maybe more fluent in the technology, you're more fluent in the industry, but you have a lot to learn in terms of entrepreneurial skill sets. I'm curious how you're seeing that play out in real-time in Houston. Those are horrible generalizations, but they're not unfounded, I think, in terms of archetypes of builders out there.
Scott Gale (47:44):
I think you said it, being a founder is hard. Entrepreneurship is crazy tough. It's a way of life, and not everybody's cut out for it. I think you can learn a lot of things from people's scar tissue and experiences to make that easier. But entrepreneurship is tough. And for us, Halliburton Labs, that's why we say founders first. Everything that we're solving for is, does this help an entrepreneur? And I think that's an important place for a corporate to be if they're going to engage with the startup community because, otherwise, this weight of incumbency just, it doesn't leave enough elbow room for the startups broadly.
(48:16):
And so I think also, and I'll credit Erik Mitisek, one of the co-founders of Denver Startup Week, he said this, and I really like it, is, "There's four broad stages of building a company. And it's you start it, you build it, you scale it, and then you operate it." And not every entrepreneur, founder, CEO is able to follow a company through all of those steps. So starting in building an early stage hard tech company is quite a bit different than scaling it and operating. And we actually see a lot of that where there's a CEO change that happens when it's time to scale and manage the issues that are related to front-end engineering design and all these things to make sure that this new piece of technology doesn't disrupt the reliability of the system that it's going to enhance as one example.
(49:05):
And so I do think that you've got an above-average talent base in Houston that is capable of scaling and operating. I think it's about merging those things. I jokingly say this all the time. The next dog dating app is not going to come out of Houston. The deep coding capability, it's focused in other places then the consumer features that are out there, which all are important parts of the economy, broadly. The skillsets of how do you take something to scale and have the ability to put that on a path that's a project that's maybe 5, 8, 10 years before it achieves its stated outcome, it's a challenging thing to iterate.
(49:46):
And there's a lot of conversation about does the venture capital model fit with that and where does it fit. Because, like you've said, it's a quick turn. Time is money, money in, money out, and work through that. And there's some differences in that. And so I think that there is a deep understanding across the third coast of what that looks like. It might not be venture scale returns, but it's 4, 5, 6, 7, 8, 10 x things. I think we're starting to see funds rally around that, and LPs have interest in exposure to that upside.
Cody Simms (50:17):
On that note, are you starting to see more financial interest in early-stage infrastructure finance?
Scott Gale (50:24):
It's a super specific question. I mean, I do think that there's interest. I think there's some cyclicality to it. I think that particularly the last 12 months have been pretty difficult to raise funding. I think the SPAC trend generated a lot of outsized wealth for people that got in at the right time, but there's a few more than a few that have fallen apart as a result.
(50:45):
And we haven't really talked about this, but as an angel investor, myself and other things have been part of organizations that underwrote SPACs, and one did great. One didn't go anywhere, but it's this idea of creating liquidity. What does that look like? And it can be tough. But I think the people that understand cycles and how to manage through that and where the pitfalls are, the ones that are going to be in the pole position to not only benefit from the upside around that but also to navigate all this technology through and into the incumbent system so that it can get inhaled in scale.
Cody Simms (51:17):
It feels to me like Houston has a significant number of family offices and folks that have made money financing infrastructure around oil and gas in particular. And now you have new technologies in whether it's hydrogen, whether it's carbon capture, whether it's geothermal, whatever it may be that needs significant infrastructure financing. They're not yet wholly de-risked.
(51:44):
You can't show a proforma and say, "Here are our first four factories. We just need to build the fifth one or our first four plants. We need to build the fifth one." It's, "Here's what we think the first plant's going to do. Do you want to fund it?" And it's not venture capital. It is infrastructure finance. And I am hopeful and optimistic that market will develop, and I feel like Houston is a great place for that to start to see traction in the financial community.
Scott Gale (52:10):
I think there's great efforts underway to activate that capital in that sense. I mean, I think this is an unfair statement, but a lot of folks that have made their money in oil and gas and trading and real estate around the Gulf Coast area, I often joke that they either plow that back into something that they made their money on, or they go buy a ranch, and they disappear. It's not really the same entrepreneurial recycling of resources that helps the community get up and running. The startup community broadly, I think that also, obviously, the IRA and other government funding helps to clear a path for some of those things, but that requires time to understand where those opportunities are. It's requiring time for the government to put the infrastructure in place to actually start writing checks around that.
(52:51):
And so a lot of that is being digested, and I think, moving in the right direction. But as that gets done, that's certainly going to unlock capital. I was just talking with a VC friend that they set up shop in a mid-market town, and by leading rounds, it just unlocked all this follow-on capital, and they've been incredibly successful in being able to bring a little bit of that venture skillset and then unlocking the family office capital and other things to follow along. And I think there's a ton of interest in people wanting to learn from that and be a part of that. So it takes a bit of time to experience that and get that educated. But also, it takes, like we've been saying, 5, 8, 10 plus years to see the financial return on it, but definitely vectors pointed in that direction.
Cody Simms (53:35):
Well, Scott, I'm conscious we've had a nice long chat. You've been gracious with your time and willing to tackle a bunch of different topics. What else should I have asked, or what else should we make sure to hit on before we say goodbye today?
Scott Gale (53:47):
Oh, man. Well, Cody, it's been a privilege. I mean, I think certainly, if others have questions around Halliburton Labs, I'm active on LinkedIn. I encourage people to track me down. Love the conversation. Part of the Forward VC Climate Techies group, we're putting together quarterly meetups in Houston to continue the conversation and identify opportunities, curate collisions for people across the entrepreneurial ecosystem.
(54:09):
Maybe you should have asked about my film investing, but we can talk about that another time. Picked up a couple of co-executive producer credits along the way, have a lot of things I spent my time on in addition to in my small corner of the universe, helping advance, bringing the future of energy forward faster.
Cody Simms (54:26):
I love that. I will go on record here saying that producing a documentary is actually a bucket list item of mine that I've not yet done. So that's cool that you are involved in financing film production.
Scott Gale (54:38):
We'll have to do a part two, Cody, and we'll have to figure that out.
Cody Simms (54:42):
I love it. Well, Scott, I super appreciate you joining, and thanks for your time today.
Scott Gale (54:47):
Thanks, Cody.
Jason Jacobs (54:48):
Thanks again for joining us on My Climate Journey Podcast.
Cody Simms (54:52):
At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos and unleashing problem-solving capacity.
Jason Jacobs (55:01):
If you'd like to learn more about MCJ Collective, visit us at mcjcollective.com. And if you have a guest suggestion, let us know that via Twitter at MCJPod.
Yin Lu (55:14):
For weekly climate op-eds jobs, community events, and investment announcements from our MCJ venture funds be sure to subscribe to our newsletter on our website.
Cody Simms (55:24):
Thanks and see you next episode.
