How Liberty Energy Plans to Power AI Data Centers and Dominate U.S. Energy with Gas + Nuclear

Full Transcript:

Stuart Turley – President and CEO – Sandstone Group [00:00:07] Hello everybody. Welcome to the Energy Newsbeat Podcast. My name is Stu Turley, President, CEO of the Sandstone Group. I’ll tell you what, right now in the United States energy area, we have several critical things that have to happen and becoming energy dominant starts at home. And today I am visiting with Ron Gusek. He is the CEO over at Liberty energy. Thank you for stopping by the podcast, Ron.

Ron Gusek – CEO at Liberty Energy [00:00:33] Ah, great to be here, Stu. Appreciate you having me on.

Stuart Turley – President and CEO – Sandstone Group [00:00:35] Hey, you just got through with a great investor’s presentation. Tell us about that.

Ron Gusek – CEO at Liberty Energy [00:00:40] Yeah, just over at Enercom, you know, of course, always exciting to have an event in Denver. More often than not, we’re traveling elsewhere to do those things, but I still have a great energy presence in Denver and so love to have a home event here. It was, I think, huge turnout for them. So great to see everybody there and share a bit of the Liberty story.

Stuart Turley – President and CEO – Sandstone Group [00:00:58] Fantastic. I’ll tell you, I thoroughly enjoyed working at Intercom over the years. In fact, that’s where I met Chris Wright a long time ago. And he formed, actually helped form the podcast because his presentation on humanitarian needs really changed how I think our podcast has become. And that is we need to deliver the lowest cost kilowatt per hour to everyone on the planet with the least impact on the environment. That only happened because of Chris right. So, you being there to carry that forward is pretty darn cool.

Ron Gusek – CEO at Liberty Energy [00:01:33] That’s great that you mention that. Of course, the Bettering Human Lives story has been an important one for us now since 2021, I guess, was when we first launched that initiative and we carry on that legacy today. We’ll continue to publish that book that supports all of that work. And I’m excited to continue to carry on that message and even more excited that we now have Chris and the Secretary of Energy’s role and being able to share that message from a much, much bigger pulpit.

Stuart Turley – President and CEO – Sandstone Group [00:01:57] I’m going to say, I’m gonna go out on a limb. You’ve got some pretty big shoes to fill, Ron. And I’ll tell you right now, I think we have the single greatest secretary of energy, but we now have the three horsemen of the energy dominance apocalypse with Lee Zeldin, as well as Doug Burgum, you put those three animals together and we will achieve energy dominance.

Ron Gusek – CEO at Liberty Energy [00:02:23] Yes, I think great things are happening up there and fantastic to watch from afar and look forward to seeing what the next couple of years hold with them together.

Stuart Turley – President and CEO – Sandstone Group [00:02:31] But you know what, Ron, we would not, they would be not able to make energy dominance without great oil field companies like Liberty Energy. Tell us what’s going on at Liberty. And before we get started there, I wanna give you a shout out for continuing the great Liberty branding for your employees. I was in Shreveport, Louisiana, and this was cool. I’m just, I pull up and there’s actually four Liberty trucks. Pulling into the hotel at the same time. So I’m just checking in behind them and I’ve been in around the oil field long time and I know. What oil field people are like. They’re good and bad and they are classy. Their trucks were clean. They were happy employees. They were talking professionally. I had a great conversation. And that is when they don’t know that an investor is actually looking at them. And as an investor, I like investing in Liberty and I like seeing quality people just checking in off duty. I just wanted to share that with you.

Ron Gusek – CEO at Liberty Energy [00:03:36] Well, thanks. That is a great story, and I really appreciate hearing that. You know, certainly if you know the Liberty history, the whole foundation of the company was around creating that culture where we would attract and retain great individuals and have those individuals all feel like they were contributing to a very, very important mission together. We were all aligned in that, and so it’s awesome to hear that you see that out in the field firsthand. That’s pretty cool.

Stuart Turley – President and CEO – Sandstone Group [00:04:00] And again, congratulations, because you are doing a fabulous job. And I’ve always had a saying when I look for investments in companies, good management equals good numbers. You’re going through some tough times right now, but you’re still at a free cashflow from what I understood after I wrote an article on your Q2 earnings report and it was going through there. So tell us about what you got going on there.

Ron Gusek – CEO at Liberty Energy [00:04:24] Yeah, lots of exciting stuff. Of course, we’re now 14 going on, 15 years old, I guess. We’ve been through a couple of pretty good downturns in a bit of a soft patch again right now. But I think one of the great things about where we find Liberty today is we’ve worked awfully hard to figure out a way to make the company more resilient through these ups and downs. And if you think back. 15, 16, we had the opportunity to acquire Sanjel, the COVID downturn, we completed the Schlumberger transaction. Those things along with a number of other things have built for us a more resilient company. We’ve got some vertical integration, a little more breadth in our business with wireline services and things like that. And that ultimately means that when each time we go through one of these more challenging stretches, the company’s just a bit more resilient and better prepared to weather it. And so even today when… Pricing’s not ideally where it would be. There’s a bit more white space on the calendar. Our financial position is really quite strong, and so that’s a testament to the hard work of everybody at Liberty and the work the team’s done, I think just to put the company in a different spot from an oil field services standpoint. We’re embarking on some other exciting chapters too. Of course, we’re never a company that wants to stand still. We’ve done a huge amount of work on the technology side on the. On the Frac side of our business, taking some of the learnings from that specifically around power generation for electric fleets and leveraging that expertise, that supply chain, that capability to start a power generation business for non-oil field services applications. Primarily, it’s going to be data centers and things like that. Of course, you read about that in the news today, all the gigawatts of incremental power we are going to need and we see ourselves as naturally positioned to play a role in that. So that’s gonna be a big new chapter for us.

Stuart Turley – President and CEO – Sandstone Group [00:06:03] This is exciting because, you know, the, the great department of energy, speaking of Chris, right. They put out a, a really eye opening report just a little while ago where they’ve got, we’ve got 22 gigawatts nuclear and natural gas power coming online, but we need 200 gigawattes. So there’s a hundred and I’m sitting here, I went to Oklahoma state. And so I’m actually in Texas, but the math was not math-ing up, I’m like, we need a lot more power.

Ron Gusek – CEO at Liberty Energy [00:06:35] The Delta is phenomenal and I mean you’ve heard Chris and probably others in the administration call this AI race the next Manhattan project for us, something that we cannot lose. We’ve got to be in first place there and you know of course for all of the tech companies to do their work they need they need electricity. We’ve had some. Arguably some policy decisions in the past that probably haven’t put the grid in the best spot to support this growth going forward and you know that’s that’s not a great situation but for us that’s opportunity that provides a path for us to to take the skill set expertise capability we have leverage that and play an important role in in delivering more energy and the dominance that we require there so excited to be a piece of that puzzle.

Stuart Turley – President and CEO – Sandstone Group [00:07:15] So on your Liberty Energy piece of your financial statements, you’ve got a new group now that is looking at building micro grids for businesses so that you can put data centers behind the meter. Did I say that correctly?

Ron Gusek – CEO at Liberty Energy [00:07:30] You absolutely did. So we launched Liberty Power Innovations a few years ago. The first part of that, just to support ourselves, of course, as you transition to primarily natural gas fueled frack fleet, and in some cases, electric pumps, the power generation and the fuel to supply those are critical inputs. And we viewed those as so important that we felt we should control them. So we’ve spent a few year now, four or five years, really building up that expertise. And now you take that and you extend it beyond. Our core world of oil field services and apply that to data centers, commercial and industrial opportunities, remote mining as we think about reshoring, minerals mining, all of those things are opportunities that require massive amounts of power and we have a, I would argue, maybe a different approach to building the grid up than has historically been the case. We’ve traditionally thought about big large power plants and using wires to get electrons where They’re needed in And now, to your point, we have this idea of behind the meter, maybe more modular, more nimble approach. The construction timeframes are not as long, and so rather than three or four years to see a power plant get built and come online, 12 to 18 months, and we can have a data center up and running with a few hundred megawatts of power to supply it. And ultimately, when the grid gets there, provide not only support for the data center, but also some additional support to the grid. So it’s a pretty exciting story that the oil and gas industry, I think, is going to play a big rolling.

Stuart Turley – President and CEO – Sandstone Group [00:08:54] This is huge because I, I’ve been writing, I have been basically saying that there will be those that have the micro grid and their own destiny in energy outlined. And if you’re a CEO of a organization and you don’t understand that you got to have a, a backup generator for your core infrastructure business lined up. You could end up being failed by some piece of the failure of the grid, because I believe there was something like a 200% increase in potential blackouts coming on the grid. Thanks to previous management and Chris is trying to put band-aids on the RID

Ron Gusek – CEO at Liberty Energy [00:09:39] Yeah, I think that’s absolutely right. And I think now you’re seeing some of those big companies recognize that even the commercial proposition, in terms of their long-term cost of energy, looks pretty attractive if you control the power supply yourself. Of course, when you’re on the grid, you’re subject to whatever decisions get made there, whether or not they make your life better or not. Everybody shares the cost of a big transmission line being built or. Or whatever additional infrastructure is coming online, when you make a decision to put power behind the meter, once that power plant is built, really your only variable is the cost of fuel, and certainly there are opportunities to lock that in as well. And so I think if you think about the idea from the prospect or from the position of the data center holder, you really have an opportunity to ensure you know your power price for the next five, 10, maybe even 15 or 20 years. That looks pretty compelling, I think, versus, you know, I’d argue power prices on the grid certainly climbing faster than the rate of inflation today. And so, I see it as a real growing opportunity and something that’s gonna be a big, big piece of power generation in the United States going forward.

Stuart Turley – President and CEO – Sandstone Group [00:10:46] Wow. Now who are your potential customers that when you run as a CEO, you’re telling your sales guys, go get me new data center clients. Who would some of your guys go after?

Ron Gusek – CEO at Liberty Energy [00:10:59] Well, there’s pretty big range there. I’m learning quickly too how big this data center market is and how variable it is. You have opportunities that are small, very modular data centers where somebody has packaged maybe a half a megawatt or a megewatt of compute power in effectively a container. And they can bring those wherever you need them and maybe layer up three or four or five of those. And so in that case, you have a very small application. Five, 10 megawatts or something like that. And then at the opposite end of that scale, of course, what you often read about the news in, these gigawatt scale, many thousand acre campuses. And then you have everything in between. And so our customers, the people we’re having conversations with range from those very, very small, more modular applications to… Much, much larger permanent installations of large data center campuses, and of course, all over the place. Texas is a hotspot for these conversations. The Northeast, also a popular target. I think the end users are recognizing we don’t need to go where the power is, we need to go with the natural gas is, and with access to natural gas comes access to electricity. And so of course those two areas attracting a lot of attention, but gosh, Utah, Nevada, North and South Dakota, I mean all over the place there are. There are interesting conversations going on around getting data centers built. So it’s exciting.

Stuart Turley – President and CEO – Sandstone Group [00:12:18] I love the forward thinking of Liberty Energy in the way that you think I had to really question whether or not an electric frac fleet was actually a smart decision years ago. But then after realizing that nuclear is actually small modular nuclear reactors would a lot of sense in the field. I got to visit with the CEO of energy company just recently and nano nuclear energy. And he was an absolute cool cat. They’re, they’re, they’re wanting to build a hundred micro reactors a year very quickly. And I think that they’re going to that kind of technology and rolling forward makes an electric frack fleet, a vision, a visionary move as opposed to a head scratcher.

Ron Gusek – CEO at Liberty Energy [00:13:07] The that nuclear world is going to be an exciting one. And of course, the administration very, very supportive of that as well. I think there was just an announcement out of the federal government, maybe a week or so ago that they had picked a handful of small modular nuclear players that they are going to support in the development of as we have these conversations with end users for electricity. Of course, that’s an important piece of the puzzle for them to is, is a path to slightly less carbon intense electricity down the road, recognizing that may take some time. We announced a partnership with Oklo, one of the more companies. And, you know, of course the customers want a fixed in-service date. They want to know that on January 1st, 2028, they can start their data center up. The SMR world, not quite there yet, not quite ready to be providing firm in- service dates for commercial reactors. And so we, with natural gas-fired power generation, can offer that firm in service date, an absolute start date to get the data center up and running. And then when Oklo gets their Aurora powerhouse commercialized and ready to go, we’ll layer in that nuclear underneath as base load power generation. We’ll keep the gas on top as the beaker plant to absorb the ups and downs, the massive transient loads in the data center and potentially participate in the grid as well. It’s a pretty natural partnership, nuclear and natural gas together. I think you’re going to see lots more of that as well

Stuart Turley – President and CEO – Sandstone Group [00:14:22] I’ll introduce you to the folks over there at nano nuclear because I’d also love to interview the CEO over there, at the, the firm that you just mentioned because

Ron Gusek – CEO at Liberty Energy [00:14:31] Yeah, I could get you connected with Jake for sure.

Stuart Turley – President and CEO – Sandstone Group [00:14:33] How cool because this is an exciting time because I can see you dropping in those natural gas resources and then spinning up and then being able to drop in a nuclear microreactor right next to that microgrid behind the meter problem solved.

Ron Gusek – CEO at Liberty Energy [00:14:51] Yeah, yeah, it really is an exciting looking future. So I, you know, I don’t, of course, you don’t know what 2035 looks like, but I would love to be saying at that point in time that Liberty operates a nuclear reactor. I just think that’d be the coolest thing in the world.

Stuart Turley – President and CEO – Sandstone Group [00:15:04] Well, you know what, there’s a, you could white label it from, you know, Oklahoma or nano nuclear and just put your label on it.

Ron Gusek – CEO at Liberty Energy [00:15:11] Yeah, we’re not going to build one, of course. That’s for people way smarter than me to navigate. But I think it’d be pretty awesome to have that in our power generation portfolio.

Stuart Turley – President and CEO – Sandstone Group [00:15:21] And I think this is a perfect example of energy dominance and what it’s going to mean, because everything that you and I just talked about is going to lower the cost for consumers in the United States. Because right now the number one source of inflation is the electrical grid pricing problems like New Jersey is having right now. They were there, people had four or $500 power bills and now they’re paying eight, $900 power bills because of the distribution costs of a Democrat run. System is causing very high prices. It’s not the natural gas prices. And it’s not the nuclear. I mean, and I’m sitting here kind of going, what is it? So you start dealing into it. It’s all of the cotton pick and it’s like Gavin Newsom destroying the energy in, in California, having same management where you put your data center is very critical.

Ron Gusek – CEO at Liberty Energy [00:16:25] Yeah, these are very solvable problems. We should not have expensive electricity in the United States. And it really is unfortunate. We have states now where people are being put in a position where their energy bill is that high, you know, California is the perfect example. I think highest adjusted poverty rate in, in the United States in a country that are in a state that’s blessed with abundant resources.

Stuart Turley – President and CEO – Sandstone Group [00:16:47] Absolutely.

Ron Gusek – CEO at Liberty Energy [00:16:48] That didn’t have to happen.

Stuart Turley – President and CEO – Sandstone Group [00:16:49] Both of us, and for our podcast listeners, both Ron and I are sitting here shaking our head. We almost look like those dogs that are on the dashboard of a car because we’re shaking their head. No, we can’t believe what has happened in some of these bad energy policies. And I’ll tell you what, this is an exciting time for investors to look at Liberty Energy. What is your NASDAQ?

Ron Gusek – CEO at Liberty Energy [00:17:12] Symbol out there. So we are LBR, and that’s where that’s the ticker you’ll find us under. And yeah, I, you know, of course, I try not to look at the stock price too, too regularly, but it reflects the current environment we are in an oil field services, which is a bit of a one.

Stuart Turley – President and CEO – Sandstone Group [00:17:27] But you know what, I’m, I, I’ve always said this and I’ve always made money on good management and good numbers. That is a tag line that I have been very, I don’t invest in companies where I find bad managers. And I like what I see when I look at the charts on Liberty. So I’m just saying I’m a fan out here. So, cause I, wrote a very nice article that see it was dated August 10th. So, you know, I, I watch your stock like a, uh, hawk and it’s a very good, good one to follow. What do you see coming around in the next quarter? A couple quarters for Liberty.

Ron Gusek – CEO at Liberty Energy [00:18:09] Well, a tale of two different stories, really, there. We’ve got the oil field services side and of course, with WTI where it is, and even natural gas, pretty soft right now, we’re back under $3. You know, that has the back half of the year with a little more white space on the calendar, and that’s okay. When you have a supply-demand imbalance, the quickest way to fix low oil prices is low oil price. That reigns inactivity, we see the supply- demand imbalance get corrected and … And then we get prices back to where they need to be and activities start to climb again. So we’ll live through a little bit of a correction here while those things sort themselves out. But I think we’re very well positioned to weather through that. Of course, we always keep the company very lightly levered. And so a bit of a downturn generally for us represents opportunity. We’re going to go looking for things to make the company even stronger headed out the other side of this. And then the other piece of the puzzle is power. We’ve ordered our first 400 megawatts the power generation. We’re the team’s working hard at making sure we’ve got great homes for that, and excited about what that’s going to look like over the coming quarters and years.

Stuart Turley – President and CEO – Sandstone Group [00:19:12] You know, see, as a, as an analyst, I’m sitting here taking a look and saying, if you get your power generation behind the meter business running, that could flatline your financials through the ups and downs of the other side. This is brilliant management. And I’m sorry for being nice to you right now. I guess I should be mean. I don’t know, but that is brilliant. Management for being able to have a steady stream of income. Once this is off and running and there is a huge demand for your services right now.

Ron Gusek – CEO at Liberty Energy [00:19:47] Yeah, I think you’ve described it exactly right. Of course, oilfield services, highly cyclical. We live through big, big peaks and deep valleys in some cases. But if you set your business up well, you can navigate those things. The power generation business absolutely looks a little different. The contracts are longer in duration. The cash flow is far more stable. The returns are probably a little lower. You know, of course, we aim for a three year cash on cash payback on an asset in oilfield, services and frac, just given the volatility of the market there. In power generation, that probably stretches out to five-ish years or something like that. So a slightly lower return, but far more stability to it. And you think about the synergies that those two things bring together. Yeah, I think that’s gonna put the business on an even stronger platform than it is today and really sets us up for, I think, a really tremendous future.

Stuart Turley – President and CEO – Sandstone Group [00:20:34] This is exciting. I’ll tell you what. And so everybody, we will have your contact for LinkedIn in the show notes so people can reach out and say hi. And then also all of the Liberty website information, everything else. And again, congratulations on doing such a great job on everything. Everything I’m seeing, I like. So again, I’m sorry for being a nice, nice to you today. I was hoping to be a little meaner, but I can’t because you’re doing great things. But

Ron Gusek – CEO at Liberty Energy [00:21:00] But I appreciate that Stu. Thanks so much.

Stuart Turley – President and CEO – Sandstone Group [00:21:02] Again, I hope to see you soon and please yell if we can get your any news updates out for you and we’d love to share that for the rest of the world. So thank you for stopping by.

Ron Gusek – CEO at Liberty Energy [00:21:11] All right, sounds good. Thanks so much. Take care.