Uncovering Nuclear Returns with Mike Scott







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If your nuclear knowledge is limited to Homer Simpson and Chernobyl, this podcast is a must-listen. Tune in to discover the trends, opportunities, and risks of nuclear power in today’s market with insights that will leave you glowing.

Join FEG CIO Greg Dowling and Mike Scott, Managing Partner and Founder of Pelican Energy Partners, as they explore the world of nuclear power and its impact on energy dynamics. Mike's transition from leading energy service sector buyouts to focusing on nuclear energy offers valuable insights into this often misunderstood domain.

This episode debunks myths, uncovers trends, and delves into the lucrative opportunities and potential risks associated with nuclear power, from its role in carbon-free energy to technological advancements. Discover why nuclear energy may deserve a closer look from investors, from Eastern Europe's mission for energy independence to longer-term impacts from Fukushima and changes in U.S. policy. Lastly, you'll gain a deeper understanding of how nuclear energy is shaping the future of global energy markets; and explore its potential in investment portfolios.

Key Takeaways

  • Nuclear power is experiencing a resurgence driven by the need for carbon-free base load power, with 93 plants in the U.S. generating 20% of the country's electricity and 50% of its carbon-free energy.
  • The Inflation Reduction Act (IRA) places nuclear power on the same footing as wind and solar, enabling it to benefit from production tax credits and investment tax credits. This has supercharged the nuclear industry, driving upgrades and relicensing of existing plants, leading to increased activity and investment.
  • Small modular reactors (SMRs) offer safer, more efficient nuclear power with higher output for the same input. Despite regulatory challenges, there is significant demand for SMRs from both utilities and industrial sectors due to their decarbonization potential and thermal efficiency benefits.


Episode Chapters
0:00 Introduction
0:30 Episode Introduction
1:18 Introduction on Mike Scott
1:46 Nuclear by the Numbers and Overcoming Misconceptions
4:47 Investment Opportunities and Specialized Market Dynamics
7:47 Generational Shift within the Nuclear Industry
10:27 Market Dynamics and Exits
13:02 Nuclear Safety and Public Perception
16:07 Shutting Down and Building Nuclear Reactors
18:00 Small Modular Reactors
20:32 Grid Integration and Cost Savings
23:31 Fission vs. Fusion
26:39 Energy Service Dynamics
31:11 Personal Risks and Fun Facts




Greg Dowling, CFA, CAIA

Chief Investment Officer, Head of Research, FEG

Greg Dowling is Chief Investment Officer and Head of Research at FEG. Greg joined FEG in 2004 and focuses on managing the day-to-day activities of the Research department. Greg chairs the Firm’s Investment Policy Committee, which approves all manager recommendations and provides oversight on strategic asset allocations and capital market assumptions. He also is a member of the firm’s Leadership Team and Risk Committee.

Mike Scott

Managing Partner and Founder, Pelican Energy Partners

Mr. Scott is the founder of Pelican Energy Partners, a Houston-based private equity fund investing in energy service and equipment companies. Pelican’s team includes several former operationally focused executives who have spent their careers building and leading companies in the energy sector, enabling a unique capability of partnering with small to middle market management teams.

Prior to founding Pelican, Mr. Scott was a Principal at Sorenson Capital, a private equity fund in Salt Lake City, where he focused on oilfield and midstream investments. Prior to joining Sorenson, he worked at Cameron International, a multi-national oilfield equipment manufacturer, where he held several management positions.

Mr. Scott earned a BS and MS in Mechanical Engineering from Brigham Young University and an MBA from Harvard Business School. He began his career as a power plant systems engineer at Honeywell, holds five patents, and has received several prestigious design and technical achievement awards.


Greg Dowling (00:05):

Welcome to the FEG Insight Bridge. This is Greg Dowling, head of research and CIO at FEG. This show spans global markets and institutional investments through conversations with some of the world's leading investments, economic and philanthropic minds, to provide insight on how institutional investors can survive and even thrive in the world of markets and finance. Our next guest on the FEG Insight Bridge is Mike Scott. He spent the last 25 years in the private energy industry. Since 2012 he has been with Pelican Energy Partners, the company he founded to lead buyouts and turnarounds in the energy service sector. More recently, his investment journey has led him to focus on nuclear. While greener than traditional carbon based fuels. The green than he's also interested is the almighty dollar. If your nuclear energy knowledge is limited to Homer Simpson and Chernobyl, this podcast is for you. Hear about the trends, opportunities and the risks of nuclear power. Why now? Is new technology a factor? Does the inflation reduction act play a part? Please listen. The reviews will be glowing. Mike, welcome to the FEG Insight Bridge.

Mike Scott (01:21):

Thanks for having me. I'm excited to be here.

Greg Dowling (01:24):

Well great. Would you mind introducing yourself and giving a little bit of your company's background?

Mike Scott (01:28):

Yeah, I started Pelican about 12 years ago and we've been focused on investing in small energy focused companies, really in the oil and gas world in that oil and gas value chain. And the last two years we've been focusing on companies in the nuclear energy service chain.

Greg Dowling (01:46):

Well, very interesting. We will talk a lot about nuclear and a little bit about oil services and other energy services later on. Because I'd be remiss if we didn't ask you, but nuclear, why aren't they closing down most of these nuclear reactors?

Mike Scott (01:59):

They're actually not. We are building nuclear reactors globally at a pretty good clip and in the U.S. It was true five to 10 years ago that we thought the general consensus was we're going to be shutting all of our nuclear plants down. That's no longer the case. There is a high premium on carbon free base load power and nuclear is really the only way to get there. And so now the general consensus is the 93 plants that are running in the U.S., we're going keep them running as long as we possibly can, 20 to 40 more years each.

Greg Dowling (02:34):

So how much of our energy is from nuclear and how much of our kind of clean energy is from nuclear?

Mike Scott (02:40):

So it's surprising how much is from nuclear. Those 93 plants generate about 20% of all the electricity in the United States today. And it's about 50% of all the carbon free energy in the United States today. No one really thinks about that because nuclear is very boring. You turn on a nuclear plant and it runs for 40, 60, 80 years and it just sits there and does the same thing day after day after day.

Greg Dowling (03:03):

Yeah, I know we were talking and you were like I got this great idea nuclear and I'm like, nuclear is like the 1970s? Like come on. It's pretty amazing though. I didn't know any of these facts until you kind of shared them. So I think it'll probably be interesting for a lot of our listeners, they probably are thinking about that in the same way. It gets a lot of kind of bad press.

Mike Scott (03:23):

It does. There's been a lot of negative sentiment towards nuclear power really in the eighties and nineties. And ironically it was started by the environmentalist groups in California, which kind of makes no sense. It really doesn't and a lot of it was not in my backyard issues. And then there's, you know, concerns about waste and concerns about safety. But really when you understand the actual facts, nuclear is the safest form of power we have on par with solar. And the waste problem is a minuscule problem in the grand scheme of things. And we know how to store nuclear waste. The solution's very practical technically it's just a political problem. It's a not in my backyard problem.

Greg Dowling (04:07):

The whole N.I.M.B.Y.

Mike Scott (04:08):

That is it. And what's changing today, like I said, it is a lot of folks that have just sort of bought into the stereotype historically are now starting to look at, man, if we really want to get carbon free, maybe we should look at this nuclear thing. And then when people start actually looking at the facts, it's quite compelling. So they're actually surveys that track U.S. Consumer sentiment towards nuclear energy. They do these surveys every year and the sentiment towards nuclear power is as positive today as it probably has been since they started doing the surveys.

Greg Dowling (04:46):

Wow. That's quite a change. Maybe talk about the opportunity set you're trying to exploit here because couldn't you just buy uranium? Is that a good way to, to do this?

Mike Scott (04:54):

You could do that. It's interesting. We have people calling us and saying, you know, I really believe in nuclear. I just don't know how to invest in it. And so it is sort of challenging to find opportunities to invest in this theme. So you've got 93 nuclear plants in the U.S. Those are generally owned by utilities. Most utilities are mixed, so they own fossil fuel power plants, nuclear. And so from the utility perspective it's hard to find a pure play nuclear investment. So what we have found is really an exciting opportunity is the picks and shovels for the nuclear power plants. So nuclear has a lot of unique requirements in the products and services that those nuclear power plants consume. What we were quite astonished to find is there are hundreds and hundreds of companies, literally we have a list of 1300 in the U.S. And we haven't even really cracked Canada yet, but there are 1300 plus companies that are providing goods and services into the nuclear power plants. And so that really fits what we're good at. We've been doing picks and shovels on the oil field service side for 12 years and now we get to use our exact same skillset and do that in the nuclear service side where there are compelling tailwinds that are really creating a lot of growth. A lot of the businesses that we talk to, their biggest challenges, how are we going to keep up with all of the growth that we see in front of us?

Greg Dowling (06:22):

How specialized is this? I mean if you're a welder, can't you just go into nuclear power plant and just start doing some, you know, maintenance work?

Mike Scott (06:29):

No, it's pretty specialized.

Greg Dowling (06:30):

Yeah, explain that.

Mike Scott (06:32):

So, the nuclear power sector in the U.S. is governed by the Nuclear Regulatory Commission, the NRC. And in aviation we have the FAA. FAA sets rules and there's a lot of requirements that are all about delivering safety. At the end of the day. NRC is the same thing. There are a lot of rules, a lot of regulations, a lot of stipulations that are designed to deliver safety at the end of the day. So if you want to go into a nuclear power plant and weld two pipes together, as a welder, you have to pass very stringent tests and have a certification that actually a lot of welders can't pass the test. And so as a result, it creates this sort of interesting ecosystem and market within a market where a lot of the participants in the nuclear sector, they're very, very specialized. And what a lot of the power plant owners are worried about is they see the growth coming. They know that the call on the products and services is going to be high and they're worried that there's not going be enough supply because you can't just go down the street to the next welding business and say, oh, can you guys come in and help us on our next, you know, turnaround on this nuclear power plant. It takes years for companies to get to the point where they're in compliance.

Greg Dowling (07:47):

You know, the other thing that I hear, and it just kind of makes some sense given I have some family members who kind of worked in that space and they went and got their nuclear engineering degree in the seventies and that was the wave. There's probably not a lot of people that want to get into nuclear, at least haven't wanted to get nuclear. Probably the average age of some of these workers and some of these businesses is probably pretty old.

Mike Scott (08:10):

That's true. I think you have sort of a two humped camel here. You've got a lot of folks that are nearing retirement age that got into the industry when it was booming in the seventies and eighties when we built almost all of these plants and they've really been the backbone of the industry. And a lot of companies today are going and hiring retired nuclear workers to help them staff their businesses. On the other side, there are a lot of young folks that are coming into the industry that are very altruistically motivated that view it as, hey, I want to go work in the nuclear sector because I think it's actually going to help save the world. And it's really interesting to see the generational divide when we talk to people, folks in their fifties and sixties that are not in the industry, the older generation, they seem to have a little bit more of a conservative or negative bias towards just the whole concept of nuclear. The younger group, they're very, very open to it, they're excited about it. And so what we see is this kind of resurgence of people coming into the industry. It's going to be difficult though. This is going to be a big crew change going from all these folks in their fifties, sixties or seventies to the group in their twenties and thirties. That is not gonna be an easy process.

Greg Dowling (09:25):

You're doing buyouts, you're, you're helping to kind of ramp up these businesses, helping them improve. Is that the reason why they're willing to sell? I mean because if things are so great, like why do they need you?

Mike Scott (09:39):

Well, that's a great question. Two main drivers that I would say, one is age. A lot of the folks that we talked to are in their seventies and they've started these businesses 30, 40 years ago. They have no heir apparent, they don't have family in the business and they are saying, man, what am I gonna do? Someone shows up and says, Hey, are you interested in selling? They're like, well actually, as a matter of fact, I am. That's a big driver. The demographics here are a big driver of this opportunity. The other side of it is capital. A lot of these businesses, they see the need, they see the demand and they're not capitalized to take advantage of it. And so when we show up and say, hey, if you need capital to grow, we can help provide that. A lot of people are interested because they see the wave of demand and they want to be in front of it.

Greg Dowling (10:28):

Most of this business is founders in their seventies. You're buying it up, you're proving the business, you're scaling it. How do you get out? I mean what are the exits? Can't sell to another 70-year-old.

Mike Scott (10:38):

What we found in our strategy and our strategy actually was very similar on the oil field service side. Same types of businesses, same size of companies. And a lot of what we do, we buy businesses that are almost kind of mom and pop companies. They don't have audited financials, they don't have the metrics and transparency that a strategic buyer would want to see. And so what a lot of the value that we provide is we buy a business that in some senses is un-buyable by the broader market and we transform that business into a professionally managed business that then is transactable. And so what we found is most of the businesses that we sell end up going to strategic buyers because a lot of these businesses are very focused around one product or one service. And so when you put that business up for sale, there's a lot of strategic buyers that look at it and say, oh wow, I make product X and product Y. Here's a little business that makes Product Z, I want to buy that. And it's well run, it's got financial controls in place, I'm going to buy that and pull it in. So now I'm going to be able to sell X, Y, and Z. A lot of the driver here is the strategic buyers.

Greg Dowling (11:53):

These businesses are too small to IPO. So it's probably either strategic or a financial sponsor. Are there other financial sponsors out there that do what you do or would potentially buy what you do?

Mike Scott (12:04):

That's a great question. We seem to be the only group that we know of that is entirely focused on the nuclear opportunity set. We do see other transactions happen in the space where other financial buyers are buying businesses in the space. What we've seen is it's almost always a one-off. And we've talked to a lot of those other sponsors about, hey, tell us about your portfolio company and are you interested in selling? And you know, just getting to know people and understanding the market. And the very prevalent theme in that group is, oh, we don't know a lot about the nuclear space but so and so knew so and so and introduced us to this deal and it seemed interesting and it was seemed like a pretty good value. And so we just did the deal. That's what we tend to see today is a lot of generalist funds have made one investment into the nuclear service space.

Greg Dowling (13:03):

I got a very tough question for you. The elephant in the room or maybe the mushroom cloud in the room is it seems like every time nuclear gets some momentum, something really bad happens. Three Mile Island and Chernobyl, Fukushima, and now we've got a war going on between Russia and Ukraine where even at points in time there were shelling around reactors. Are we just one disaster away from all of this momentum and interest in nuclear just going away?

Mike Scott (13:31):

I hope not, I really do. So I think what is interesting is if you look historically nuclear was one of many technologies competing in the power generation mix. And so a lot of it came down to economics and how that competed with other technologies on a fixed cost basis, variable cost basis, inputs, outputs and so forth. What's a little bit different this time is the focus on climate change is driving this very strong focus and demand on we have got to find carbon free alternatives. And I think that the nuclear wave renaissance, whatever you want to call this, that's happening. But I think that this growth phase is as sustainable as is the focus on carbon free energy. I don't think that focus on carbon free energy is going to go anywhere for a long time. And so I think that's the ultimate driver. Now, if some big nuclear situation happened, would that put a dam on things? Probably, but I think that it's got enough focus now that people realize that this is something that the world actually really needs.

Greg Dowling (14:55):

It probably puts a damper on new reactors, but we still have this issue. Like you can't turn these reactors off. Right? Yeah.

Mike Scott (15:01):

Right. Yeah. And it's interesting. You mentioned like Fukushima. Fukushima is a really interesting case study. I think there's general acknowledgement in the power sector that that was completely mismanaged. It was bungled and no one died from any kind of nuclear consequence in Fukushima. Nobody.

Greg Dowling (15:23):

Isn't that little too early, isn't it? Radiation takes a long time.

Mike Scott (15:26):

Well no, I mean you can, you can actually see and monitor and do studies and the actual nuclear impact of Fukushima was not that great. And part of the issue was poor planning. They, you know, had pumps in the wrong place and they knew that. Part of the issue was purely bureaucratic. There were people on site that knew what they needed to do and were not empowered to do it. If you look at Fukushima, it's like wow, there was a tidal wave that killed 18,000 people and there was a nuclear incident that killed zero people. And yet the takeaway is, oh, nuclear's not safe. And so I think a lot of people are are kind of putting that, you know, time helps put things in perspective.

Greg Dowling (16:07):

So let's talk about that. It's kinda going back to the comment I made. You can't turn these off, can you? It's really hard to mothball a nuclear reactor. So many of these service companies would be needed regardless, right? Because at least some of the service companies, right, there's maintenance that has to be done. There's a lot of this stuff that happens.

Mike Scott (16:24):

You can shut down a nuclear reactor but it takes a while. I mean you can shut down the power instantly, but that core is going to be warm and it takes years to cool off. And so there is a long tail after you decide that a reactor has sort of served its useful life, there is a long tail on dealing with that and taking care of it. So even if you woke up one day and said, okay, let's just turn everything off. You got 10, 15, 20 years of work, you know, just to do that. But that's not even in the realm.

Greg Dowling (16:52):

That's the worst case scenario. You still have.

Mike Scott (16:54):

I mean it is the complete opposite that's happening today. You know, Japan is turning all their reactors back on and building new ones. The UK is building new ones, France is building new ones. Poland's gonna build reactors. All of Eastern Europe now that they've realized their dependency on Russian natural gas and energy security is such a high priority. Many of the Eastern European countries are scrambling as quick as they can across the whole globe. There is a huge movement to build nuclear power capacity as quick as possible.

Greg Dowling (17:26):

Does the IRA Inflation Reduction Act help at all?

Mike Scott (17:31):

It does. So what the IRA did is it put nuclear on the same footing as wind and solar. So now nuclear power can benefit from the production tax credit and the investment tax credit. And that actually is supercharging what is happening in the industry today because there's been a lot of pent up demand in the nuclear power plants to upgrade things, fix things. And if you thought you might be shutting down for five or 10 years, you just deferred defer, defer. And now that the sentiment is no, no, no, we're not shutting down, we're keeping these things running and we're relicensing them and now all of a sudden you have a cash source that you didn't have before. It's creating a lot of activity.

Greg Dowling (18:10):

So I gave you the really hard question of like, hey, if there's a nuclear disaster, does that impact your portfolio returns? On the plus side, there seems to be a lot of new technology so maybe you can speak to, and I know it's not necessarily a core part of your strategy because these things are going to happen way out in the future, but you're somewhat knowledgeable on them. So some of the small modular and then some of the breakthroughs in just research and fusion, releasing more energy than it takes to get there.

Mike Scott (18:38):

The small modular reactors I think are great because we really have learned a lot in the last 50 years and to be able to implement that in these reactors that are safer, have higher efficiency so you're getting more output for the same input. One of the big ideas behind the small modular reactors is we have historically in this country built nuclear power plants, like the huge infrastructure projects that they are the analogy we use, it's like building an airport. And now the idea is well let's build them like airplanes instead of like airports. Let's build them in a factory where we can really drive the cost down and increase the output. And so that's the vision of where small modular reactors are going and I think we will get there. The challenge we have is the NRC has almost regulated the industry to death.

Mike Scott (19:26):

And there needs to be reform at the NRC and the NRC is designed for approving and regulating these large light water one gigawatt reactors. And so you show up with this 30 megawatt reactor of a different technology and they're just not equipped. And so it's taking too long and it's causing a lot of unnecessary delay in the uptake in the small modular reactors. But what's interesting to me, I've heard executives from Nucor Steel say, I'll buy as many small modular reactors today as you can give me today. I've heard executives at DuPont, I'll buy as many small modular reactors today as you can deliver today. So there's actually a lot of demand and it's not just utilities, it's industrial because on the industrial side they see massive benefit, they can decarbonize, they can utilize the electric output and they can utilize the heat output. And so you get this sort of two for one thermal efficiency benefit when you do that. And so I think actually you'll see small module reactors quicker uptake on the industrial side than you will on the traditional power gen utility side.

Greg Dowling (20:27):

I guess I'd never thought of that you could have these reactors where you have an industrial base and versus just having them out in the middle of nowhere like we do now with just traditional nuclear reactors to do consumers and businesses and just a region. That's interesting.

Mike Scott (20:41):

And it actually helps in a lot of places where you don't have the grid capability to just show up and say, oh I'm going to put a one gigawatt power source boom right here on the map. Most places can't deal with that. But if you show up and say, oh I'm going to do a 30 megawatt unit here and a 50 megawatt unit here, the grid can actually handle that today. And so it actually alleviates one of the constraints on the growth of the sector just by distributing the generation of how you're putting it on the grid.

Greg Dowling (21:10):

You mentioned that being small modular, you can create them quicker perhaps if we get regulation to change. Does that lead to a cost savings?

Mike Scott (21:19):

Eventually? Yes. The issue is today no one really knows what the ultimate cost is going to be. Everyone talks about first of a kind cost and that's always going to be high. Think about the first Tesla car, you know, how would you assign what the cost of that was versus the 10000th or a hundred thousandth car. So there's always going to be this declining cost curve as you scale up something like this. We don't know where that ultimately ends. What we do know is that to keep the existing plants running is actually extremely economical to relicense one of these reactors today. These are typically one gigawatt reactors, it costs about a billion dollars. That sounds like a lot.

Greg Dowling (21:58):

A billion dollars is a lot.

Mike Scott (21:59):

But, that's a thousand dollars a kilowatt and that's actually cheaper than building most other power plants that you can build today. So to keep the existing plants running and just relicense them for another 20 years and another 40 years, very, very economical, very cost competitive. On the small modular side, the best guesses are it's going to cost you $7,000 to $8,000 a kilowatt, which is more expensive than a coal plant, a gas fired plant. And so that's part of the challenge is you need the early adopters who are less price sensitive, who are focused on the other benefits. And then as you drive down the cost curve, then you're going to get much broader adoption.

Greg Dowling (22:36):

It seems like in the power plant side, I think most people have kind of mothballed the coal fired plants and people are like, hey let's do gas fired. The problem is nobody wants pipelines with a nuclear power plant, you do have waste. You don't have to put a bunch of pipelines through half the United States where folks aren't just going to say, you know, kind of the N.I.M.B.Y. thing, not in my backyard.

Mike Scott (22:55):

Yeah, the energy density with nuclear power is incredible. A one gigawatt nuclear power plant is, I don't know, a hundred acres, I don't even know, 200 acres, something like that. To get the equivalent power out of wind or solar, you're talking thousands and thousands and thousands of acres. And even then you have a power source. With solar you have about a 25% capacity factor. With wind, you have about a 35% capacity factor. So think about that. You put in one megawatt worth of solar panels, 25% of the time you get one megawatt, 75% of the time you get zero. And so that's where nuclear is extremely competitive and that's why it's actually harder than people think to compare the costs of different forms of generation, because you have to factor in a lot of different things.

Greg Dowling (23:41):

So going to some of the recent breakthroughs, and maybe you can kind of maybe start with, you know, fission versus fusion and kind of what that breakthrough was. I know it was super small scale.

Mike Scott (23:49):

I'm not very bullish on fusion. I mean fusion sounds great. The issue is, I think it's just so far away no one has a clear path of like how do you actually get there? Even though there's a group that is funded to build a fusion plant today, which boggles my mind because no one knows really what to put inside the plant. I admire that people are willing to invest in that. And fusion opportunities attracted something like $2 billion of capital last year, which is astonishing. And I think that's wonderful. But I think that is more of a research and development deployment of capital, not an investment as a principal investor, I think fusion is so far away. I could never see myself investing professionally or privately in anything that was focused on fusion.

Greg Dowling (24:37):

So you're saying that we have a better chance of creating wormholes or perpetual motion machines or teleportation machines versus teleportation?

Mike Scott (24:45):

I think we'll have teleportation before we have fusion. Alright.

Greg Dowling (24:47):

You have heard it here first on the FEG Inside Bridge, teleportation coming soon.

Mike Scott (24:52):

Well, I don't think it's coming soon either. That's my point.

Greg Dowling (24:56):

All right. I guess the question is where does it go? Right? We were talking about that it's a great investment, but in the investment world and you know, like we're an investment advisor and we have boxes and you know, you have equity and fixed income and real assets and private equity. Like where does this go?

Mike Scott (25:17):

That's a good question. A lot of people are trying to figure that out. You know, where do we fit? Historically when we were focusing on oil field focused investments, most people put us in their real asset bucket because they kind of said, oh, you're going to basically track oil and gas commodity prices. That's your main driver. You're a real asset allocation. What's interesting is with the nuclear picks and shovel strategy is it's not correlated to any commodity price. It's not correlated to interest rates, it's not correlated to GDP and the overall economic cycle. They're structural drivers that are the cause of this huge demand wave. And so I don't think it belongs in real assets. I think it belongs in what I would consider specialist niche private equity strategies.

Greg Dowling (26:07):

Because of everything you said, it really isn't much inflation protection. Do any of these contracts have like a C-P-I escalator, so you're at least getting some inflation production?

Mike Scott (26:16):

Well, it actually just takes care of itself because you don't really, these picks and shovels companies, you're not really signing a lot of long-term contracts. You're going out and you're earning your work every year, every month, every quarter. And so pricing gets addressed on a continual basis every time you're going out and doing a job. So we really don't lose sleep about that really at all. And we haven't on the oil field side either. Very few of these businesses are long-term contract driven. Most of them are more spot market call out service driven.

Greg Dowling (26:50):

You know, I said earlier, I'd be remiss if I didn't ask you about just plain old energy services and it seems to me like nuclear is a very sleepy business or has been that's going to take off energy services. I mean gosh, you guys have been through so much. I mean it's been such a volatile space. You think about some of the issues kind of with Saudi Arabia, well, less than 10 years ago. And then you have Covid and I mean that now we have inflation, we have war, what's going on now in energy services and just energy.

Mike Scott (27:20):

It's interesting, it's really a new era in energy. And I'm going to speak to really the oil and gas sector for decades. Everyone thought about oil and gas as its long-term growth sector. I think today the prevailing mindset amongst investors and executives is, okay, this is a mature sector. We're no longer this growth sector. We're a mature sector. There's a lot of discipline being driven by the asset allocators that are investing in E&P companies. And a lot of this was changing executive compensation, right? When you change executive compensation from growth to cash flow, it's amazing what happens. And so the E&P sector is staying incredibly disciplined. So they're responding, their response to changes in commodity prices is highly muted compared to what it has been historically that's stabilizing the whole sector. Who are their suppliers? It's the service companies, right? It's the companies that we've historically invested in.

Mike Scott (28:20):

So they are seeing a much more stable operating environment as a result of the multiple downturns we've had in the last 10 years that has weeded out a lot of excess capacity in the oil field service sector. So today the oil field service sector actually feels pretty good in terms of cash flow. It's not that exciting in terms of growth, but you can find businesses that are cash flowing really well, you can buy them for pretty attractive values because there's not a lot of people that want to buy that today it's actually a pretty stable, interesting, you know, well maybe not so interesting. And I say that because now I think people realize, or the predominant belief is, okay, this is a mature investment. This is going to sort of chug along where the oil field was 15 years ago, feels like we're nuclear is today.

Mike Scott (29:11):

So we feel like we we're kind of moving away from the sector within energy that is now mature and less dynamic and more just kind of cashflow investing. And now we're moving to nuclear, much more dynamic, much more high growth, many more opportunities to double, triple, quadruple the size of the companies that we're investing in. We don't see those kind of opportunities on oil for service side anymore, but we do on the nuclear. So really it's kind of interesting. We're kind of going to where the oil and gas sector was 15 years ago. We as pelican I feel like.

Greg Dowling (29:43):

And I mean it's still energy services, right? It's just a different type of energy.

Mike Scott (29:47):

And a lot of the companies that we invest in, if you look historically, a lot of the businesses that we've invested in, you know, they make pumps, they make valves, they make widgets, they make software, they make instrumentation. If you walked into those companies, you wouldn't necessarily know those had anything to do with oil and gas. And if you walk in the businesses that we're working on today, it's the same thing. Oh look, they make valves. Oh they make pumps, they make instrumentation. Even though the end markets are vastly different on oil and gas and nuclear, the actual picks and shovels businesses that we're investing in are very, very similar in nature. And that's one of the reasons we're excited about this strategy is it allows us to play to our strengths.

Greg Dowling (30:26):

Yeah, I just think of 15 years ago, kind of the wildcat fracking days where you couldn't get enough people out in the Permian and the service providers could just jack up their rates and then during the bus period, they're the first people that, you know, take it in the shorts and it was just continual cycle. And it's kind of interesting now that it's kind of, now that's maturing and nuclear is kind of the area where you're seeing the growth.

Mike Scott (30:50):

Yeah, and I think with nuclear we're in the beginning of the first inning, I think the dynamic aspects of growth haven't even really started to manifest themselves yet. And so I think nuclear would become more exciting within the picks and shovels strategy that we're talking about. I think it will become more and more exciting over the next 2, 3, 4 years because this is nuclear. Everything moves slowly. It's a big ship, you know, it turns slowly, but it is turning and the impact of that will manifest itself more and more over the next few years.

Greg Dowling (31:22):

I know nuclear sounds risky and you're saying look, it's not that risky, right? There certainly are risk, but there are risk with anything. I do need to ask you about your own personal risk tolerance. You have six kids, you have a pilot's license, so you fly, you like to sail, mountain bike. These all sound like very risk seeking things, especially the six kids. So is this true about you?

Mike Scott (31:47):

No, I'm, not that crazy as it sounds. So I'm actually, it's funny, I'm actually a calculated risk taker. I'm sort of measure twice, cut once in just my approach. My dad was an engineer, I grew up as an engineer, was trained as an engineer and so I tend to study things a lot before I take action. The six kids maybe that is crazy. Pilot's license. When I got married it was like, okay honey, should we buy groceries this week or should I go flying for an hour? So not much flying for the last several years.

Greg Dowling (32:20):

That's great. Any other fun facts?

Mike Scott (32:23):

Well, so a fun fact that we talked about recently was, I'm about as American as you can get. My 10th great grandfather came across the Mayflower and a couple of years ago at Thanksgiving, my wife and I realized that her 10th great-grandfather came across the Mayflower and her 10th great-grandfather and my 10th great-grandfather were friends and actually fell in love with the same woman. On the Mayflower. How crazy is that? Yeah.

Greg Dowling (32:54):

How did you research that?

Mike Scott (32:56):

We were having a bunch of friends over for Thanksgiving and wanted to, you know, share interesting stories about, you know, Thanksgiving and where did it come from, and we got on familysearch.org and you know, boom, there's just so much information there. When we put it together, it was honestly kind of mind boggling.

Greg Dowling (33:12):

Wow. That's wild.

Mike Scott (33:13):

10 generations later.

Greg Dowling (33:15):

10 generations later. Yeah. All right. Well that's great. That's America. America and Nuclear Power and Homer Simpson. That's what we got here. Mike, this has been such a interesting podcast that we've never done one on nuclear, so thank you for joining us and just, uh, enlightening us a little bit here.

Mike Scott (33:32):

Thank you so much for having me. It's been great.

Greg Dowling (33:35):

If you are interested in more information on the topic, please go to our website where we will have a list of relevant EEG publications, and don't forget to subscribe to our event communications at www.feg.com/subscribe. So don't miss the next episode. Please keep in mind that this information is intended to be general education that needs to be framed within the unique risk and return objectives of each client. Therefore, nobody should consider these FEG recommendations. This podcast was prepared by FEG. Neither the information nor any opinion expressed in this podcast constitutes an offer or an invitation to make an offer to buy or sell any securities. The views or opinions expressed by guest speakers are solely their own and do not necessarily represent the views or opinions of FEG.

This was prepared by FEG (also known as Fund Evaluation Group, LLC), a federally registered investment adviser under the Investment Advisers Act of 1940, as amended, providing non-discretionary and discretionary investment advice to its clients on an individual basis. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Fund Evaluation Group, LLC, Form ADV Part 2A & 2B can be obtained by written request directly to: Fund Evaluation Group, LLC, 201 East Fifth Street, Suite 1600, Cincinnati, OH 45202, Attention: Compliance Department. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities. The information herein was obtained from various sources. FEG does not guarantee the accuracy or completeness of such information provided by third parties. The information is given as of the date indicated and believed to be reliable. FEG assumes no obligation to update this information, or to advise on further developments relating to it. Past performance is not an indicator or guarantee of future results. Diversification or Asset Allocation does not assure or guarantee better performance and cannot eliminate the risk of investment loss. The views or opinions expressed by guest speakers are solely their own and do not represent the views or opinions of Fund Evaluation Group, LLC.


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