Oil Well Investment

Interview with a TRUE Oil and Gas Investor

Oil Well Investment advice from a True Oil and Gas Investor

 

Oil Well Investment Knowledge

Casey Minshew:Hello everybody and welcome to today’s webinar. What a exciting moment we have today to introduce a really good friend of mind and an excellent oil and gas investor. One of the key things that we do here at Energy Funders is not only provide direct oil and gas investment energy investments, but we also like to do education and teaching people more and more about the industry. One of the key things that we have done here with our webinar is to be able to bring what we call a true oil and gas investor. What I mean by that, there are a lot of people in a lot of different fields that know how to tell you what they’re doing, but they don’t necessarily always do it themselves.

 

The gentleman that I’ve brought on here to the line today, who’s become a very good friend of mine, very knowledgeable in the industry.  Jim Walesa is a true oil and gas investor. He has been invested in over 59 non-op work estimates over the last 30 years. A lot of these have been onshore. Some of these have been offshore. Jim sees things from private equity view. The one interesting piece is that Jim is not in the oil business. Jim has been a big proponent of the oil business. He is an investor into the business, but he’s not from the oil and gas business. I’m going to let him share with us here shortly.

 

Guys, I’ve brought Jim on the line here today to just share some insight for you, to talk to you about oil and gas investing because a lot of people have not had access to these investments before. Now that crowdfunding, and equity crowdfunding, and online financial technologies are breaking through, and more and more people are adopting these technologies, access to these assets are now available. It traditionally has had that high barrier to entry. Now today, Jim gets to share with you from his perspective why he’s been able to be in the industry, why he invests in it. Jim, thank you very much for joining me here today.

 

Jim W:Appreciate it, Case. I think one of the things that you just said is worth at least a beginning of a conversation, which is the barrier to entry. Casey and his team … and first and foremost, I get no compensation for this. I’ve invested through some of Casey’s programs, but I’m a believer in what he’s doing because it does give individuals access to quality projects. Casey mentioned I’ve been doing this for 30 years, and unfortunately I have to say he’s right. I’d like to tell you all I’ve been doing it since I was five, but not quite that case.

 

The key thing that Case said is access. Generally speaking, it’s hard for the individual investor to find a quality program that’s allowing them to get the full benefit of direct ownership in oil and gas. I say that because as Case said, I’m an investors. I got bit by the oil bug in 1992 by reading a book called The Prize, by Daniel Yergin. Again, I get no royalties, but if you’re interested in the oil business and you haven’t read that book, I can’t recommend it enough. It is a bit daunting with over 400 pages, but once you start it’ll be like a little novel, you’ve got to keep turning the pages. I recommend it to a lot of folks to learn about the history of the oil business. You’ll understand far more about how it’s grown to being one third of the global commerce. Think about that. One out of every three dollars that is traded on the globe has something to do with an oil and gas product or byproduct.

 

Case, one of the questions you asked me when we first met is, why oil and gas now? I’m going to give you all a quote. If you remember nothing else, remember this quote. Troubled waters make for good fishing. I’d like to take credit for it, but JP Morgan said this a long time ago. Troubled waters make for good fishing. Right now, Case, we are probably looking at the beginning of a turnaround from one of the biggest downturns this industry’s seen in 30 years, and that provides opportunity. That’s why when I read about Energy Funders in the Wall Street Journal two years ago, I said, “This is interesting,” and I think it has even more potential than some of the other crowdfunding things that you all have probably heard about in the real estate sector. Casey and I talked a little bit about that when we first met, if you recall, Case.

 

Casey Minshew:Absolutely.

 

Jim W:Back in November of 2014, the largest producer of energy on the globe, the Saudi Arabians, said, “We are no longer going to defend price. We’re not going to be the swing producer. We’re going to be the guys that maintains our market share.” That was the beginning of trouble, troubled waters, JP Morgan, for the oil industry. A lot of companies had borrowed heavily. A lot of individuals had borrowed heavily. Banks were getting nervous. It’s been one of the hardest two years out there, but that presents opportunity.

 

Let me give you an example of what some of these troubled waters are. Over 300,000 jobs have been lost in the energy business in the last two years. The energy world carried us through the recession, and it’s had a really hard time. What that means is projects, particularly long projects, things offshore, many of them have been canceled to the tune of $1 trillion. What that means is that exploration is not being done. When you stop exploring, you have a problem because oil and gas is not something you can just go manufacture at a plant. You can’t go back and kill the dinosaurs 300 million years ago again. When you stop looking, it presents a problem when 100 million barrels a day of oil is used each and every year, and that’s growing to the tune of 1.5 million a day in growth. 100 million barrels a day is being used, and that’s growing very dramatically.

 

That gives you a perspective as to what brought me to the oil industry is it’s one third of the global economy. I heard from a good friend and mentor of mine years ago, he’d hate to hear that because he’s only a few years older than me, that you can make money when it’s going up and when it’s going down. We are coming off probably one of the richest and best opportunities the oil and gas industry has seen, probably a better opportunity than real estate was in ’08, ’09. Case, does that help get us rolling?

 

Casey Minshew:Yeah, that is fantastic getting us rolling. Great insight, great feedback. Let me dive into a couple more things.

 

Jim W:Sure.

 

Casey Minshew:One of the things that a lot of people that sign up on our platform, a lot of the feedback we get is, “I’m interested investing in oil. I just never ever had the opportunity. I don’t know a lot about it.” Give us a little snapshot of what’s in your playbook. What’s in Jim’s back pocket? How are you looking at this stuff? What is your strategy that you could give to an investor that’s maybe listening in that just has never really had anybody give them any advice in this space?

 

Jim W:I’m happy to. Case, make a note though that we make sure we talk about this at the end of the program, black swan event. Write that down, black swan event, and then I’ll be happy to answer your question, okay?

 

Casey Minshew:Great.

 

Jim W:Make sure we end at that.

 

Casey Minshew:It’s down.

 

Jim W:My playbook, first thing to understand when most of you are reading in the media in Barron’s or any of the other fine resources, magazines, internet, you’re going to real about oil and gas relative to stock opportunities, and sometimes even bond opportunities. Those were all out there in a possibility and still are. I want to make it very clear I am an owner of equities in oil and gas. I’m an owner of bonds in oil and gas.

 

In November of 2014 when this downturn came, I was traveling with the girl I love, who’s probably dialed in to listen to my golden tones. I saw what was going on in the Middle East, and I was a depressed man because I had owned oil and gas and I knew what was coming. Then a couple weeks later I shook it up and I said, “This is my opportunity.” I’ve been bumping around the oil and gas industry since 1992. As Casey said, I’ve drilled offshore, onshore. I’ve owned service companies, I’ve owned stocks, bonds. I’ve found many different ways to benefit from the oil industry. It is one third of the global economy. I looked at it as opportunity. Again, go back to JP Morgan. Troubled waters make for good fishing.

 

What’s in my playbook? My goal beginning 2015 was to accumulate as many oil and gas assets as possible, stocks, bonds, production underground. That was one of the reasons that attracted me to Energy Funders because it gave me an opportunity to look at some projects that I thought were interesting that allowed the average person to come onboard. One of the things we need to look at when you’re thinking about what’s in the playbook is which kind of investor do you want to be. If you need liquidity and you don’t worry about direct ownership, stocks are not a bad place. If you need income and you’re not, again, worried about direct ownership and you don’t really want to worry too much about oil prices, you could also go with bonds. If you really want to live the business, and I’ll quote another very famous person, and I think this is going to turn out to be very, very true, oil in the ground will be worth more than money in the bank. That’s from John Rockefeller, who at his death was the wealthiest human being in the world. Even compared to Gates if you look at it on an inflation adjusted basis, I think he’d be the wealthiest person in the world. He made it on oil business.

 

Obviously, there’s been a lot of wealth made in energy, direct ownership of energy. If you look at Forbes 400 richest people, outside of the few technology guys, one of the best ways to make money is in the energy space. I decided to take this downturn case and acquire as many assets as possible. The first thing I look at when I’m looking at a project from somebody like Casey or an outsider is, is this is a development project or an exploration project? Case, do you mind if I take a minute or two and explain the difference?

 

Casey Minshew:No, absolutely, sure. Thank you.

 

Jim W:Okay. What Energy Funders mostly focuses on is development projects. That means they’re looking at a field where they know there’s production and there’s an opportunity to expand or grow that field. An exploration project is a geologist of geophysicist believes there’s oil in an area, he’s got the science to back it up, but he doesn’t have the proved production to show it. There’s nothing wrong with either of those as long as you know what you’re getting yourself involved in. Most of what Energy Funders does is development projects, which is relatively lower risk. We’ll talk about risk in the oil business in a bit. First thing is development or exploration. Most of what Energy Funders shows you is development, so it’s a good way to get exposure and get oil in the ground.

 

Case, you asked me what’s in my playbook. Obviously you want to go where the oil is. Texas is one of the popular places now, particularly the Permian Basin, but it’s a very tough place for even Casey’s company to get good solid projects in. I think the hidden gems are other states. Because so much capital from the big boys is chasing deals in the Permian, there’s some great opportunities outside of the Permian Basin. Other basins in Texas, I’ve drilled very successfully in California, Colorado, I think a hidden gem potentially is Louisiana, and Oklahoma. One of the things that I hope Case will start to do is provide more geographic diversification because I think it’s going to get us all better projects. Case, would you mind letting me go one minute on my pulpit about why I do this for you?

 

Casey Minshew:Absolutely, absolutely.

 

Jim W:Okay. Here’s the key. I really want Energy Funders to work because the more of us who support their projects, the more projects Casey will get. That means the projects will get better and better because producers will now see that this is a viable option. Crowdfunding couldn’t have been done four, five years ago. Now Casey’s group is the first group looking at energy. Case, I’m calling out the real estate crowdfunders here, so if they’re mad at you, blame me. I think you as an investor long run will be much happier crowdfunding in energy than you will in real estate. I say that, and I’ve said this to Case, because you’re going to find out within two to six months if a project worked. In real estate, you’re not going to know for years. That doesn’t make it better or worse. It just makes it open for a lot more challenging diligence.

 

What’s great about Energy Funders, you’re buying assets inexpensively, you’re not competing with the big guys, and you’re going to know fairly quickly if it works. Look at that as compared to the other crowdfunding whether it’s equity real estate. You’re competing with the big guys, you’re not going to know if it’s going to work for a couple years, and you’re buying high priced assets. Which side you think is going to do better in the next two or three years? It’s not always what you buy but when you buy it. Case, does that help?

 

Casey Minshew:That’s fantastic. Thank you, always. Good insight.

 

Jim W:He’s not paying me to say that. This is just advice I would give anybody.

 

Casey Minshew:Look, I can’t appreciate it more. Your time is very important to me. Let me dive into really our big last question because we’ve got a very good audience today, and there’s going to be a lot more listening to this. What do you tell the new investor, the person that’s looking at the oil business right now for the first time and they are like that? They’ve invested in real estate, they’ve invested in startups. They’ve done a little bit here and there. You’ve shared some good stuff about the oil business, but what would you tell that new investor if they came to you and said, “Hey, what should I do?”

 

Jim:Oil and gas is an asset class. Stocks are an asset class. Real estate’s an asset class. Right now as an asset class, this is under invested. In about two to three years, which I’ll explain why in a bit, I think you’re going to go, “Wow, 2017 and 2018 was the opportunity I didn’t want to miss.” You need to understand you’re investing in a business. As Casey said, I’ve drilled all over the United States, offshore, onshore. Even when you think you have a well, you don’t always. You have to have patience and confidence in your operator, that they’re out there doing the best they can, because when you’re drilling a hole a half mile, a mile, two miles down, nobody, there’s no technology that has an eyeball down there yet. You don’t know what you’re getting into, so you want to understand this is a business and it’s a risk.

 

Because of that, you also get a tax write off. I know Casey has done whole workshops on the tax write offs. The way to look at it is I can take an entrepreneurial opportunity with a good operator, get a tax write off dollar for dollar, almost dollar for dollar, 70 cents on the dollar, or I can just pay the IRS. Which one do you want to do? To me, allocating assets has always been part of my game plan in the oil business, but you must be patient. You’re not going to know, whether Casey’s sending out his little notifications or your operator’s sending something. He might be reporting we have oil shows. He might do his electronic logs and say, “Hey, we’ve got this.” Until it’s actually pumping, you really don’t know what you have. Even once it starts to pump, sometimes complications happen. This is a business. You’re going miles down. The deepest well I’ve personally ever drilled is going on right now. It’s 9,200 feet down, but as a perspective, it’s 350 million geological years old. Man has been around approximately 6,000 years. We are a speck in the history o the Earth. Keep that in mind when you’re thinking about this. Again, that’s why I encourage you to please take some time and read The Prize. Case, anything else?

 

Casey Minshew:I just wanted to remind you about the black swan a bit. Why don’t you take us home here?

 

Jim:I will, but before that, again, I’ve pitched something called The Prize. One of the questions that sometimes people say is, “Well, how can I learn more?” Casey provides some great education, but beyond that, I don’t think you want to rely on the traditional media. This is a business most of them don’t understand. You can’t look at the talking heads on TV. Even the general magazines, even the Barron’s of the world, which I respect a lot, don’t fully understand this business. Try to engage yourself in a couple areas. Number one, the best magazine I’ve ever seen, Casey, you know this, it’s out of Houston, is Oil and Gas Investor. Again, Oil and Gas Investor. It does cost a couple hundred dollars a year, but it is fantastic both for public investments and stocks as well as direct investments.

 

Second thing, industry magazine, Oil and Gas Journal. Then sometimes people say, “What can I do on my phone? I like stuff on my phone. I’m not old school like you, Jim, reading magazines.” Oil and Gas Journal has a great app. It’s free. Download it at the Play Store or your iStore, whatever it is you might use. Educate yourself. Go to conferences. Casey, I was nuts enough in 1992 when I got bit by the oil bug by reading The Prize to join the Independent Petroleum Association of America. I was probably one of the few guys located in Chicago that actually was a member of that. Those were great meetings, and I made some great contacts.

 

Let’s go to the black swan event. Most people have heard that term, black swan event. The idea is that most swans are white, and very, very seldom do you see a black one. When you do, it’s usually a surprise. I want to give you a perspective, and again, I would like you to ponder this. Typically if you look at the stock market nowadays, it’s just trending along. We have events every three years, five years, seven years, depends on how you look at your calendars, and those events come out of nowhere. The last one that I remember very distinctly was August 2011. It had to do with downgrading of the US debt from AAA to AA-plus. That sure as heck was a black swan event, and it caused the markets to drop dramatically.

 

The oil business is a bit different. When you have a black swan event in the oil business, it causes prices to jump, not go down. Those of you who’ve ever looked at an oil price chart, you’ll notice that it’s usually a jump up very quickly, spike, but the downward path is much lower. It’s very different, and I think it’s a nice alternative asset to stocks because black swan events are going to happen. One of the things that’s out there now is with all the rabble-rousing going on in the Middle East, what’s that going to oil? If there is rabble-rousing in the Middle East, I guarantee you it’s going to push prices up, and it could push it up dramatically.

 

I read a great article in April’s Oil and Gas Investor put out by Hart Energy. It’s on page nine. They’re interviewing Khalid al-Falih, Chairman of Saudi Arabia’s national oil company, Saudi Aramco, which is trying to go public this year. We’ll see if that happens. There’s rumors out there, Case, that the Saudis did what they did back in November of ’14 to try to destroy the US shale oil business, which was taking market share. He actually comes out and says, “No, we think and understand the shale business pretty well.” That’s good for 8 to 10 million barrels a day of production, which is about 10% because don’t forget, guys, 100 million barrels a day is used of oil. The US is about 10% of that production. What was destroyed is the long projects that it takes out on the Gulf Coast. Those of you who are near the Gulf Coast in Texas or Louisiana, those projects that are out there, deep water projects take 5 to 10 years to come to fruition before they bring oil on.

 

There’s going to come a period of time when those things aren’t bringing any oil on. Growth is going up on a yearly basis about a million and a half barrels a day it’s growing, has grown every year except two since World War II at that pace, and it’s because of humanity developing. What that’s going to do, in my opinion, is there’s your opportunity for the black swan. Number one, something nobody expected. If it happens, whether it’s a missile in the wrong place at the wrong time, whether it’s a disagreement in a political battle, I think your upside in oil could be extreme. If that doesn’t happen, 300,000 jobs were lost. A trillion plus dollars of projects were canceled. There’s going to come a period, as stated here in this article, and you can decide when it is, in my opinion it’s going to be late ’17 into ’19 where supply and demand is going to get out of whack again. That’s why oil in the ground will be more than money in the bank. Case, want to open it up to questions?

 

Casey Minshew:Yeah, Jim. Thank you again so much. Always so knowledgeable. Investors and people that are thinking about signing up with us, you just had incredible insight into the business from somebody that I thoroughly trust very much. What I want to do is we’re going to take a few questions here before we wrap up this webinar. First, Jim, before we do that I want to say thank you very much for being here and for your words, your knowledge. It’s huge. I’d love to have you back for another webinar at some point.

 

Jim W:I love talking oil and gas. Don’t give my phone number out, but it those 100 people all could talk to me, I would be busy for the next week talking about this industry. More people need to understand how it fits in their portfolio, and they’d be happy campers.

 

Casey Minshew:You’re fantastic. Guys, if you want to, there’s questions over in the corner in the webinar system where you can ask a question. If anything pops up here, we’ll take it here. Otherwise, I’ll give you guys a few seconds here to dial it in if you have a couple questions.

 

Jim W:Case, while we’re waiting, can I talk about long-lived reserves and what these people should be thinking about is a good oil well?

 

Casey Minshew:Absolutely, I think it’s a great way to wrap up.

 

Jim W:Okay. Number one, don’t forget when you directly drill in projects like Casey brings to you, you get a tax write off. That should not be lost on you. It’s usually 70 cents on the dollar, so if you were to invest $10,000, you get about a $7,000 tax write off right against your income, number one reason to do it. Number two reason is their economics behind it. In an industry deal, we consider a success a return of your original in capital inside of three years from when the drilling actually took place. That means if you invested $10,000 in a project, through the cashflow from the project inside of three to four years you would have your money back, and then you would be participating in the revenues of the field for as long as the field’s around. Fields in this country vary in how long they can produce, some as little as 3 to 5 years, some as long as 50 years. That’s something you have to look at when you’re listening to Casey’s proposal and projects. Generally speaking, a good return is return of your capital inside of four years. You get your tax advantages, and you’ve got future upside, particularly if I’m right about oil prices down the road.

 

You asked me my playbook, Case. While we’re waiting for a question, my playbook is to accumulate as many types of assets tied to a beaten down industry when people are shying away from it as I possibly can. Any questions, Case?

 

Casey Minshew:Yeah, we got a few here.

 

Jim W:Fire.

 

Casey Minshew:Here’s a question. You actually addressed the second part, so Jason, we don’t touch that second part because Jim just dove into the returns there. This first question is, how many projects do you recommend investing in to be diversified enough?

 

Jim W:That’s a great question. That’s all relative to the amount of assets in your portfolio that you’re going to allocate towards oil and gas. Now, I’m warning you straight up front, Jason, I got bit by the oil bug a long time ago, so I have over weighted my portfolio personally. I’m looking at anywhere personally, and again, I’m talking about direct investments, not stocks and bonds, but my personal portfolio was way over weighted to energy because assets were cheap. On the direct investment basis, I would say at least minimum 5, better 10, because then you can get a better feeling as to how this industry really works. I got lucky the first well I ever drilled. It was a great well. I’d like to tell you that every other of my 40 projects were great. That’s not true. I’ve never had a dry hole, but some of them weren’t spectacular and some were, why would I ever do anything else? Diversify. Case, what else?

 

Casey Minshew:Yeah. Here’s another great question. This is coming from Matthew. He said, “I’m curious about what you like to see in a project that you invest in. What do you think makes a good deal?”

 

Jim W:Wow.

 

Casey Minshew:What stands out to you?

 

Jim W:One of the things I look for is, first of all, the easy thing … Again, I’ve been doing this a long time, and I’m very familiar with basins. One of the first questions, and I ask you this all the time, Case, when we talk about what Energy Funders is doing is, where is the drilling? What basin? That’s the first thing I care about. Second thing I care about is, what are we looking for? Is it a development project? Tell me about the operator. Of course, we like the economics. In a development type project, your economics are not the same as an exploration project. I am currently doing an exploration project, and I’m hoping for a far greater return than you might in a development project. On the development project, as I said, if you can get your capital back inside of four years, it’s fantastic. On an exploration project, you’re really hoping for your capital back in less than a year and a half or a year.

 

Now, I’ve had projects where sometimes it looks like you’re going to have a dry hole, and it turns out, hey, you get your capital back. That’s a victory. You’re still going down in the ground miles, and there is no technology that can send an eyeball down there yet. We’ve come a long, long way. In 1982, hanging around this business, an exploration project was successful about one in four times. By the ’90s it was one in three. By the 2000s it was one in two. Right now a good exploration project, don’t feel any pressure, Case, is about an 80% to 90% success. That doesn’t mean you get rich, it just means you found oil and you’re going to get your capital back in some period of time. That’s, I think, the best way I can answer that, Case.

 

Casey Minshew:Beautiful. I think all five questions that just rolled in, every single one of those you answered, I think, just in your conversation there. Jim, our time is coming up here. I really appreciate you being with us here today. Energy Funders and people that are listening in for the first time, I definitely encourage you to sign up on the website at energyfunders.com. It’s free to get an account. Take a look at our projects. Take a look at those. The platform is dedicated to accredited investors today. We’re moving towards new regulations and guidelines. Guys, it’s definitely a good place you can read the blog, you can stay content. We try to give good relevant information. We’re able to find people like Jim. Jim, thank you so much again for being here today. I really appreciate you very much. Guys, I hope you enjoyed this. This was a lot of great information. We’ll be talking to everybody real soon. Have a great day.

 

Jim W:Thanks, everybody. Take care.

 

Casey Minshew:Thanks, Jim. Bye bye.

 

Jim W:Bye, Case.

 

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