Welcome And Show Mission

Jacquelyn Jackson 0:42

Welcome to another show of the Giving Power to the Business Owner Series. I am your host, Jacqueline Jackson. This series, Giving Power to the Business Owner, is all about equipping, evaluating, and empowering business owners with the tools, the strategies, and the mindset needed to take control of their vision and build a sustainable, successful. Here we focus on real conversations, practical insights, and the kind of knowledge that moves you from working in your business to truly owning it. Giving power to the business owner stands for more than just a title. It represents giving business owners clarity in their direction, providing optical strategies for growth and scalability, excuse me, and open access to expert knowledge and live experience. Build confidence to lead, decide, and execute with purpose, creating a space where business owners feel seen, supported, and empowered. This is where business meets ownership and ownership meets power. Now let's get into today's conversation. I am excited to welcome my guest, Mike Q. He's the managing director of capital markets at Crown Forge Energy. Today we are going to dive into capital markets, energy investing, and what it takes to structure deals and opportunities that create real value for investors and operators alike. I'm looking forward to unpacking this insight. You can apply directly to your business. So let's get started. First of all, let's welcome you, Mike, to our show. We want to welcome you to our show today, Mike.

SPEAKER_01 2:15

I am very delighted to be here, Jack.

Jacquelyn Jackson 2:18

Great. And we're great to have you here. If you would give us a little bit about your background and where we're going with all this, if you could start with that, that would help us.

SPEAKER_01 2:27

Of course. Uh my background, really, my entrepreneurship journey started, oh, maybe six, seven years ago now. And through this journey, I became an oil and gas investor to really complement uh how I set up my life before I even joined the company, actually. And joining the company just allows me to really scale up uh my efficiencies in the oil and gas space. You know, we can get into all the details about it, but I joined for the learning, the continued network building, uh, being an oil and gas investor, uh the more I guess in any business, the higher value your network is, the more leverage you have in this space. So it is very much the same lines of building

Why Own Wells Not Stocks

SPEAKER_01 3:15

relationship first. And now I'm just being very, I suppose, targeted and just wanting to expand out my oil and gas network connections.

Jacquelyn Jackson 3:26

Okay, great. And at the same time, like you and I have spoken before, that you want everybody to kind of understand how these things work because we do deal with real estate investors, business owners. But sometimes business owners, you and I discuss this, that we're not aware of what the other opportunities are out there. That's why we kind of felt like you was a niche to come in and start talking to our listeners, which are business owners and real estate investors. So we do have some questions that has actually been sent in. And so we want to kind of run those by you and kind of put them on the show today. So we want to start with our first one. Now, for someone, which I think is a good question, for someone who only ever invested in stocks and mutual funds, okay, why should they even consider investing directly in oil and gas in the first place?

SPEAKER_01 4:11

That's a great question to kick us off. And I had the same question before I started in oil and gas and really found the benefits, I was like, why would I ever own a go into oil and gas? And the key thing came down to is remember, on the other side of every investment is a business. So if the goal of the investment is to get direct exposure into a niche, uh, a market, or some kind of positioning, then the best proxy to get into that is through the direct uh route. So here we're talking about oil and gas. So if I wanted to get oil and gas exposure, then buying a company on the stock market isn't that directly tied to it. Yes, it's in the oil and gas space, but you're buying a business. And that business, even if it's ExxonMobil, you're buying, you know, all their partner relationships, past cash flow, current asset. It's a lot of stuff. And I'd rather just have the exposure. If I have a thesis, my investment thesis back when I started, you know, in the pandemic era, is that oil isn't going to stay at negative 28 bucks a barrel. That's when I jumped in the big and I don't want to really buy Exxon at the time because it comes with additional baggage. I'd rather just own the wells directly and benefit from the ride. So that's the first observation there when I learned about this back during the pandemic era, is in the US, one of the benefits here is you can own and have direct exposure into oil and gas wells, just like real estate. And in fact, there's a lot of similarities between how your oil and gas investment performs, just like real estate, with some key differences that we can highlight after. But you can think of it as owning the tangible asset directly and gaining the oil and gas exposure, of which the benefits are obviously it's going to pay you every single month from all of the oil wells, uh oil and gas that your well produces, plus the tax benefits. And we can expand on that later. But that's the pure play that I'm talking about, where if you have an investment thesis and you want oil and gas income in your portfolio, this is the way to play it. If you just buy an oil and gas stock, you're not going to get the special IRS tax code treatment by only by owning an oil and gas um stock. But if you invest in domestic energy production, that's when the IRS plays favorably for your uh tax story.

Jacquelyn Jackson 6:43

Right, because when we invest in stock, we're basically paying, you know, off the profit we make with that stock, right? Because we're gonna be have to put that on what is a K1 or something like that. But you're saying, and we've talked on this, that when you actually get into the um oil and gas company, we can look at actually getting a product, which is invested in the whales that's give you more benefits than just buying a stock, basically, right? This is what you're saying.

SPEAKER_01 7:07

Exactly. The there is no middleman between the oil and gas that your well produces, right? When it gets

Working Interest And Private Deals

SPEAKER_01 7:15

sold, that money goes to you, minus some interest sharing and all that stuff. Because most of the time, people don't buy 100% of everything. Uh, and whereas uh Exxon, let's say you buy the stock, you're buying their wells in addition to all the salaries that come with the employees of the company, and there's some expenses that the company incurs that you as the investor also pays for. Whereas here, you just we sell the oil on your behalf, share the dividends, and you get a check every single month.

Jacquelyn Jackson 7:46

See, that's not great. So let me ask you this. So, how do we start? How do we get into it? How do we start off? What do we do to get into that type of uh oil um investment?

SPEAKER_01 7:57

And yes, that that is the next logical question. So foundationally, the first thing to understand is in the oil and gas space, what you're actually buying, what you're investing, is what's called a working interest. That is a interest of a production on a lease. So I like to be very specific. When I say own oil and wells, oil and gas wells, you're actually owning a lease. So a lease is just a collection of wells on a piece of property, a piece of real property here that is registered with a court and you're getting a percentage of production. So when you own a working interest, let's say you own one percent working interest on a lease. Every well on that lease, every barrel that it produces, you have one percent right to the distribution, the earnings of that of all the wells on that lease. That is how working interest works in the US.

Jacquelyn Jackson 8:57

Okay, with the working interest. That sounds pretty good. So basically, now getting into this, because this is new for us. So getting into the oil and gas, so I don't go to the stock market to do this, right? And we're gonna do it this way. So that's what I need you to explain. Where do I go to start with that then?

SPEAKER_01 9:14

These would be all private investments. This is perhaps newer to some folks in the stock market. You just go to your discount broker and buy the stock and look for the QCIP or the ticker symbol. Here we're talking about a private investment. There's a PPM for us, it is what's called a regulation D securities. Okay, so that is an investment where accredited investors can invest their personal capital, just like you would buy a stock or anything like that, but it goes through a PPM contract. So you're buying, in essence, a security, but it is private.

Jacquelyn Jackson 9:50

Okay. So let me ask you this because someone just asked a question. How much is it a minimum that you have to invest in, or what do you think would be a great amount to start with if you want to start in this? That's what they're asking.

SPEAKER_01 10:03

Most of the PPMs will have minimum uh investment requirements. This is the part where it's a bit unlike stocks. Okay. And practically speaking, for the economics to work, every sponsor here in the in in the uh private investment space, a sponsor is just the group that's putting together the deal. For us, there is a minimum size that makes it economical for both for the investor and for the company doing that. For us, it is $100,000 per investment. So when we're looking at it, for us, there's a limited number of units that we set up for a project, and we will scope out, project out, and do the financial models for what it is we think that we'll need to raise. For example, a deal could be 24 million, it could be 50 million, it could be low as 1 million. Um that is the size, and then we would have units assigned to really the parts of the project. So if we're raising 24 million, we could simply put 240 units at 100k each, and that would be the buy-in for this private deal. And that is tied to the number of working interests that's available.

SPEAKER_02 11:16

Okay.

SPEAKER_01 11:17

So as an investor, if you're coming in and you have some uh income to offset, or you want to have income derived from oil wells, you want to look into the deal structure where if you invest in Hurricane, what is the working interest that you are getting from this deal?

Jacquelyn Jackson 11:35

Okay, so we have to have a way to look at it now. Let me let me pause here a little bit to let people know who you are. You are a person that they can reach out to, those that are interested in getting into the oil investment side. Am I correct?

SPEAKER_01 11:49

Yes, 100%. If people want to learn more to see how our deals are structured, what a working interest is structured as, and ultimately, at the end of the day, what is the income that you're generating from our projects? They can reach out to me directly. Yes.

Jacquelyn Jackson 12:03

Right. And that's what we wanted here because you were one of the guys that were like, hey, I'll break it down and tell them everything they need to know. And that's what we want because our audience do reach out to our guests and they do ask for that type of help. And so you have opened yourself up. So we definitely want to encourage everybody to reach out to Mike. We will have him on our website at www.tdj equitylc.net uh on our referral page where you can get to him. But if you don't mind, Mike, is it possible you can give them some information today right now so they can know where they can reach you to as well?

SPEAKER_01 12:35

Yeah, I would

Cash Flow Like Real Estate

SPEAKER_01 12:36

say my direct email would be the the quickest way to get a hold of me and answer their specific questions. Okay. So, and that would be Mike M-I-K-E at Crownforge.energy. So that's C-R-O-W-N-F-O-R-G-E dot en e-r-g Y. G Y.

Jacquelyn Jackson 12:55

All right.com. All right. So definitely you guys reach out to him. Like I said, we're going to have his information here, and it definitely will show up on our videos and stuff as well. All right, let's move to the next question. Now I know you kind of talked on this, and you're going to have to repeat some of the stuff you're saying because everybody's kind of asking it and putting uh extra, it's like really saying the same question, but I want to make sure that they understand what we're asking them, what we're asking you. So if we compare oil and gas to real estimate, to excuse me, estate investing, where are there similar in structure for its cash flow and where are they fundamentally different?

SPEAKER_01 13:32

Ah, great question. The similarities. I think I can highlight the similarities to help real estate investors really understand how oil and gas is similar and highlight the few differences that you would need to be aware of between oil and gas.

SPEAKER_02 13:47

Okay.

SPEAKER_01 13:47

Now, with real estate, your income would be derived from the monthly rents that your tenants pay you. In oil and gas, you still get a monthly check, but it is derived from the oil and gas and gas liquids sales that we would make and sell on your behalf. So we do manage the property. It's much like we are kind of your property manager, if you think about it that way.

SPEAKER_02 14:10

Look at that way.

SPEAKER_01 14:11

We keep them up, we make sure all the expenses are there, wells are pumping, that the trucks are coming to take your load to selling it, and they're paying uh downstream. We call it they're paying us and all that good stuff. Every month we do the books and we pay out distributions to all the working interest owners. That part is similar to real estate with rent, but with our oil and gas spent to it.

Jacquelyn Jackson 14:35

To it. Okay, and that's in big peg is now that is monthly. She said she'll be getting income.

SPEAKER_02 14:41

Yes.

Jacquelyn Jackson 14:42

Yeah, it is monthly. Okay, so one thing that they they that came through that they asked was that is something is this something like the real estate investment transactions where people just invest into like these apartments that's being built and they just put their money in because they don't want to manage it, they don't want to be a landlord, they don't want to do any of that. So saying the same thing with you, it sounds like you guys would manage everything. We put the money in, and then we just get our dividends, we get our profit off of what happens with the whales lease. Is that the way that would work?

Oil And Gas Tax Write-Offs

Jacquelyn Jackson 15:13

100%. Okay.

SPEAKER_01 15:16

All the operations.

Jacquelyn Jackson 15:17

Um, and see, it's so simple, and I'm gonna tell you, it we thought it was so much. I mean, because we had to talk about this. When you don't know, you just don't know, you know, and that's why we were so glad that you came in to clear it out. That we just thought it was something that a lot more needed to do than tell. And I'm like, no, this is a guy that's coming on, and he's gonna show us how, you know, if you want to invest in it, because you know, we have people that have that investment amount of money that's looking for looking at putting in an apartment complex and things like that. That's why they listen to say, hey, we got another option. Let's say listen to what you have. So what you're saying is definitely something we need to know and be aware of how it works. So the next question is, and I know you want to talk about this, and I want you to, is the tax benefits. Now, the tax benefits are a big buzzword around oil and gas. Can you walk us through how the tax deduction works and what's realistic versus what's just a marketing hype?

SPEAKER_01 16:08

Yep. So let's talk about the high level and we'll drill down to the actual RS codes. So people can look it up and and you know, they don't have to take my word for it, but look at the RS codes to see how it actually works underneath the hood. Practically speaking, at a very high level, how taxes work is you invest whatever amount you invest in, you get to write that off in year one. And let's let's be very concrete. Let's say you invest 100k, the minimum investment. That means next year, when you file for taxes, uh, your CPA or yourself would be able to use, you know, schedule sometimes schedule C, sometimes we send a K1, depending on what the structure is. Uh, you would be able to get a deduction of 100K against your active income.

Jacquelyn Jackson 16:56

Wow.

SPEAKER_01 16:57

So for your salaried, highly salaried professionals, uh, again, I started my world in tech, I was sitting in a very high tax bracket.

Jacquelyn Jackson 17:08

Which means you was losing money, you gotta have something to run off. I got you. Exactly.

SPEAKER_01 17:13

We're talking 37 plus uh and which means for me, if I you know back in the day, when I invested 100K into this uh oil and gas project, next year I get a check back for 37,000. Wow, from an investment perspective, that means the investment has to pay me back 63,000 for me to essentially make my money back. So I've de-risk it, not not that it's very exciting from a risk perspective. I only have to make not the full amount back because the RS essentially covered a lot of risk.

Jacquelyn Jackson 17:46

Right.

SPEAKER_01 17:47

Yeah. Now the tax benefits at at the fundamental level works like that. You get to write off 100% of it. Now I did promise we're gonna drink drill a little bit deeper so people can look into the RS codes so they don't have to, you know, believe me on what I say. So the exact operations that a CPA or accountant would do is we would send our investors deductions using IDCs and TDCs and tangible drilling costs and tangible drilling costs. Those are IRS sections 263C for the intangible drilling costs and section 168K for the tangible drilling costs. Those are the codes that people can look up. And if you invest, same example, you invest 100K, we would year one, we would send you back 75,000 in IDCs and tangible drilling costs, and 25,000 in TDCs, tangible drilling costs. And there's as I mentioned in the beginning, I wanted to jump into this space and see how the insiders and professionals uh invest their own money. And that's kind of one of my personal goals. I've now come to learn that there are ways where you can structure to get more than 100%, up to 200% of your deductions. And this was a very enlightening moment for me. So for people sitting in California, New York, all these higher tax states, if your state

Due Diligence And Managing Risk

SPEAKER_01 19:11

and federal taxes amount to 50% or more, that means if you pick the right project, the IRS can essentially fund your investment.

Jacquelyn Jackson 19:21

Wow, that's what it sounds like. That's what I was thinking. Putting those numbers together, that's what happened. We talking what 200%. Oh my goodness, that is great.

SPEAKER_01 19:28

Yes. So obviously, people got to talk to their own CPAs, look at your tax bracket, and then this is obviously not investment advice or anything like that. But per the math and per the IRS code, it all checks up.

Jacquelyn Jackson 19:41

Right. That it could work, it can work. Like you said, if you pick the right project, it could work. And like you said, based on the state and everything, you are okay. Thank you for that. That was very good. I like that. Okay, so the next one. If uh one of our listeners is presented with an oil and gas deal, what are the top three to five things they should look for right away to decide whether it's even worth a deeper look?

SPEAKER_01 20:07

Actually, the key thing, of course, I was an oil and gas investor first. The biggest thing that I've learned through all the mistakes I've made investing oil and gas is the operator. You really gotta know the operator.

Jacquelyn Jackson 20:20

Okay.

SPEAKER_01 20:21

And with the operator, there are actually we'll say two dimensions to think about. Are they a competent and are they b ethical? Both of those are important. You can have a highly competent operator, but perhaps ethically not as well off. That is, you should always run from that deal.

Jacquelyn Jackson 20:43

Well, let me ask you this before you go further. How do we how do we discern them? How would what would I go by to know if somebody's confident? Mean and if they qualify and ethical, what uh what am I looking at in order for me to know that?

SPEAKER_01 20:56

Yeah, so history, so certainly time in the oil fields is important to judge confidence. Okay, what do their peers talk about it? How long have been have they been doing it, and the wells that they're running?

Jacquelyn Jackson 21:08

Okay.

SPEAKER_01 21:10

And that would be your highest level of let's say quick checks that you can do on the operator.

Jacquelyn Jackson 21:17

So we want people with experience when we talk about these operators, don't because you know it's a lot of new deals and people starting new stuff, and you think, let me get in on the ground floor. You don't recommend getting on the ground floor of a startup of a new operator, is what you're saying.

SPEAKER_01 21:30

I highly recommend looking at the operators' years and history. You can get in with a ground operator if they've been in the oil field for 40 years already, and they're starting their own thing. And the key thing is you want to know what projects have they done in the past. Maybe they drilled with Diamondback or Pioneer or some of these other uh big players, and now they're just going on their own. Hey, not a red flag at all. People do that, right? But if it's their their very first thing and they're just jumping in because oil prices are going. And crazy like they are now, that's that's a big red flag for me.

Jacquelyn Jackson 22:04

Yeah, yeah, yeah. That makes sense. And so the ethical part would be what? What do we see that's ethical? Okay, we we see we got confidence in them that they can do what they've been there for a long time, but it's the ethical part. What do we need to look for that?

SPEAKER_01 22:18

The ethical part is looking at their results. What have they done for investors in the past? Have they raised the capital and essentially played around with some legal technical technicalities to sit on the money and not do anything and make all the returns for themselves? Or have they actually delivered distributions every single month for investors? And that you can verify through pay stubs, through now, every oil and gas industry should have a data room or some kind of folder where you can go verify all the pay stubs that has come through, all the expenses and all the well data, geological data, all that stuff. Definitely get access to those. And if someone doesn't want to share all of that with you and walk you through all of that data with you and answer all your questions, that is a big red flag. Because in this field, the right, at least in Texas, the regulating body is the Texas Railway Commission. Uh, they don't do anything with railway anymore, it's just a legacy name. They manage all of the oil and gas developments, leases, permits uh in Texas. And so all the well data since 1971, you know, give or take, there's some lag time. The the data should have been reported to the Texas Railway Commission. So you can, for newer wells, you can actually look up well production data to see how those wells have been doing. And then in turn, Judge, have has that lease been run well by that operator? And who was the operator on that field?

Jacquelyn Jackson 23:46

Right. Okay, so that sounds like something like the next question I have was talking about the due diligence, which you gave us on the confidence and the ethical. But if you don't mind, what does a smart or practical due diligence on an oil and a gas project actually look like for like a non-expert? I know you gave us those two, but what should that look like for a non-expert investor?

SPEAKER_01 24:07

For a non-expert, start with what the operator gives you, all the data run, not because you trust them right away, but because you get to see what level of detail and data they give you.

unknown 24:18

Okay.

SPEAKER_01 24:19

That is the very first thing. If they're very transparent, they share everything, all the geo reports, data, third-party evaluation, and give it to you frank. That is a sign of an ethical operator. Because if anybody says, Oh, yeah, this this drilling this well is guaranteed. Zero percent chance of dry hole. That is never the case. We could have the best formations, we can have offset wells, which are just wells beside an existing product producing well, hitting the same formation. You can still have a dry hole. It is just we're dealing with mother nature here. Very simple business. The idea is simple, but we're dealing with a lot of mother nature complexities, operational stuff. An operator, an ethical operator here, I would say, would always inform you of all the risks and would never guarantee that this is risk-free. And oil and gas, nothing is ever risk-free.

Jacquelyn Jackson 25:14

Right. Right. That makes sense. That makes a lot of sense. So, what I was talking about is though, um, what are the biggest dangers that are truly unique to the oil and gas investing? And then how does an investor kind of protect themselves from the worst scenario?

SPEAKER_01 25:31

In terms of risk, in oil and gas, the worst thing that can ever happen is you drill a dry hole or an economic dry hole. And by economic dry hole, here I just I mean the well isn't producing enough to cover all of the expenses. So economically, it does not make sense to keep it up and running.

SPEAKER_02 25:49

Okay.

SPEAKER_01 25:49

So that that is the worst case. And well, I'll add to that. An unethical uh operator can make that even worse, actually. So we'll we'll call it the the absolute worst case is the you get something called a cash call. So the operator would call all the working interest owners and say, we need additional capital to save the wells. Now, depending on how the contract is written, you don't have to participate. So, practically speaking, your worst case is you lose all of your investment minus the IRS tax breaks. So this is where the IRS kind of helps you a bit, where you invest 100K, you're in the 35% tax category. The worst case that can happen to you is you lose $65,000 because the IRS paid you 35K.

Jacquelyn Jackson 26:40

Okay. Because you're gonna be paid by the RS, from what I'm gathering, um, by that investment, because that's just one of their rules that they have. If you have that much investment, they're gonna give you so much. So whether the um project fails or don't make money, I still get that part from the RS, which is really good. You know what I'm saying? That is really good. Really, really good. Okay, so then the only thing you're looking at is the money from what you're gonna make off the rig, mean off the oil wig, is what you would make, but you wouldn't get it. If so, when they do cash call, which I like that, uh now that I know what that is, they're asking for more money to be added to the project.

SPEAKER_01 27:17

Yes, that is correct.

Jacquelyn Jackson 27:19

Okay, okay. All right, so how do we protect ourselves from that though? How how do we do that?

SPEAKER_01 27:25

Through all the data. So we we briefly dipped into this. Now let's go deep. Take all the data that an operator gives you and hedge out what are the different possible scenarios that can happen. And then take all of the in the beginning, you may have some wild questions, but take those to the operator. They should patiently walk you through what is realistic, what's reasonable as a risk, and what is usually not seen in the oil and gas space.

Jacquelyn Jackson 27:52

So they should give us for that project, they should give us the risks in that project as well, right? Is that what you're saying? We should see that in the DA. Okay, go ahead.

SPEAKER_01 28:01

We should see that. Or at least the operator can talk about with this specific project what are the risks to what we're doing. And in general, what are the specific risks to oil and gas in general? Because sometimes, for example, a project can be a well restoration project. So there's no drilling, so you wouldn't have a dry hole risk from drilling, you could have uh operational risk. Let's say that the part or the well is just damaged um badly enough to make it uneconomical to turn on. And on other projects, let's say it is an offset drilling, then you want to look at well, how how is the offset being planned? How's the operator? How's the rig availability? Because uh one of the interesting stories that

Return Math And Price Assumptions

SPEAKER_01 28:46

I can share here is you can have everything line up, perfect operator, perfect timing, but because everybody else is drilling, you may not have a rig.

SPEAKER_02 28:55

You can't get a rig.

SPEAKER_01 28:56

So the operator being in the space for 40 years, they better have the connections to get you the rig on time so that your the time value of your money isn't just sitting there waiting for the rig.

Jacquelyn Jackson 29:08

Right. Okay, okay. That's one of those deep down app, you're right, to be with that. So, your suggestion would recommend let's say if somebody because it sounds interesting, and somebody wants to get into this. What would you recommend? The first thing they need to do if they want to jump into this uh oil and gas investing.

SPEAKER_01 29:28

The very first thing this is kind of a comment that I would tell myself maybe six, seven years ago, is jumping in, not knowing anything about oil and access. First, get some education first. We try to put out all of the important foundational knowledge on our YouTube channel, on our website, to calculate hey, if you're buying in, what's your expected return? But here's what's the downside, the risk, and what you should look for in the data room. So start with foundational knowledge about how working interest works and how to calculate your returns. I actually have a video on that on the on the website because I get it enough that it is worth sharing with everybody.

Jacquelyn Jackson 30:11

Let us know what your your website is. Go ahead and say your website and we'll put it up there but say it so everybody can hear it on the podcast.

SPEAKER_01 30:17

Yep, it's just a second part of my email. It is crownforge.energy. That's it. There's no dot com or dot anything, it's just crownforge.energy.

Jacquelyn Jackson 30:25

Oh, dot energy. Okay, all right.

SPEAKER_01 30:27

That's correct.

Jacquelyn Jackson 30:28

Okay, cool. All right, so so anyway, go back to that. So you're already showing what they need to probably that'll help them to learn about uh working interest, is what you have, right?

SPEAKER_01 30:37

Yes, it's about calculating what are what are you actually buying when you're well or your lease, I should now accurately say because now everybody knows a working interest is tied to a lease. When a lease produces one barrel of oil per day, we call that BOPD, barrel of oil per day. How much do you actually earn in that month? And it's not hard math. You don't need some high school degree, uh not not even a high school degree to calculate. You just take your BOPD, which is your production data, times your net revenue interest, times the days of the week, and times the oil price that you expect.

SPEAKER_02 31:12

Okay.

SPEAKER_01 31:13

You you multiply all of those together. That is, and obviously you multiply by your working interest percentage, one percent or whatever it is, that should tell you what your check size is, roughly that one. So it shouldn't be way off. And because the oil price is in there, when you're doing due diligence, you never want to calculate or project a performance of the project based on today's oil price. If any if you see a deal and some operator calculates based on whatever it is today, 90 or 100 oil.

Jacquelyn Jackson 31:49

100 girl, we looked at it this morning.

SPEAKER_01 31:54

That that is a number you should not use, and we certainly don't use that. We typically pick something like a $75 oil.

Jacquelyn Jackson 32:02

But what but why wouldn't you not use that number, today's number, to do that? Why why wouldn't you?

SPEAKER_01 32:08

Oil cyclical. We always want to be on the conservative side.

Jacquelyn Jackson 32:11

I got you.

SPEAKER_01 32:12

What swings that we've seen, uh especially nowadays, you could have five ten dollar swings in in the price. And because investors, a bit of detail, you we get paid on the average price for the last 30 days using the WTI index.

SPEAKER_02 32:28

Okay.

SPEAKER_01 32:29

When you have wild swings like that, we need to pick a very conservative number to model out what is the financial performance of this investment over the course of five to seven years. So we don't want to pick $90, $100 oil. We stick with 75 as the initial reasonable price to pick. Then we go stress test our numbers using $65 oil, sometimes $55 oil. And then our upside is usually, let's say $85 oil is where we top out at. For our investors, if we stay at this $90, $100 uh oil level, great. That just means your check is larger. And you can, and everybody here can now calculate, just take $100 for your oil price rather than you know $65, $75. So it's not hard math, but you want to make sure this now talking about due diligence, making sure that your operator's financial prediction is realistic and skews towards conservative. We don't want to see pie in the sky numbers saying $100 oil for a long time and really low expenses, and we don't expect you know all anything to happen. Storms do happen in Texas, that we know.

Jacquelyn Jackson 33:36

Yes, we do. So things get so so let me ask you this. Someone asked, would the war, would war have something to do with this type of investment? Would it affect this type of investment? Someone asked.

SPEAKER_01 33:48

Uh a hundred percent. And this is one of, you know, speaking for myself now.

Jacquelyn Jackson 33:52

And how? Okay.

SPEAKER_01 33:54

Yeah. And one of the reasons why I wanted oil exposure, well, income exposure, especially, is when things go wrong in the world, usually oil is the thing that spikes. So I want to hedge geopolitical volatility using oil as part of my portfolio. So if wars happen, it doesn't even have to be wars, anything like that, like a supply shortage, wars happen, or even an economic boom. The energy demand is going to go up, which means oil price, which is the master resource that drives our modern day economy, that is going to go up as well. And that's the position that I take in the portfolio to really hedge against that scenario. And yes, also gain income as part of that portfolio.

Jacquelyn Jackson 34:37

Okay. That makes that makes sense. Okay. So Trevor has asked, he said he may, you have may have already addressed this, but his question is so what's the difference then going into the stock market or as a stock compared to just going with you? He said we're just investing his money directly with you. How does the economy affect those together?

SPEAKER_01 35:06

The closest comparison, I would say, if I evaluate, if you went to the stock market and buy a some kind of an oil ETF that is supposedly linked to the oil price, you are still having it's really a paper asset, in my opinion. It's a claim, it's a claim on the oil price and oil production that a company would have. Whereas if you own an oil well, it's a real asset. The difference, I would say, if we borrow a real estate example, it's like owning a REIT of sorts, then compared to owning an actual building and knowing the person that you can just you could people can pick up the phone and call any of us on the exec team and ask us like tough questions, what's going on?

SPEAKER_00 35:50

Right.

SPEAKER_01 35:51

I can't do that with the CEO of Exxon Mobil. Um, I wish I could maybe call them out on certain things that I may not agree with, but right, I don't get to.

Jacquelyn Jackson 36:01

Right. So I see what you're saying. So it gives you more. I guess you said we have more control when we go through the oil, the way you're saying for us to invest, which is the working interest to just put the interest in and you or we get look like I mean, somebody mentioned it look like we don't have to have as much expenses compared to when we do the stock, how much expenses is into that, and they pass it on to the investors. With you're saying as an interest, that's what it is. It's just your work and interest that's in that well itself. That's it. And so we get paid off that, right?

SPEAKER_01 36:34

Exactly. So when you look at buying

Exit Strategy And Portfolio Diversification

SPEAKER_01 36:36

an oil company, for example, your invested capital goes to paying their employees as well, all the salaries and all that stuff. When you invest in some wells, your expenses go into electric, uh, production taxes, and parts and stuff like that when we need to do some repairs. There is, and there's no fees for us. That's one of the we'll say benefits of going to independent drillers. We don't make any fees or take um, I don't know, sponsorship fees like that. We put the capital directly to operating the wells. And how we make our money is we're also a working interest owner. So we have the same interest to keep the wells up and running.

Jacquelyn Jackson 37:18

So you all in it. So let me ask you this. So Crown, let's make sure. So Crown Forge, that's your independent drilling, right? That's yours, right? That people can invest into that one, or do you have a lot more uh under you other than just one?

SPEAKER_01 37:33

We have additional 30,000 acres that we can lease up right now. Crown forge, our current project, we're looking at 2,700 acres for us to drill into. But we have options to lease up another 30,000 acres to do to develop. And so uh a bit of important detail, I would say that in real estate to kind of real round out the comparison so people can understand what is the entry strategy and what's the exit strategy. Entry strategy is what we focused on a lot about okay, I want income, I want tax offsets, I want direct ownership and all that stuff. But getting out is just as important when to sell is just as important getting in. So in real estate, your building might appreciate, you would sell at a lower cap rate to get out of the building, make multiples on your money. Well, in oil and gas, similar action here, where we're developing out a lease so that we can sell it to mid and top and high-tier uh producers, right? Your big majors. And so when we develop our lease, 2700 acres, we really need to develop that out with operating wells on that for an oil company to be interested. So, and we need to have enough scale for them to be interested. But very similar strategy here where when we take a let's say empty piece of land or even existing wells, we add more wells, more productions, more flowing barrels, that would increase the value of that lease, and then we go sell that lease to let's say a major producer or a mid-tier producer. So the exit is still there, and we're still looking for multiples on the initial capital, but it's just a different valuation metric. We get valued on the oil uh on an oil lease based on the number of producing barrels that that lease is producing instead of say a cap rate using net operating income.

Jacquelyn Jackson 39:32

Okay, exactly. So that makes that makes a lot of sense on it. So we want to make sure everybody kind of understand that they can reach out to you because you guys, I guess really my question is where do we find I know how I found you, but where do we find guys like you to even get into this field?

SPEAKER_01 39:53

That is a very good question. You have operators everywhere, you can certainly search for them online, but this is where I talk about you have to really be careful with the due diligence. Right. We're on your show and we're we're honored to be here. We're happy to answer all of the questions. We'll tell you about what's good and what's the, you know, the good, bad, and the ugly. We don't want ever want to paint the story as like we're the best or anything. There are other operators, but we what we can say is when you come to our deals, we are also investors alongside you. Alignment is one of the core values uh of the company. And so, in terms of finding operators, there are various ways to discover. But in my opinion, if you want oil and gas exposure, try and find an operator that is ethical and competent and stick with them. Okay, you can I've I've seen, you know, even before I joined the company, I've seen a lot of pie in the sky numbers. The numbers look really good, big wells, horizontal wells, but it just never pen doesn't pan out. Something that pencils out may not pen out.

Jacquelyn Jackson 40:56

Okay. So I'm thinking we have people, and and I do have people that actually have commented on on your video that um they're into the real estate, they do a lot of real estate. They're into million dollars, $10 million deals, and all of this. Um, they just hadn't thought about the oil game until we kind of brought it to them. So I want you to talk to those guys. What can you tell them? Because they can call you. Am I correct? They can reach out to you, right? You can guide them. But what do you want to say to those guys? Because that's what that's the main one of what we have. We have these guys that have uh $25 million portfolios and they're building them and building those. But what can you say to those guys to let them least look at the oil field as you stop talking about today?

SPEAKER_01 41:42

To me, it's all about diversification. I love real estate, I have real estate, I invest in real estate, all that is good. But for me, I don't want all of my investable capital in real estate. Because that downturn can happen. Um, perception can change, even. Let's look at office space right now, commercial office space. In general, the perception is not that great, even though you have really wonderfully located office space that's doing really, really well with high occupancies. So perception can change, and oil is the space where it kind of performs like real estate, gives you, I would argue, better tax benefits. Um, it can give you uh better monthly returns, but you also don't want to go all in on oil. So it's all about how you structure your portfolio and why you wanted to uh leverage this vehicle in the first place. Oil and gas, income, tax optimization. Real estate, similar, but also location is another thing. Like with oil and gas, you want to be in the big basins, in my opinion, in the in the beginning. Whereas with real estate, you can find productive working real estate in a lot of places, major cities, smaller towns, it's very much uh a big playground. Whereas with oil and gas, it's not necessarily so. You can't just drill for oil anywhere. And the reason really it comes diversification is one, but also as I said, it's to hedge geopolitical risk and have a tangible asset. If your tenant can walk away from you, this is if you think about it, if you own real estate, your tenant can walk away and just move away and not not being needed.

Final Takeaways And How To Connect

SPEAKER_01 43:40

You know, your real estate can just go from an asset to a liability. The mortgages stay, or your tenant walks. Whereas with oil, the key thing to ask is am I producing a valuable commodity that the world needs no matter what? And oil, based on the amount of study. That I've done. It's a resource that we have not found a good replacement for. By and large. There are certain people working on it, but diesel runs the world. And oil is a huge it's it's a thing that gives you diesel.

Jacquelyn Jackson 44:15

Okay. Which makes that that makes a lot of sense. Like I said, just knowing that those options are actually there. Well, we have definitely enjoyed it, but before we leave, is it anything that you would like to tell our audience today before we end our show today?

SPEAKER_01 44:31

Just with a message that knowledge is power. With everybody on the show now that you've listened to it, you know how the game is played inside oil now. That should at least uh empower you to now go out and find how this could fit into your portfolio. It doesn't have to be ours, it doesn't have to be oil and gas. But at least you're aware that this level of vehicle exists out there for investors. And for I know the show is for business owners, for me, at some point reinvesting into the current business may skew your risk too much. So sometimes it's worth taking a lot of your, not a lot, but a portion of your revenue off the table, create the cash flow that supports your lifestyle, whether it's oil and gas, real estate, whatever it is, and then focus on your business. So oil and gas, especially if you're not a business owner making a lot of income with revenue that you're then having to pay taxes on, like this is the vehicle to offset it. And like I mentioned in the beginning, maybe the RS can just fund your whole investment. You don't have to pay taxes, exactly.

Jacquelyn Jackson 45:42

According to where you are, and with like you said, what that project is sounds good to me. Well, Mr. Mike Q, I want to thank you so much for being on our show today. We definitely uh enjoyed you being here. You gave us a lot of information we wasn't aware of, and possibly, like I said, we have a a series we're working on that we may have you to come back. The team kind of talked about you because you do have a lot to offer, but for now, um, I do want to you know stress to everyone to definitely reach out to you. We will have his information for you guys. You know he's gonna be on our website, TDJ Equity Funding Insiders, and also in our uh our podcast, excuse me, and also our website, TDJ Equity, um, TDJ LLC, sorry, dot net. He's gonna actually be there as well. So if you would thank you again for coming to our show, Mr. Mike.

SPEAKER_01 46:35

It's an absolute pleasure and happy to be back anytime where I can provide value.

Jacquelyn Jackson 46:39

And that will work. So at the same time, I want to thank you all, my audience. We want to thank you all for tuning in to Giving Power to Business Owned Series. We appreciate you being a part of this community. Now stay connected with us by following TDJ Equity Funding. We're on all social media platforms for updates, insights, and some new episodes. And don't forget to subscribe and share on our YouTube channel. And hopefully we can help you all continue to grow. So until next time, we want all of you guys, you all take care.

SPEAKER_00 47:12

We hope you enjoyed this episode of TDJ Equity Funding Insiders Podcast. If you'd like to be a guest or get in touch with us, please visit our website at TDJquityLLC.net forward slash podcast or email us at podcast at TDJ Equity Funding Insiders.net. Until next time, take care.