Energy Sector Investments Unveiled by Invito CEO Steve Blackwell

Steve Blackwell, Founder & CEO of Invito Energy Partners discusses unveiling Oil and Gas investments in the Energy sector on Alan Olsen‘s American Dreams Show.

Transcript:

 

Alan Olsen

Hi, this is Alan Olsen and welcome to American Dreams. My guest today is Steve Blackwell. Steve, welcome to do a show.

 

Steve Blackwell

Thank you, Alan happy to be here.

 

Alan Olsen

So Steve, can you share with us your journey into the energy sector? What inspired you to become the CEO of Invito Energy?

 

industry, what do you consider your most significant achievement?

 

Steve Blackwell

Yeah, I mean, when I was the president of petromax, operating I’d when I joined that organization, it was a smaller company in the sense that we had, you know, roughly maybe 2530 employees, they were sitting at a really good asset down in Madison County, which was there before I arrived, but essentially came into that a company and was able to reposition the business, build up a staff of technical team around it and financially get the company ready to basically expand on that asset in the Woodbine is what it was called.

And then over the next three years, we had, you know, three operated projects, two non operated projects, the three operated projects, you know, we’ve basically leased up almost 60,000 net mineral acres, drilled about 40, horizontal Woodbine wells one eagle furred well, it exited out of those for just under just over $800 billion. So it was a great run, had a great time had a lot of success. Very proud of what we accomplished that petromax, I would say, my time with Petrobras was definitely one of the highlights of my career.

 

Alan Olsen

Invito Energy Partners, was founded with a clear mission, and set of values, can you elaborate on the core principles that guide your company today?

 

Steve Blackwell

Yeah, so myself and my partner, Jared Christiansen, who are the we’re the two co founders accompany, and Jared, I met Jared, you know, a decade ago, when, actually when I was the president of petromax, and I had brought him on to petromax to run all of operations. For us, he’s got a deep background. He’s a, he’s an engineer, he’s been an all gas run out of college worked for a couple of publicly traded big ERP companies, unit, petroleum, and Canna drilled wells and pretty much every basin across the lower 48.

So that’s where I met him at petromax. And then when I went over to us energy, I brought him with me over there. And basically the two of us that you’re kind of getting to that point in our careers, we were looking to, rather than working for someone else, maybe doing something on our own, looking at the landscape of the energy space, and really looking where is the kind of what we call the blue sky opportunity, or basically the opportunity to do something different. And it really from our own experiences.

What we saw was that there the capital raising or bringing investment opportunities to the retail space for the retail clients, we both felt that there was an opportunity to do something a little bit different in that space. And that’s really to bring a product that’s more of an institutional like product to retail clients. And that’s not rocket science at all. That’s really just a compression of fees.

Most of the deals that we’ve ever reviewed, the private placement offerings we had seen, we felt had too many had too much of a fee load on the front side of the deal between the fees up front and then the sharing of the revenue. You know, our backgrounds are modeling assets and underwriting logins. So we felt like there was an opportunity to do something different and bring a more institutional like from a fee structure to the retail period.

 

Alan Olsen

You mentioned the misalignment of incentives and excessive promotion to the main obstacles for investors. How does Invito Energy Partners address these challenges?

 

Steve Blackwell

Yeah, so that’s really simple. So what part of when I was just saying this right I when I was when I would review private places

 

that’s out there in the market. In a one of the things that I can’t, that I noticed was is a lot of the way the oil and gas specifically now this is a little bit specific to oil and gas. But private placements are a great alternative, you know, asleep inside the alternative asset portfolio for folks to as an option. But I just think that’s a misalignment. If I’m investing in a deal, and the sponsor is making a significant amount of fees up front, that isn’t tied to the, to the success of the project.

To me, that’s a misalignment if the sponsor makes money regardless of the success of the project, that I think that’s what I call it misalignment fees. So we address that by having again, that compressed fees upfront. So the way we participate in projects or make money or projects was the same way our investors do.

 

Alan Olsen

Okay, so when reviewing them, what really sets them Beto energy apart. Partners apart from other companies in the direct oil and gas investments is your what is that? Nethers? What is the value added by working with you versus a competition?

 

Steve Blackwell

Yeah, look, I mean, if you’re an investor, and you’re part of your portfolio is alternative assets, and that’s a big spectrum. But inside alternatives, there are many different sleeves. But private placements energy would definitely be one of those direct energy could be one of those asset classes.

So if that’s you, and you’re looking at the space, the reasons why I would say that an Ico is somewhat to consider is twofold, really one, I believe 100% of what I just said about the fee structure, you know, I don’t I do a lot of private placement investing on my own. And I’m never going to invest in the deal. If I can’t understand the fee structure one, two, if I think the sponsors making money, where I don’t make.

So that’s that’s whether it’s oil or gas, whether it’s commercial real estate, I don’t care what kind of a private placement you’re looking at, I think that’s something you should maybe not absolutely not make you invest, but you should be very cautious of the fee structures that that way. So that’s number one.

Number two is, I think, with our background in oil and gas, we are definitely oil and gas people, we have technical experience, I’ve run to upstream oil gas companies, Jared has worked and drilled wells all over the lower 48 drilled hundreds of wells between the two. So two of us, we have put north of wells billions of dollars into the ground at oil gas. And so we’ve have a lot of experience in managing larger projects.

But what we realize is if we’re going to invest retail capital, and we want to protect the downside and protect capital, principle capital, we are focused on participating in what we call non tier one acreage underneath the larger operators. And there are ways to get into those wells on a small percentage. And that’s what we focus on putting into our funds.

So it’s one of the reasons why our funds won’t be you’re not going to see an in vivo fund that’s 100 million 200 million 300 million, because the the ability to get into these tier one acreage is are more difficult on a larger scale. And so we feel like we can manage risk, manage downside, and also provide the upside opportunity pass along the tremendous tax benefits to come along with direct energy and also structure the deal correctly.

 

Alan Olsen

You know, there’s a lot of really unique tax benefits for direct oil and gas investors. Can you give us a brief overview of what makes it attractive to for the investors coming in?

 

Steve Blackwell

Yeah, so the number one deduction is what’s called the ITC deduction, which stands for intangible drilling cost. So essentially, the IRS is and it’s similar to depreciation essentially, it is depreciation, so called as depreciation, or accelerated depreciation, how we look at it, but the IRS says you can take 100% of the intangible Julian cost and deduct those in the year of investment, pass those through as a loss.

So, typically, intangible drilling costs are 75 to maybe 85% of the total cost of a well, so how that translates is, if a an investor puts out just to make the numbers easy, puts in $100,000, into a partnership that’s doing drilling into new wells. And it’s also important to note that these tax benefits are specific to the drilling of new wells. So if you go out by producing assets, producing wells producing minerals, or you’re buying royalties, those tax benefits don’t apply to that type of investment.

It’s only for the development of new wells. And so if you put in 100 grand and you got 85% $85,000, or 85% is IDCs. That’s an $85,000 loss on the k one and the in the year of investment that will show up on your k one that you can pass through as a loss and offset income. Now here’s where the big benefit comes in. This is a passive investment with the IRS allows you to offset ordinary income if the deal is structured from a LP to a GP.

So you come in as a GP you convert to a limited partner But if your general partner during the drilling of the wells, that $85,000 loss can offset ordinary income, and and you’re probably aware of there’s very little there just with all of the tax changes over the last, you know, decade, there’s a lot of, well that I should say there’s very minimal ways to offset, especially if you have w two income, ordinary income.

If you’re a business making business owner making a lot of income, and you’ve written off whatever you can, or you, you know, you got a high paying w two Job 1099 Job. There’s not a lot of strategies to directly offset that income, especially from investments. So you can make an investment and get a big write off and reduce your taxable income, right in year one.

And that’s typically, depending on what state you live in, because it offset state income taxes as well, in most cases, you know, that’s a 25 to sometimes 40% return, just on the tax benefits alone.

 

Alan Olsen

The tax benefits seemed very attractive, but as an investments, how do you assess and manage risk associated with your oil and gas? Yeah,

 

Steve Blackwell

again, so that’s kind of I alluded to that earlier, you can. So there’s been a ton of consolidation in the oil gas space over the last five to seven years. So in other words, what that means from a risk management standpoint, so it’s very normal for a big oil and gas company that has a large capex budget to allocate 10 to 20% of their budget, towards what I would call exploratory projects, meaning you’re stepping out and trying to prove up new areas.

And so the probability of outcome is much lower, you’re taking a lot more geological risk, you’re trying to prove up a project. If I want to protect the capital of, let’s say, Allen, who invest with me, I’m going to try and avoid stepping out and doing what’s called step out, or what we call geological risk projects. And so that’s why we’re focused on participating in the wells of the larger EMP companies in America because all of that tier one acreage in tier one just means it’s been de risked.

When you look at the prospect, and you look at where the location is, there’s data points all around, that already should have proven that there’s hydrocarbons there, how it’s going to produce what the decline curves going to look like, what the cost of the wells are, kind of what the profile of a Wells gonna look like.

And so that tier one acreage is for the most part is Oh, and so that is what we’re focused on putting it to our to our fonts is basically saying to a Alan, you want to come invest with us, we’re gonna help you invest alongside the largest EMP companies in America. You know, Pioneer Devin EOG, Marathon, Exxon, the large private, you know, Continental Resources, the large, independent companies that are well capitalized, either private equity backed or publicly traded and of drill lots of wells in the area ready.

 

Alan Olsen

You know, one of the steps in investor will take. Steve when working with individuals are gonna look at credibility background, you bring in combination of both financial and technical skills to your role. How do these competencies influence your decision making process?

 

Steve Blackwell

Yeah, so you know, my background is, I certainly know more than the average Joe Borroloola gas, right. But my background is finance and accounting, and professional management really, and build a team. So my partner is 100% of technical EMP guy we have. The same geologist has been with us since petromax days, our production engineers, actually, Jarrett’s first pass out of college. So we have, from a technical standpoint, the built the ability to underwrite and evaluate the prospects, we have a ton of that skill set.

Now. Where do you get that skill set as the biggest question when you’re looking at sponsors, right, and so in evaluate T, and that’s the value of a person like my partner, Jared, because when you go work for the larger EP companies, they have, you know, billion dollar plus capex on an annual basis, you get to drill a lot of wells. And you also get to drill a lot of wells that maybe don’t work. And that’s how you learn, right?

You learn what works in oil and gas, because you have drilled a lot of different wells, you’ve seen a lot of different things, you’ve seen a lot of down old problems. You’ve seen a lot of different rock geological characteristics across different basins. And you’ve seen what works and what doesn’t work. And the larger companies allow you to do that, because they have a big capex budget.

So it influences our decisions big time, because, again, I want to go back to what I said before, the way we make money the way we are participated and why we started in veto Energy Partners, at least from a standpoint for many different reasons, but a standpoint of wire, everybody works. Everybody builds a business does a job because they want to make money. The way we do that this is a long term play for us. We have to get into good projects.

We are going to make money the same way our clients make money for the most part and we are going to even make more money when they because we have a participation what’s called the back Then when the clients get to payout, our participation increases. So aligning us with the clients is the number one way to manage that and to affect decision making, because if we make bad decisions for the clients or take too much risk is going to affect us as well.

 

Alan Olsen

Steve, what advice would you give someone looking to invest in the energy sector for the first time?

 

Steve Blackwell

it looked direct energy investments are almost always on the on the private placement side are almost always for accredited investors, right. So our deals are always 506 C deals, you have to be accredited. So you can invest into oil. And the if you believe in the energy space, are you believe it all gas, you can invest, you could buy, you know, ETFs, you can buy publicly traded companies.

But if you want to participate directly and get, you know, the the number one expense or liability on anybody’s personal balance sheet is tax, right. So that’s the tremendous advantage of if you have the ability, if you are accredited investor to go direct is the unbelievable tax benefits and keeping your money versus giving it you know, to the to the IRS, but it needs to be suitable, right. So you have to be accredited, but be out to be an accredited, most private placements are not are not liquid assets, right?

So you can’t, you have to make sure that you have the liquidity to invest in a non liquid asset. In other words, if you, you know, you’re going to invest 100 grand, but you need that 100 grand back potentially six months, or a year, then I would say that that’s not a suitable deal for yourself.

So if you have when you’re looking at your portfolio, if you have a segment that’s carved off, think the 6040 or you know, stocks, bonds, it’s pretty, pretty much most people would agree that’s pretty dead these days, alternatives is becoming more popular. And I’ll get alternatives is a pretty large spectrum. If you have a piece carved out of your portfolio for alternatives, if you have a lot of taxable income, either through your business or your job.

I think energy direct energy investments are a great sleeve to look for allocating inside that portfolio.

 

Alan Olsen

When you look in the crystal ball, where do you see the future of when the gas investments heading in the next five to 10 years?

 

Steve Blackwell

Yeah, I mean, I think you’re basically asking me commodity prices, because it’s connected to come on. Obviously, this type of investment is directly correlated to the commodity price. So what I would say is that we are we are at least at Vito and me personally, I’m certainly I think I’m definitely more bullish on oil prices, in terms of sustained higher prices. And when I say higher prices, I literally to be anything north of $60 a barrel is great for investing.

I think we’re at $84 today, so which is fantastic, obviously, you know, the demand for oil, regardless of what you may hear in the media isn’t going away, you know, post COVID were up, you know, even to pre COVID levels, we’re up to over 102 million barrels a day annually, the demand across the globe. I don’t see oil, any of the green or any of the renewable stuff is not going to affect entity time in the next five to 10 years, certainly. So I see demand continue into her eyes.

And I see a lot of policies across the world, especially United States are making supply, the ability to keep the supply up. Limited, although the United States is now the largest producer of oil. But again, I would say from a oil standpoint, I’m very bullish, I think it’s a fantastic time to be in oil, whether it’s oil stocks, or investing directly into oil, we will look at projects that have a mixture of natural gas, liquid natural gas, liquids and oil. We don’t particularly favor pure dry gas plays.

The only challenge on the gas side is from from a commodity price standpoint, as the United States is flush. And we have so much reserves in this country, we could supply the world literally natural gas if we were allowed to. And the gas market also competes against the oil market in the sense that the Permian Basin is the largest base in the United States, right. And that’s what it produces. When it produces that oil, it also produces associated gas.

So the oil fields are also competing and producing supply that are competing against and hindering commodity prices for the gas fields. So that’s why I mean look, you’ve got natural gas under two bucks. That’s the F right now. And it’s been there for a while. That’s a tough market to produce. But you know, two years ago was you know, up over 70 bucks, just a pretty volatile market and it goes low sometimes it stays low for an extended period. So bit more bullish on the oil side.

 

Alan Olsen

So wealth managers looking to get into this market, curious about oil and gas investments. What initial steps should they take to explore opportunities with Invito?

 

Steve Blackwell

So we partner with fee based advisors. So we are not on what’s called the broker dealer platforms. So most of our partners are either CPAs, who have high net worth clients that do tax planning, or RAs independent RAS that are also engaged in alternative assets have high net worth clients, and clients that are looking for tax strategies and IRAs that are based in tax strategy. So I mean really is just reach out connect us we go to the website, reach out to me directly, all of our fund is housed on a platform called troutbeck.

So where the clients can track their investments, the RAS can track their clients investments, everything’s done online, digitally. And so that’s the easiest way to get started. You know, if you have ever, if you ever don’t know anything about oil and gas, you know, you can go to our YouTube channel, I’ve got, you know, four or five short videos kind of on navigating Oil Gas investments, but I’m always happy to jump on calls. I’m a big believer in education. But I would say if it’s, it’s real, it’s real simple.

If you’re an RA and you’re engaged in tax planning, your your do alternative assets, and you have clients that are looking for tax strategies to lower taxable income. Oil Gas is something you should at least be aware of how it works, whether whether or not you include it as an offering or offer to your clients is a different story. But you should at least be aware of how it works. And we’re happy, we’re happy to do that.

 

Alan Olsen

So individuals that also want to reach out and talk to you seeking second opinions on an investment deal. Are you open to that too.

 

Steve Blackwell

I’m 100% open to that. So I I probably reviewed probably a good 20 deals last year for other people. And the reason why I’m open to do that is because it gives me a chance to read other people. So I will happily, and the thing I will tell people is I’m not going to do a geological analysis of their, of the offering they’re given most of the time, we’re familiar with the area. So we can offer some opinion there. But the main thing I’ll do for folks is I will make sure they understand the fee structure of the deal.

I’ve read a lot of ppm and unfortunately, some of them are very complicated. And you have to follow the fine terms from beginning to end to try to figure out how the fee structure is.

 

And so that’s why it helps if you know the industry. But what I would say is our deals, my fees are on like two paragraphs. It’s not hard. That’s the way it should be for everybody. It shouldn’t you shouldn’t have to, you should have to follow PPM from beginning and figure out what the fee structure is. So I’m happy to do that.

 

Alan Olsen

Thank you. Well Steve it’s been a pleasure having you here on American Dreams.

 

Steve Blackwell

Also I appreciate it Alan thank you so much for the opportunity

 

Alan Olsen

I’ve been visiting here with Steve Steve Blackwell, Steve once you once again give us the way that people can reach out to you like email phone calls, just go to the website? What’s your…

 

Steve Blackwell

Our websites pretty simple InvitoEP.com you can reach us through there and our information is on there. So it’s simple enough to I’d give you my email address but although that would work, but my personal email is just my name SBlackwell@InvitoEP.com. So that way or just go to the website and submit a request to reach out love to talk to you.

 

Alan Olsen

Thanks for being with us today.

 

Steve Blackwell

Thank you

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