Oil and Gas 101 for Investors

TRANSCRIPT

Kevin Schneider: [00:00:00] On this episode of the Hidden Money Podcast, we have RJ Burr. RJ Burr is with Panex Panther Exploration, and oddly enough, RJ knows a little bit about oil and gas. He's been at it since going out of high school, so we have a literal lifetime of knowledge in front of us here.

So, excited to chat with you, RJ, and looking forward to hearing what you have to say, and educating us on this 'Wild, Wild West' of oil and gas

Mike Pine: Welcome.

RJ Burr: Kevin and Mike, y'all doing great today?

Mike Pine: We are. We're recording this on March 19th, 2024 in the smack-dab middle of our busy season, and this is the most wonderful time of year for us CPAs. This is when we see the rubber hit the road. We've been planning with clients for a whole past year, and now, we're filing their tax returns and seeing the beautiful results of all the tax planning.

So this is a good time of year. How about you?

RJ Burr: You know what December is for us. December is the month that we get together and give you all the work [00:01:00] for this month.

Mike Pine: Yeah, we appreciate you guys every December.

RJ Burr: My partners- a lot of them will utilize their money over the first 10 months however they want. They'll call their CPA in November to see how much they owe in taxes, and then they'll call me in December.

Kevin Schneider: There you go

Grow well, save taxes.

RJ Burr: Look, they talk about oil and gas, and a lot of my partners- you see what's going on in the news, and they're freaked out, 'Hey, are they going to attack the industry?

Are they going to shut us down?' --No country is going to voluntarily choose to go back to the Stone Age. Can they make it difficult? Yeah.. You can manage scarcity. You can't manage abundance, so if they keep it down and scarce, where all of a sudden you can manage that, you can control what you do with it.

However, the trigger I look for, and this might be in y'all's wheelhouse, the minute they go after the taxes, that's the minute I believe they're going after oil and gas. All the rest of it's fluff. And so, that's the landmark I look for. They start going after the taxes, and the intention- because I believe it's the best tax benefit out there.

You put $100,000 in an oil and gas deal in a drilling program, and Uncle Sam's going to pay for roughly a third of it. Mm hmm. playing on 65 [00:02:00] cent Dollars. If I get you back 65% of your money, I broke you even. Now, if I go out and miss wells, and don't produce that revenue for you.. Okay, that's not good.

You're saving 35% on your taxes while you're losing 65% of your money. That's not good. You don't do oil and gas because of the tax benefits. I was a young guy. Started when I was in high school. I've been doing this for three generations.

My family, my grandpa was out in the oil patch. My uncles were out in the oil patch.

My dad's in the oil business, and so, it's all we've ever known. He brought me the 'Go to Work With Your Father Day'. He brought me to the field when I was seven years old in Luling, Texas,

and I remember getting out of the car, and if you haven't been in an oil patch and you haven't smelled oil, it's not very pleasant smelling for the first time you smell it. stuck my head out, and it was 800 degrees outside in Texas, and I smell, and I go, 'Dad, what's that smell??'

He said, 'Baby, that's the smell of money.'

Mike Pine: Ha. --

RJ Burr: And when we went out to the field, and I saw the pump jacks, the big iron horses going up and down... when I saw those pump jacks, I was hooked.

I knew what I wanted to do, and [00:03:00] so, I believe I was fortunate. A lot of people spend decades trying to find their purpose.

I knew mine at seven. And so, really, it was just a matter of when I got out of high school, ah, made my first sale three months out of high school, and never looked back.

Mike Pine: We're here to introduce more facts about oil and gas investments and its operations, and they are good. They're good investments that they offer great tax benefits. Like you said, some of the best tax benefits out there, hands down.

But I also think a lot of us are scared of oil and gas because we never invested in it, and the first time I invested in it, I lost every cent, but I got a good tax benefit. A lot of us don't know enough about oil and gas to even dip our toe in the water, and I'm hoping we can use your wealth of knowledge from your lifetime in the fields to explain it.

So, before we get into the fundamentals of oil and gas, walk us through- you graduated high school, and started oil and gas- walk us through them to today. What have your experiences been? What are the big lessons you've learned about oil and gas? And then, we'll get into the [00:04:00] fundamentals.

RJ Burr: All right. Basically, when it comes to my life path, when I got in the business, my dad pretty much wore every hat in the company- he ran everything, and it wasn't long before we realized that while you can be successful with one guy handling all of it, to have a truly successful oil company, it's too much for one guy to do.

There's too many moving parts. And so, what we did when we got in the business- we split it into two sides. One side was the fundraising and the operations side. It doesn't matter what your ideas are, doesn't matter what wells you want to drill, if you can't fund them, you're already at the mercy of somebody else who can, and so that's one side of the business, and the operations side.

The other side of the business is the geological and the field side. If you can't find oil, if you can't produce it efficiently, you're always at the mercy of somebody who can. And so, me and my brother, when we got in the business- he's a couple years younger than me- my first day in the business, I took the sales side of it.

My brother on the other hand- his first day in the office, he was straight to the field, and [00:05:00] our first life in oil, that's really how we spent the next 20 years- funding, drilling programs, building a family's company.

The average American does not understand what the American oil industry is and who they are. Prime example- If you go up to the average guy and ask them- 'What was the effect of the April 20th, 2020, oil crash on the oil companies?' --They would probably go- 'Ah! It's Exxon, and it's Shell... they can handle it.'

-- Yeah, they can handle it. They're good sized companies. They can handle that speed ball. However, they weren't really the companies that were hammered by that.

RJ Burr: However, 83% of your oil, 90% of your gas, all produced, and more than 90% of the wells drilled domestically are drilled by roughly 9,000 independent companies that average 12 employees or less. That's your American oil and gas industry. So when that crash happened on April 20th, what it did is it cleared the deck like I've never seen cleared. Prime example- the first day [00:06:00] when the prices crashed, immediately, you had a wave of companies knocked out- your younger companies, your companies that were on shaky financial ground, boom!

The next wave came a couple of months later when we sent everybody home for COVID. The companies that could pay their employees enough to get them back to the field. They're the ones that stayed in business. The companies that couldn't, a lot of them didn't make it.

When you look at crisis, the economic crisis in American history, in every case, there's one or a group of people that come out of the other side, looking like geniuses, and when you string their stories together, there's really two common characteristics they share.

One, when the crash happened, they were liquid. They had cash in hand and were ready to move. The second, when their opportunity presented itself, they had what my dad calls the intestinal fortitude. They had the courage to push their chips in the middle of the table and make their move. And so when the markets crashed,

at that point when everybody else was pulling their sales in to ride out the storm, we opened ours up and started buying, and between then and now, we've made 23 different acquisitions, we've secured what we believe to be about [00:07:00] a hundred million barrels in reserve,

and now, we're simply developing it.

So, that's what we do. We go out and we put our partners in a position where they can protect their money through taxes. We were talking about tax benefits, and they are tremendous. It's an above-line deduction.

You gentlemen could probably confirm more what I say, but when you put your money in an oil and gas drilling program, Uncle Sam's going to pay for roughly a third of it. You put a $100,000 in, you're going to have anywhere from $30,000 to $35,000 in above-line deductions. And so, if we can put you in a position where we can make you 3, 4, 5, 10 to 1 on your money, 12 to 1 on your money, and you're saving money on your taxes, you're getting the best of both worlds.

Now, y'all were talking about oil- you should be scared of oil. Oil is, by nature, a risky business. You're dealing with something that is thousands of feet below the surface, and only the good Lord above knows exactly what's down there.

Now, how do you protect yourself? We call it the three factors. The interaction between me and any potential partner- there are going to be three factors involved before we'll ever do business together. The [00:08:00] first factor sits squarely on the buyer's shoulders. The second two factors sit squarely on my shoulders.

The factor that is the buyer's is the money. We run Reg D 506(c) programs. Our programs are designed for accredited investors, third party verified. That's the criteria that we look for. If you're accredited then we can help you. Now, once a partner has displayed they are 'Well, I'll put a positive next to that, and I won't worry about it again.' --Now, it relies squarely on me and my two factors.

The first, who are we? Why are we the kind of people you want on your team? Once you see that I'm somebody you want on your team, we'll move to financially- Of all the places you could place your hard earned money, why is this one of them? Why are these wells somewhere you need to place your money? And when it's all said and done, if we have a positive on all three factors, we'll do business.

Kevin Schneider: Yeah that's awesome, RJ. And there's always, to break it down even further, if we had to do Oil and Gas 101 for our people who have never invested- they're accredited, they're sitting on some liquidity and they're ready to [00:09:00] go, or they're just looking at potentially diversifying.

Maybe they're in real estate. Maybe they have a business. Maybe they want to diversify and get into some oil and gas. They're heavy in the stock market, and that's given them uneasy feelings. What are the different types of investments? Because not all oil and gas investments are the same.

There's royalties, there's working interests. So, in order to harvest the tax benefits against your active earned income, your W2, your self employed income... if you want to reduce your income there, it has to be working interest oil and gas deals. Is that what you're

RJ Burr: You have to have money at

And can you explain what a working interest oil deal is, and the risks?

Basically, and this is just general structure- typically you have a landowner. That landowner owns all the mineral rights. He owns everything down below him on his land. An oil company thinks you have, this landowner has oil on his property. They've done geology, whatever work they've done to say, 'Okay, we think we need to [00:10:00] drill a well here.'

-- Now you enter into a negotiation with that landowner to acquire his mineral rights. Most of the landowners are going to take anywhere from 25% to 40% right off the top. That's your overriding interest,

and the remaining portion of that ownership is what our partners invest in. That is your working interest. That is the interest left in that well, and then, you have net revenue interest, which is basically your interest minus the expenses. Basically, what I do, like in Louisiana, that's where a majority of our production is right now,

I take all of that right off the price of the barrel. Let's say oil's $80 a barrel. We'll immediately, right off that $80, we have 30% goes to the landowners, and the state of Louisiana gets 12.5%, and so, if oil prices are $80 a barrel, I immediately pull 42.5% out. Our 100% is $46, and that represents our 100% of the well, which is 70%.

Mike Pine: Let's quickly unpack the tax sides of that. So, [00:11:00] a working interest, if structured properly, the way you invest it, it gives you something called- and we'll talk about it more- intangible drilling costs and depreciation. It comes off, and it's passed on to you as an investor. If it's a working interest, and structured right,

those deductions can offset all of your active income, your W2. It can offset any of your income. It can offset capital gain income, but generally you want to offset your active incomes, your W2, your business income. The tax benefit you get that immediate year when you file those taxes, it pays for anywhere from 20% up to 35% of your investment.

So, it's like a subsidy. It's a great investment, you just got it at two thirds of the cost of what it would cost anyone else. So, that's a working interest. What are royalty interests? Is that kind of what you're referring to as a land interest earlier?

RJ Burr: Royalty interest is when you're, basically, getting your percentage of it before anybody else. Those are your overriding roles. That's typically the landowner. You might have some industry partners that have a piece of it that have 1 or 2 points in there. [00:12:00] However, when it comes to the partners that the working interest- and you're looking.. the intangible drilling cost, or the actual cost associated with drilling the well-

that's, typically, we run right at about 90% in year 1, and so, it's a tremendous lever.

Mike Pine: Let's unpack that just a second, what you just said. So, I give you $100,000 as one of your partners to go invest in a new drilling interest, or new working interest. You're going to send me upwards of $90,000 back as an expense for intangible drilling costs. That comes to me that first year.

So, I can invest with you in December. I get my K-1 from you in March. Generally, it's usually June or July because you got to spend all that money too. But I get my first K-1 from you, and it comes back and says, 'Yeah, you invested $100,000, here's a $90,000 deduction. That's $90,000 off of your active income, which depending what your tax rate is, that's huge.

It's huge.

RJ Burr: So, let's say in this example where you find a landowner, you've done your geology reports, you've done all your analysis. You think- you can't be [00:13:00] 100% certain-the data is leading you to the decision that there could be some oil here.

Kevin Schneider: The risk is these investors could give you the money. You work out a lease, a royalty with this landowner, you start production, you start drilling, and it's nothing but dry hole, right?

That's the risk, and at that point, your investment is pretty much gone, right? You can't shift that to another well. That is the risk that you're talking about RJ?

RJ Burr: Yeah, that's why they give you the tax benefits. That's why they're there. You have to face the risk. And that's what separates the men from the boys in oil, is how you manage the risk, because you can't completely eliminate it. If somebody does say that- yeah..

I hate calling people liars, but they're liars. This is oil and gas. Now, can you put producing wells in a program? Can you structure a deal differently? Can you do a bond payment? We're a private company. We can do what we want. It's our company.

We can structure our programs however we want to structure them as long as they're legal. We make sure we dot all our I's and cross all our T's, but the bottom line of [00:14:00] everything is, is it good for the partners? Because without my partners, I don't have a business.

Mike Pine: Let's go back to that risk though, when RJ mentioned- you get these tax benefits, and that is to incentivize people to invest in these, because they are risky.. But let's say it does go worthless. You did get your 30-35% tax benefit up front, but you still have the stuff you haven't gotten.

You might still have what we call basis in the CPA world- you still have some money left over. That can also end up being a capital loss. Granted, you don't want to make an investment just to get the tax benefits. We always say- Don't let your tax tail wag your investment dog. Don't do that, but there's still benefits.

You're not going to be left high and dry. But again, when you're investing in oil and gas, try to find one that's going to make you money. That's always a much better tax plan idea. So, on the royalty interests you mentioned, and on your working interest too, there's something called a depletion allowance, and this is really cool.

It's very similar to what Kevin and I have talked to a lot of y'all about on the depreciation world, but it's better. With depreciation, if [00:15:00] I buy a vacation rental and I fully depreciate it, I'm done- I got no more deductions. Percent depletion allows you to take a percentage, kind of like

depreciation, a percentage off the top. It's 15% right now off the top of the revenue that is tax free to you. That 15% deduction is miraculous. Let's say you take that depletion all the way until you've used up all of your investment. The cool thing about depletion is it keeps coming.

As long as you're producing gas, you get a depletion deduction. So, in a royalty interest, you get depletion. In working interest, you get depletion, but that's not the big benefit right up front. Over the long term, 85% of every dollar you get from your own gas investment, that's all you're paying tax on is 85%.

The other 15% is tax free, as long as that well produces. That's hidden money right there!

RJ Burr: Yeah, but that's really why oil and gas is so risky, because the tax benefits are so good, and the risk reward is tremendous. Oil and gas has made more millionaires than any other [00:16:00] industry, and so, anytime you have an industry that has that many bells and whistles to it, you're going to bring some unsavory characters there also.

So, just make sure who you're doing business with. Kick the tires. This is your money we're talking about. Now, we were talking earlier about real estate. A lot of my partners are real estate owners.

While oil and gas and real estate are not brother and sisters, they are first cousins, and it's all based on one thing- location. It depends on what you're targeting.

Mike Pine: I guess, the basics are there's multiple ways of investing in oil and gas.

One- you could just go buy land and figure out how to drill and drill it. You can do that on your own, or you can partner with someone in a small partnership and do it with them. You can be the money guy. They can be the oil guy. The most common ways we see it is either through syndications, like RJ is doing with his 506(c)

for accredited investors, but another way is you can buy into these publicly traded partnerships. I don't like these because you lose most of your tax benefits right off the top. People are invested in publicly traded partnerships, but you don't get the deductions you get if you're invested in an actual partnership. Then we see things like- Hey, [00:17:00] this is a midstream oil and gas investment, or downstream, upstream?

What does all that stuff mean? What are the streams of oil and gas? Could you explain that to us?

RJ Burr: Yeah. Upstream is find it and produce it. Midstream is get it to where it wants to go. Downstream is production out to the public. Basically, that's your 3 stages. It's that simple.

Mike Pine: So an example of upstream is you.

RJ Burr: Yes, we are. We are upstream.

Mike Pine: Then there are some syndicators out there that are putting in pipelines- that would be midstream, right? And then, what's downstream?

The refineries.

Okay.

RJ Burr: The end product, because that's what most people don't realize, that there are 6,000 products that can be made from one barrel of oil. You could literally go to any city in the modern world and randomly grab one person, and they would, most likely, have at least two products of oil on them, and not even know it.

In fact, our website- the www.panex.us/learn --there's a video on there. It was two Christmases ago, and I started looking around the [00:18:00] kitchen.

I said, 'Well, that's made from oil. That's made from oil. That's made from oil...' --and by the time I got done, I was shocked, and it hit me. It was like, 'Jay, you've been doing this your whole life, and if you were shocked by the amount of products you just counted, how many other people out there have no idea?'

--and so, we made a little movie called A Morning Without Oil. It's a little five minute movie that shows just a couple waking up in the morning, and how their day would go if there were no oil products in their life.

RJ Burr: It's from makeup to your clothing, to plastics, to.. I mean, it is ingrained in our lives, and most people don't realize it.

Kevin Schneider:

My question to you is- because when I think oil, I just think burning it.. for vehicles, for equipment- so, how does oil play a part in our everyday life? Like looking at my screen right now, what is made of oil and how is it made of oil? Are you talking about the manufacturing process, the plastic, and all that?

RJ Burr: Every plastic is oil. Asphalt [00:19:00] is oil. Makeup is oil. If it says 'poly' before it, it's oil, and literally, from toothpaste to medicine, to dental floss, to tires..

Mike Pine: RJ, I got polycarbonate lenses on my glasses I'm wearing. Are you saying that comes from an oil well?

RJ Burr: There will be an oil basis in there.

Oh, yes, we could find ways to burn it cleaner. Some kid's going to come up with some idea that changes the world.

I look at solar panels, and to create the amount of energy the United States uses on an annual basis,

it would require using the most modern solar panels known to man. It would require a solar farm the size of New Jersey, and it would require the sun to shine 365 days a year, 24 hours a day at Arizona summertime intensity,and then, the amount of material we would have to produce to make those...

just economically, it's not feasible.

What my partners are now coming out from under the ether [00:20:00] for

is the fact that a lot of their safe money investments are just as manipulated as anything else I have a lot of partners that have a lot of money in silver. And all of a sudden, y'all remember the silver crunch a couple years ago when they realized there's more paper than there actually is silver?

They started freaking out! And so, I looked at it and I said, 'Okay, what is the one product in the world that everybody wants? What is the one product that has a pretty fair price?

Hey, it's oil. And so if you're going to back your money with something, why not back it with something that you know is not going anywhere? Since 2014, we invested worldwide, roughly a trillion dollars in upstream to find more oil to replace what we produced. We're going to be lucky to hit $300 billion this year. So, the worldwide investment to find more oil has dropped by almost 70% over the last 10 years, yet demand keeps going up, and there's nothing to replace it with.

Mike Pine: So, that sounds very similar to what we previously have seen with real estate [00:21:00] and in commercial housing, like in apartment complexes. We saw a lull after the economic crisis of 2008. They stopped building new places and we started seeing apartment complexes. ROIs go up, rents start going up, because it created more demand versus the supply that we had.

You're saying we're seeing something similar right now in oil and gas?

RJ Burr: Oh yeah. Because we're not making the investment.

Mike Pine: This is big, RJ. This is big because this is huge hidden money. If someone could have come back and told me what real estate was going to do from 2017 to 2020 or 2016- '20, I would have started investing in real estate. Instead, I didn't come in until it was toward the plateau or already at the top. Right now,

sounds like the time that if I could have invested in real estate in 2014- 15, that's what oil and gas is today. So it is a good time. That's big. That's hidden money, man.

RJ Burr: Here's the hidden upside that my partners face. I'll give you a Reader's Digest superficial version- every well we drill will have, for the most part, anywhere from 3 [00:22:00] to 10 different pay zones in it- different levels of oil and gas that we'll produce.

Well, each one of those zones will last anywhere from 3 to 5 years on average. If I have a well with 5 zones in it, and each zone takes 3 years to produce. That well will produce for 15 years.

Well, The beauty of it- when you produce these wells, you start at the bottom, and the reason being- let's say the best zone's in the middle. If those two zones below it are solid zones but not as good, you're not going to go back down and get them

because every time you get done, you have to cement and plug everything off. And so, what you do is you start at the bottom, you produce the deep zone, and when it's done, you plug it, move up, 3 years, 5 years later, produce the next one.

You're going to have a whole another increase of flush production, and then it's going to start declining to zero. When it gets to zero, boom! Plug it, move to the next one. That well we just hit- the two zones at the bottom are good zones. There's 25 ft of pay in each of those zones by themselves. I have 150,000-200,000 barrels in them, but the third zone above it is almost 80 [00:23:00] ft thick.

This zone right here might have a million barrels in it. We won't start producing that zone for 10 years down the road. What do you think oil prices are going to be 10 years from now? Well,

my partners are going to get it at that price when we produce it. If oil prices go to $120 a barrel, all of a sudden they're making 100% annually on an investment they made 10 years ago.

Mike Pine: Let me go back to some of the things you just said. Make sure we understand the definitions here. You talked about different pay zones. What is a pay zone?

RJ Burr: A pay zone is a section where oil is trapped. It's what you're going to produce from. Think of a layer cake. You have a layer of chocolate, layer of fudge, layer of chocolate, layer of fudge. That's what it looks like under the ground. If that chocolate represents sandstone, limestone, whatever, and that fudge represents oil, each one of those layers of fudge are separated.

They can't commingle.

That one layer of fudge right there, that is a pay zone.

Mike Pine: Gotcha.

RJ Burr: That one zone on average in this particular- every field varies- but in this particular field, that zone [00:24:00] will average produce anywhere from 3-5 years, and each one of our wells will have anywhere from 3-12 different zones in it. And we have several wells out here that will produce for probably 30, 40 years.

Mike Pine: There's nothing pet, academic pedigree to this. This is just somebody who's been in the industry, and kind of our family's philosophy on the oil industry. Every oil company, when you first start, you're doing what we call, 'chasing' oil,

RJ Burr: and here's what I mean. You have a guy, group of guys, they want to drill an oil well, so they go raise some money and they go drill a well. For 99.9% of your oil companies, that's it. They miss the well, they can't raise any more money- out of business. For that lucky few that hit that well, they found what we call job security.

Their job is secure as long as they have wells to drill around that well to develop their field. Now, while they're doing this, they'll be looking for lily pads. They're trying to find another well. That way, when they're done developing this, boom! They'll jump to this one, develop this. A successful oil man looks back, he's 70-80 years old.

He's [00:25:00] found 5, maybe 10 of these lily pads over his career. He's made a tremendous career- doesn't mean they're bad at all. He's made a tremendous living. His partners have made a lot of money. However, he spent his entire career 'chasing oil'- meaning, he had to produce everything he found to keep his engine going. Now, the rarest jump in oil is when a company jumps from that chasing oil stage to the producing oil stage. Now, the producing oil stage really simply means that when you drill a well, it doesn't mean that you're going to hit it. However, it does mean you know the oil's there when you drill it. The second part, which is probably the biggest part, is when you're in the producing oil stage, you have acquired enough reserves-

oil in place in the ground- to utilize those reserves to acquire more reserves. Now, you're truly in the oil business, and that's the rarest jump that a company can make from the 'chasing oil' stage to the producing oil stage.

Mike Pine: An investor that doesn't know anything about oil and gas, [00:26:00] the best way to, if you're going to make it as an oil and gas investor, you got to figure out where to start, and it's not going out and figuring out how to drill your own oil well, but it's fine  already a proven track record and already made that jump that RJ just mentioned about.

RJ Burr: Well, it's simple. When it comes to my health, I go to my doctor. When it comes to law, I go to my lawyer. When it comes to my taxes, I go to my accountant. But when it comes to oil, they come to me because this is what I do. This is my expertise, and that's why make sure you know who you're doing business with.

Heck, this is oil. If anybody ever tells you they're in oil and they hadn't missed a well, once again, they're lying, because it is oil. However, like I said earlier, without my partners, I don't have a business,

and so, every decision we make, the first question- ' Is it good for the partners?' --and if that answer is 'No', it doesn't matter how good it is for us. We're not going to do it. because

I would much rather have a smaller piece of 300 wells versus a larger piece of 50 wells, and if I took everything right now and kept it all to myself, and didn't give it to my [00:27:00] partners, that would be suicidal, wouldn't it?

Because my partners are the ones that are going to help me develop this field.

Mike Pine: Right. Let me hit you with one last question. Then Kevin's going to get us wrapped up. So, RJ, I think he, kind of, alluded to something that's a big issue for us on the outside, looking into oil and gas. I definitely want to grow my investment portfolio in oil and gas, but like with stockbrokers, I quit using stockbrokers because whether I make money or lose money, they make the same.

So, isn't there, like, a conflict of interest there? How do I trust in that? Whether or not I make or lose money, aren't you going to still make money on the investment, or on my invested capital?

RJ Burr: In theory, yeah, but that's why we signed a turnkey contract with our partners. I don't think my partners would enter into an open-ended deal, and so, we say, 'Okay, you're going to buy this percentage, and we can do it for X amount. This is the deal. We're going to raise $1.2 million to drill this well. If we come in under $1. 2 million, yes, we're going to make that money.

However, if we go over $1.2 million, we're going to eat that money.

And over the last 30 years, I'd say I've eaten more money than I made. I've [00:28:00] learned that if somebody is in the boat with you, they typically paddle a lot harder

than somebody who's on the shore telling you how to paddle.

It's the economics. If you step on a deal too much, you can't make your partners any money.

That's what kills a lot of oil companies is if they need $1 million to drill a well, they'll raise $2 million. that million drills well, they pocket the other million. If you have $1 million dollar well that's supposed to pay a $2 million well off, boy, you've got to hit some good revenue to do that

and it's hard to do. It's a double edged sword. Yeah, I could raise a lot more money on these wells and us make a lot more money up front, but the fact the matter is, that's just making it harder in the long run for me because we give our partners 100% of the revenue until they have their at-risk money back.

And once their at-risk money is back, then we back in for our percentage of it. But we don't make money until they're out of the deal, or until they're cash-wise out of the deal.

Kevin Schneider: Oh, so you don't take any syndication fee or any kind of fee on top on the front end. You wait until all your A-investors are paid back their [00:29:00] risk. Once they're paid back, then you get maybe 20% going forward, something like that. Is that kind of how you structure it?

RJ Burr: Well, yeah, what we do is- like the current deal we're funding, we're raising $3.7 million for it's right at 40% of two wells. So, we go out and drill these wells. If it cost us $4 million then we have to pay that extra $300,000. If it cost us $3.5 million, we're going to make that $200,000. So, now when it comes to the partners, they're getting 40% of the revenues that well's producing. They will get 100% of that 40%. Until They had their at-risk money back- roughly $3.7 million raised, roughly $2.5 million returned. Once their at-risk money is back in their pocket, at that point, my company backs in for 40% of that 40%.

So, the partners will end up with 24% total ownership and we'll get 16%.

Mike Pine: Only after they get their original capital?

RJ Burr: Yeah, only after they get theirs back.

Kevin Schneider: How long does that typically take? And I know every well is different, but let's say someone invested in [00:30:00] 2024. Assuming the well is good, how long until they get their original risk back, and how long are they in these deals for the next percentage ownership that they have, after their risk is paid back.

RJ Burr: Typically, I'd say, on average, best case scenario- 12 months. Longest period on these wells, assuming success- 3-4 years. Oh, you take the last program we did. I would say if now we're put, we're actually have a rig moving on location, putting it in production now, and so I don't know what the initial production rates will be.

And so you're looking, I would say, best case, these wells do roughly the same thing, 12 months to 4 years. However, these wells will produce for them for the next 30, 40 years.

Kevin Schneider: So they're still in this partnership of yours for 30-40 years? K ones,

RJ Burr: They own it. They own their percentage of the well, and as long as that well is producing, they'll get their piece of it.

Kevin Schneider: that's from other syndicators I hear from. That's way different.

Mike Pine: Lot of money hidden down in all the depths of the soil there. It's pretty cool.

Kevin Schneider:

Well, [00:31:00] RJ, thank you so much for taking the time to speak with Mike and I and our audience about this.

For all those who are listening, if you want to get in touch with RJ, go to www.panex.us/learn. When you go there, there's going to be some material for you to consume- education, and if you want to take further steps with RJ and his team, is there a contact link on that website landing page.

RJ Burr: Yeah. Everything you need will be there. My email is rjburr@panex.us. You can just straight email me. I look forward to the conversation. Hey, all we can do is show you who we are. We don't twist arms. We don't yank hairs. We lay it out there and just show you what we have, what we think it can do, and what the risks are,

and then, the ball's in your court.

Kevin Schneider: Yeah. And to those listening, it is a great investment, but you don't want to put all your eggs in this basket.

You want to be that well-diversified because there is that risk there, but with risk comes reward, not only tax reward, but cashflow reward in the future. But you don't want to just [00:32:00] save up a good amount of money, work your life savings, and then put it into a risky investment.

You want to diversify, and RJ's team is a great tool for that piece of your portfolio, for sure. If you're running into tax problems, and you're sitting on some cash.. you don't mind- I hate to use the term risking or playing with, but it's better than sitting in the bank account- you're going to get the immediate tax benefit, and you're going to have upside.

So, take that leap, get some education, educate yourself, reach out to your financial advisors to get their take on it.

Read through these agreements, make sure you understand what you're investing in. Don't just take our word for it in a 40 minute podcast. Do your own research. Make sure you're educated in this industry.

It's a lucrative industry. Like RJ said, millionaires have been made here, but some people have lost too. So, you need to be educated and know what you're doing. RJ is a great resource for that education piece. Highly recommend you reach out to him and his team. Thank you, RJ!

Maybe we'll have you on again. We'll do a recap later in the year and see how the industry's doing, if you have any updates, or something.

RJ Burr: [00:33:00] Oh, perfect! Kevin, Mike, it's been a pleasure. I'll tag one thing onto your point. My dad, he taught me a long time ago, oil and gas by nature is speculative, and so, this is your discretionary fund. Remember, this is your speculation pile. These are the funds you want to make multiples on, and therefore, the risk reward is always in play.

Kevin Schneider: Yep. Well said. Very well said.

Mike Pine: RJ, that was awesome. We really appreciate you.

RJ Burr: Oh, no worries, guys. If there's ever anything I can do, I'm one call away.

Mike Pine: Yeah, let's stay in touch for sure.

RJ Burr: All right, guys,

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