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210: Be Greedy When Others Are Fearful: Oil and Gas

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Buck: Welcome back to the show everyone. Today my guests guests on Wealth Formula Podcast are Tom Powell who’s a senior managing partner and founder of Resolute Capital and Stefan Toth who is the CEO and founder of HomeBound and these companies basically are you know sort of a team that amongst other things have developed a very, very strong partnership in the area of oil and gas and have provided investors opportunities. First of all guys I want to say welcome to the show, thanks for coming on. Let me start with Tom. Tom maybe, if you could maybe just sort of describe you know a little bit about your background and then ultimately how you and Stefan hooked up.

Tom: Happy to do so. I got started in Silicon Valley in the 80s with Wells Fargo in the bank as a commercial banker and during that time the education and discipline of banking was not lost on me nor was the art of lending and making money off of money. In ’92 and California went through its first recession that I was really an adult for and much country did, I left the bank because I saw an opportunity that we could provide capital to some of those people, the companies that were not getting financing from Wells Fargo Bank Wells X is a number of markets real estate being one of them so we started our first fund in ’92 and that led me to build a private equity firm over the next you know roughly 28 years that we are today which is Western Capital Partners. In 2012 I took a hiatus and retired, I was working out of Asia and decided that I was gonna be a ski bum and hang out with my daughters and just run our single member family office and I got a call from this guy Stefan Toth and he was introduced to me by a friend who was a former investor with us, a business partner and they said we really need to get to know each other I really need to see the real estate that they’re doing down in Texas and I respectfully declined for probably better part of a year I think Stefan, and then multiple phone calls. Stefan finally finally lured me by saying you have to fly through, I live in Lake Tahoe you have to fly through Dallas to get anywhere on the East Coast most likely. So next time you’re flying through just stay over the evening we’ll buy you dinner and go take a look at the real estate and about two weeks later I found myself flying through Texas and I called them up and sure enough we did end up liking each other I really appreciated their projects because we think about 2012 Buck we really went into the early buying modes of really depressed assets and repositioning of debt product at that time so everything that was coming out 2008–2009 we were picking up good deals in 2010 and they were able to start repositioning them. Stefan had done a number of broken condo projects down Dallas that he had actually saved the investors because they didn’t know what they were doing during the default face of that model so they didn’t know how to go through the foreclosure the developers have actually ran off with bunch of the funds and Stefan stepped in brought in a construction company got those condos built and said let’s rent them and it turned into a nice little project for us together because we had up partnering on that.

Buck: So let’s kind of shift because you know up to now I’m hearing about real estate but you know what the HomeBound-Resolute how maybe maybe yes to find you can kind of tell us where oil and gas fits into this and how ultimately Resolute and HomeBound were you know able to work together and how that works.

Stefan: Absolutely and there is a segue believe it or not. Tom mentioned we started all in real estate but during this whole entire time I was peeling off the minerals and keeping the minerals in a separate company knowing that at some point in time these minerals would be would be very popular and ends up being that you know and I started doing this way ahead prior to meeting Tom we had a company we had a couple of companies out of Oklahoma that obviously were major players in what today is the Barnett Shale in DFW area and we had a bunch of minerals to release and of course by the time that I met Tom we were very well past all that that we were already doing what we call and non operated since we didn’t have a full team at that moment here and staff. This is 2011, 2012 timeframe we were already doing oil wells as a partnering up, oil company with other oil companies. And so it’s segued very, very nicely because oil and gas really truly is very similar to how real estate works during the purchase in the divestiture of proportion of them, a little differences, obviously when you produce and operate those or manage the properties in development.

Tom: And Buck, why that tied into the previous story was they were able to take their development mentality from real estate and apply that to the real estate or to the oil and gas business and for much of the investors it was kind of the same understanding. Oil and gas is so much like real estate in that you can actually do 1031 exchanges from brick and mortar to oil and gas and vice versa because you are dealing with lands, the difference is that instead of tenants paying rent, it’s the minerals that are coming out of the ground that essentially is paying the rent.

Stefan: And also the experiences were very similar so we’ve had a lot of experience in real estate knowing that you know we wanted to skip some of the steps when we got into oil and gas and so we hired so we did from 2009 to 2013 we didn’t do any projects on our own nor did we managed him we were out there picking and choosing who we want on our team and in 2014 we launched Mercury operating HomeBound resources and we started doing our own management our own development and so it gave us five years to actually be in the oil and gas industry but yet not actually do it ourselves since we wanted to skip steps and go straight into having qualified oil and gas personnel on it.

Tom: And that was the last part of that. 14/15 is when we started making small investments looking for the correction in the prices because oil had been up above a hundred and as oil came down and we had targeted 32 it actually hit 27 at that time that’s when we started putting well over 200 million dollars into Stefan’s company to help grow it and do acquisitions of more product and more teams that were not available during the 2014 timeline. We’re back in an even better period than that.

Buck: Let’s get to that in a minute. So obviously so you guys got together as a essentially an operator and a private equity you know partnership there and you kind of went off to the races and since then obviously a number of things have happened and the oil and gas sector things got better they got worse they got worse they got better and suddenly you got March and obviously there was a few things that made things just kind of fall off the cliff, sort of a confluence of things. Maybe Tom maybe you want to talk about you know kind of what happened in March?

Tom: We had two primary events that coincided. One was a run of surplus oil and gas caused by the threats and then the initial action by Saudi Arabia and the continued action by Russia which was to turn on the spigots and actually flood the market. That coincided with the absolute destruction of demand. So normally when we watch what oil and gas and supply and demand are there almost always like just-in-time manufacturing, each month they just hit it right on the nose and all of a sudden you have this huge disparity between them and that huge disparity can’t last because there’s not enough storage made for much of this and you also forward price of the actual commodities so that’s why you ended up seeing this absolute destruction and actually negative price points to oil and gas.

Stefan: And to segue off of that Buck it’s absolutely correct. Now one thing that I want to make clear one day the oil prices fell to negative obviously that’s due to futures contracts and other bets that are done by Wall Street causing prices to plummet. We have not sold not even one time during this fall under $40.

Buck: I don’t want to skip things you know just because you said you know for obvious reasons but they’re not obvious I think for most lay persons who are not in buying futures and you know no issues of taking custody. So maybe you can talk a little bit about this whole idea of crude oil prices dropping you know to negative values. What was that all about and you know you mentioned some of the technical aspects maybe you can kind of just talk about what that phenomenon was?

Stefan: Well I’ll start with that and I know Tom’s going to have a lot to add to that but here’s what I will tell you about that particular instant, the futures contracts were coming to an end for May and they ended up those contracts were all done so people had to exit those contracts. So what happened is everybody knew that May you’re going to have an oil glut right you have three billion people staying at home, pipe lots are going to be full and storage all through the news storage was going to be at capacity two weeks in May. Obviously at this point we’re still in April right a couple of weeks in in April so bottom line is in the futures for May they were coming to an end they said okay well these contracts are done. The oil will not be able to be stored obviously they were wrong and it caused oil prices to dip all those bets cause oil prices to dip into the negatives. We were still under contract so our company and companies just like ours, they were still in their yearly contract I was still receiving 30 plus dollars a barrel for my oil at that time. It didn’t matter what oil shows their oil companies don’t get paid like that. They’re all burned by the market.

Buck: I get that. Tom maybe you want to take a stab at it. What I’m trying to do is educate people on the phenomena itself on what happened tonight and I think don’t try not to skip over things I know you guys are super smart on this but I’m trying to educate people on what that was all about and I think the idea of even you know having to take custody or the inability to take custody are critically important so maybe you could try try to explain.

Tom: I’m going to give you just a little different analogy because you’re in the West like me, right? They say whiskey’s whiskeys for drinking and water’s for fighting. So we use the water as an analogy. Water in the West cost a lot of money but when water floods, you can’t use that water flooding scenario to do anything with and it costs money to actually clean up the water flood because you have too much of it, it’s the right kind of supply of it. So what ends up happening is that in the futures market, they’re treating what the prices are gonna be and then the NYMEX goes out for a long period of time and you buy those future contracts. The reason companies and people buy those contracts is because they need to have a kind of relative fixed price such as an airline for a year out so they can set their budgets. Since oil and gas changes prices all the time what they agreed to do is they agree to buy so much of it in X amount over period of time and they’re gonna buy it and that’s called a hedge on the market. As my wife likes to say this whole pricing scenario outside of the fact that we have a surplus is caused by those damn traders.

Buck: That’s what I was getting at. So explain that because the traders can’t take custody of all the gas they oil and gas futures they bought, right?

Tom: They’re buying. They’re buying those contracts the same, we will take it and then they’re actually not gonna be able to take it because they have nowhere to put it right they sell it at some point. Well it is what’s \ in the stock market known as is the greater fool theory or as musical chairs. Musical chairs is the way that I use this example. Musical chairs is the last one standing when the music turns off is stuck in they’re out of the game. That’s what happens on these trades especially when they’ve got a tiny like that so the last ones out have to literally push that price out and pay someone to take them out of their trades, not out of the actual oil.

Buck: Right and that’s kind of what I was getting at which is that this was a technical phenomena. If you’re a trader but you know buying futures and all of the sudden you get to the end of the contract and well you’re sitting in your you know your sweet place in Lake Tahoe and don’t happen to have a you know a place to store you know thousands of gallons of oil that you or barrels of oil that you’ve purchased but you’re gonna have to do something so that’s why people were selling things and literally giving it away you know they were having to pay to get rid of it and that was the concept because a lot of people there’s a lot of confusion I know I see on social media what the heck does it even mean to be negative price well that’s what it means. So that being said okay so that was sort of a I guess what you would call I think sort of a real you know low spot in this cycle. Where are we right now as a you know we’re as we record it’s the first week of the first week of May. Where are we at? Obviously energy consumption is still you know terrible but what’s going on now with OPEC Plus which was this agreement between Saudi and Russia is that changed is can you can you kind of up the fast-forward us of up to May seventh or so.

Tom: Let me give you a quantitative analysis but also a qualitative analysis. So Texas kind of started open doors, we’re not in Texas but Stefan is. During much of this, Stefan still went to the office. The employees are not there but it’s the same place for him and you know work and he would be able to make it there in 20 minutes. I think he said today it took you 45 minutes. So that’s the anecdotal of supply. Demand is going to start coming back easy. I see more cars out on the road we’re not seeing the actual numbers yet what that’s gonna be but anecdotally will say that. Quantitatively, Russia has admitted that they screwed up and they are going to cut and they’ve already started to cut back and fail back because they can’t deal with negative oil prices. They don’t have a social infrastructure and the cost barriers to be able to do that. So they now have joined in with Saudi Arabia and the rest of it. It is estimated that the US production will be down almost two million barrels I think Stefan that’s what I just read on that so that’s a tremendous cut right there and the overall market sentiment is that although we’re over supply today, when this corrects in end of second quarter, middle of third quarter nobody know so it’s gonna be, because it’s like this and then they don’t turn it back on until it gets back to about here, oil doesn’t get to come out immediately into the supply chain. And so what ends up happening is we’re here. And there’s some really good statistics I’ve got it out on my LinkedIn where you can see the charts that we could see a massive jump in oil prices, which will also not be sustained it will come back down into normalcy. where’s normalcy gonna be we don’t know if that’s gonna fall in the $40 or $50 range it probably makes sense to be in that range. We’re also gonna see a couple more dips before we get there though.

Stefan: yeah and you know along those things I gotta tell you something about that as a matter of fact today being the 6th of May, the report every Wednesday a supply report comes out and it was a lot a lot more demand out there than what they expected and the amount of fuel the mother oil that was in storage was a lot less so that caused oil prices for the last couple of days to really hang out there around that twenty three to twenty five dollar range. And so right now it was said that the United States by the end of 2020, they will cut a total of two million barrels of oil just because of the price dips in the commodity price. We are now on track by the end of June to reach that number and that segues really well with what Tom said that by itself the United States it’s pulling two million barrels of oil off the supply chain. Russia, China, OPEC plus they’ve agreed on a cut program to start right now in May all the way to 2022 starting at a nine point seven million barrels a day cut and then obviously easing it as the year ends and so into 2021–2022. So therefore an overcorrection is very very viable here because of the same thing Tom just mentioned the oil their supply the oversupply is only measured in the amount of oil that’s being sold right now and what they’re thinking that what’s not being drilled and amount of rigs that are being laid down and not drilling for these major companies, however what’s not being taken into effect is all the wells that are being shut in and that will cause that number to be a lot greater and a lot quicker impact and on top of that in the next sixty days people are going back to work.

Buck: So the the the bottom line is what as I’m understanding you correctly right now you’re saying okay there’s a there will be a glut initially as energy consumption goes up but because we’ve basically over corrected at some point that glut gets soaked up and we don’t have enough production or supply and therefore you end up essentially prices go up overshoot where they ought to be and then they kind of come back to normal is that is that right?

Tom: It’s common inelastic market that’s why you see this.

Stefan: Because you can’t ever match it. You can’t bring the production back online in an instant it takes time it has a lag so nobody really knows or feels comfortable to do that any earlier than what’s necessary so you’re going to have a lag in prices will spike.

Buck: Yeah and I mean I think like you know one of the I’m tempted I asked you when you think that’s gonna happen but you know the reality is my own feeling is it doesn’t ultimately really I think sort of quarter to quarter predictions at this point are not very useful in you know business models that really rely on exiting at you know you know long-term four to six years, but the bottom line is that there is this phenomena that you know if you believe that we will be you know out of quarantine eventually in energy prices will go up that there’s that phenomena it’s possible. Anything to add to that?

Tom: The thing I’d like to add, again from my start of my career we’ve been an opportunistic fund manager in taking these opportunities. This opportunity is creating the buying season that we’re in and so that’s where I want to talk about and you’re right on the four to six year timeline horizon, but when you can buy something that is more than half off its normal price more like a third in many cases it’s a tremendous time.

Stefan: So one other thing that I will add to that for us we model out anything that we do for our income purposes for the funds . We’ve modeled out $30 a barrel average over 2020 and just barely eking to the 40s it for 2021 we believe those numbers are super conservative based on what we’re seeing the demand versus the supply being the next 90 to 120 days.

Buck: So Tom, you know Warren Buffett says be scared when others are greedy, greedy when others are scared. So could things get worse and for those people who are scared and how could they get worse than they are now so or is it time to straight up okay let’s be greedy?

Tom: As far as oil and gas goes, we’re going to be in a buying opportunity for the you know next couple quarters at least but the and the opportunities are diverse it can be everything from picking out storage areas so we’re doing that piece to actually picking up the wells that are already producing because the banks are requiring those covenants on the lending are requiring that they exit. And so even when prices go back up that’s actually when those sometimes get some of the best buying opportunities because they’ll have to exit at the lower prices right. So we’re seeing that opportunity to happen right now we were prepared for that at the dry powder it’s also why we’ve looked in here from the acquisitions. Acquisitions that we were doing and hence tap on you can speak to this began give me exact names these are under LOIs now we’ve got four acquisitions today that the total acquisition price is twenty million dollars which the basis value at a discount is more like sixty four million. So we’re right now and the amount of barrels that are flowing on those are unbelievable, most are scheduled to close in May.

Stefan: And Buck, to segue up for that here’s what we look at it at HomeBound Resources which is for us our way of life here. We’re going to be greedy like tom has has expressed in his in his statement earlier but here’s the here’s their what we’re really keep an eye on what could really cause this to get worse is demand to stay low because you have an outbreak reappear back and states are starting to shut down again that could cause it. That just unsustainable it’s coming to the point where it’s unsustainable right now for businesses and people in general so do we see that coming to do a complete shot like it has been right now no. But demand could remain low based on the fact that they were not seeing that curve flatten more or actually start to come down. The other part is what happens in during the time flu season starts October November at the end of the year, I sort of really people are starting to see but I can tell you this from personal experience we’re all ready to get the heck out of the house and come to work and that’s why I’m at the office today. You know obviously we’re socially distancing and doing the things that we’re supposed to do Texas a little bit looser on the guidelines you know we’re a working state other other governors around the states in the United States and have been a little tighter they’re being a lot more conservative so we’re hoping demand comes back and we already see it like Tom said it took me almost 45 minutes to get to work today that’s a good sign.

Buck: Yeah you know I keep going back to the idea of guessing on the short-term here as you know we have a heck of a lot of doctors listening to this and they’re listening to you saying yeah I’m not so sure about that.

Stefan: Here’s what I can tell you. We’re not guessing we’ve modeled it out and we know based on the on the supply and in the decreases in wells and the amount of rigs that have been laid out, our model shows that by the end of August we will be over correcting. That’s what it’s showing right now so we’re not guessing at all we’re basing it strictly on facts of how many drilling rigs and how fast those wells actually deplete. We know that seventy to eighty percent of the production United States depletes seventy to eighty percent year over year. You have to have a lot of rigs just to maintain what you’re losing nevertheless at. So by the fact that we have already met we’re on a trajectory to meet what we expected the United States to cut in one year in three months, we know we will have an overcorrection but we’re not changing our numbers we’re leaving them conservative on our end. There’s absolutely no guesswork numbers are telling us exactly what we want.

Tom: I just wanted to just say relative to the risks we are anticipating that you won’t see a price correction for three to four years. So why it’s important relative to the three prong approach that Stefan has which is great, is the assets that we’re buying are able to produce a breakeven or profit today at these low prices so that they’re able to maintain the production that’s needed for keeping the business going which is great yep and as I take into buying a building that the value drops so much and it’s only twenty five percent occupied and those twenty five percent tenants still pay for all of the mortgage and the taxes and the overhead so that when it does go back up you’re gonna have sure profit right.

Stefan: Well and IEA has come out and in several articles in several statements and by seeing what the Railroad Commission of Texas also said to segue along with that is that they believe that we have hit the bottom of where this oversupply is going to be and now we’re chipping away cuz states are starting to loosen up and oil demand will come up. Will it come back where it was? Probably not. Will it take a year? Will it take two years? We don’t know that, but what we do know is we know where the bottom is struck a new trend the other way and the price increase in commodity prices just over the last couple of weeks tells you that it’s going the other way. Now it’s not to be expected, don’t expect the fact that we could have a dip down in May because the pipelines and the storage capacity issues are real but we don’t see it going to negative numbers any longer we see it on our models we see it in that low 20s high teens low 20s and working its way the other direction.

Buck: I guess one of the questions that comes to mind is from what I know of your your business model Stefan I mean do we really care I mean obviously we care from the operating expenses etc but the whole business model is not predicated on you know trying to make money off of cash flowing oil and gas, it’s more sort of a real-estate play almost right where you’re ultimately buying these things at a lower value and ultimately you’re trying to wait till those energy costs recover and you know sell them at a higher price, I mean isn’t that in effect I mean tell me , I don’t want to put words in your mouth but we can sit here and count you know month to month if you’re at $20 vs. $30 and and I guess my point being that you know that’s why I don’t see significant information there. To me what I’m really talking about is okay well three to four years is what you really care about from the standpoint of the way your model is set up isn’t that correct maybe you should just explain the model a little bit.

Stefan: I will explain it any and you’re right you’re absolutely right our model is to improve the property by opportunistic and prove it and inside the right time however the second part of the model is that all of those operating costs and the production and depletion amounts and decline curves they all form the price in the end and so it’s very important to maintain those prices in a manageable level and be able to produce at sub 2000 that will have an effect on the final exit price Church is obviously our model and so these price points are where we project oil to be it’s super important because that’s how we build that’s how we take and say okay but strip is saying it’s gonna be 30 and I’m just giving you examples gonna be 30 in 2020 it’s gonna slowly go up to 60 in the next five years and hold flat that’s perfect as those are the numbers that we put in and I give us our value after we put in our expenses we know exactly what the discount of 10 is.

Buck: So Tom buy low sell high

Tom: Buy low sell high. You know most people do they sell high buy low.

Buck: You know I agree a hundred percent. People know that they’re not supposed to do that.

Stefan: But it’s impulse.

Tom: You know there’s a great book called Animal Spirits and it’s about finance and it talks about you know that it takes because even engineers at some level make decisions based emotionally instead of intellectually and what the data shows then they support it with the data right. Many of your listeners are scientists so you know that they can get information bias so and that’s the interesting thing is that as people are looking at this when everybody’s buying that’s when the retail investor generally buys that’s not the time you want to be buying that’s when you want to be selling no one is buying that’s generally what do you want to look around and say there may be opportunities here and that’s why people like Warren Buffett and Soros make billions of dollars.

Buck: Yeah and at the end of the day you know what one of the things I’ll just add is I like to look at things in a pretty simple way and that’s why I keep going back and you know these prices as they climb back and claw back after you know all of the the damage has been done. I looking at you know Covid-19 and looking at all the different possibilities and a possibility of a u-shape recovery in the economy and further shutdowns. I don’t know. I can’t say what’s gonna happen. I’m looking at the public health data and you know looking at you know therapies and treatments so therefore it’s hard for me to necessarily listen to you know the economics of this and take it very seriously. Do you see what I mean? But on the other hand what I do believe with a high, high level of certainty is that two years from now we will not have this problem anymore right and things will go back and if you believe, if you believe that we will no longer be in quarantine two years from now, that we will be back at work, that simple fact alone means energy prices are going to go up right? It’s about as simple of a thing as you know again I like to simplify stuff that’s how I you know process. To me that’s really what this comes down to.

Tom: Demand will return. It may be awhile before our returns to pre covered levels and awhile we can’t necessarily define, is that six months, is that six years, I don’t know. It’s somewhere in between there most likely.

Buck: Right which is about the time your business model’s plan for fund exits.

Tom: And so what we didn’t plan initially or when the fund was being designed was that we would be able to buy at rock-bottom prices right we weren’t planning on being able to buy at some other excellent reasons that we’re going on fundamentally because you had some over leveraged companies. This again I’m sorry to use the real estate analogy but a lot of times it’s just the easiest for people to understand. This is like going into Miami or Las Vegas after the last downturn where there was absolute destruction and you’re able to pick up entire condo buildings for nothing because the banks had to get them off their books right and that’s what’s happening in the oil and gas side and that’s what we see it’s going to happen during this continual destruction so it is what it is getting people back to work. I do have faith in not only the US’s entrepreneurial model but the world’s entrepreneurial model.The entrepreneurs they get back to work they figure out how to make money in this stuff and so people will be working again. They would be traveling again.

Stefan: We modeled our funds at $57 average. That’s what you had in 2019 and in 2018 year over year is $57 average. Everything was modeled there and it was working the type of assets and our approach were working at that price.

Tom: So he means acquiring at that price.

Buck: And now you’re acquiring at half that price or less. I mean that’s really what what I like about this model and why you know I’ve obviously kind of endorsed your model is that it is very similar to the way we think about real estate. Now along that lines I will tell you that most funds, most operations in oil and gas things that people can invest in etc, the they operate via very different models than your business model when it comes to sort of the GP LP structure, and again yours seems a lot more like what we see in real estate. Tom you want to talk about that a little bit?

Tom: Absolutely. So Buck when we first came into HomeBound we came in to fix their real estate portfolio and we reposition the number of those and to come out to Wall Street CMBS models and we repositioned those. And so when Stefan had this oil and gas business oil was up above $100 and they started asking for advice I’m gonna raise capital in that market. I said we’re not gonna play this market till we get a correction but the main thing is we’ll only play with you if it’s win-win-win, so meaning you win, we win and the investors wind and it’s high and we designed the funds to be built like that that they’re easy to understand that it’s not a lot of you know hocus-pocus move things around it’s aligned interests. And so that’s what we have strive to do and that’s what I believe we have done and it’s what we’re told that we do by the third parties that come in and evaluate us and they’ve done the audits and reportings. It’s a program that Stefan gets to cover overhead but does not get to get rich until the investors get rich.

Stefan: That’s so funny was that was exactly what I was going to say. This is not a get get rich quick scheme. I’m gonna get rich quick, we’re not gonna get rich quick, we’re gonna get wealthy together and with the projects working.

Tom: And the pains that are too so you know the first the first group you take the pain most funds out there are still taking their fees even though investors values that brought tremendously they don’t charge fees in the fund. We’re an investor. So we built this as a co investor. We tend to be actually I think the single largest investor are almost every single project and so and we are a private equity firm so that’s also one of the differences is that you’re gonna see private equity come back into oil and gas but private equity has essentially been absent of oil and gas for a while it’s going to come in because it’s seen opportunities we’re not the only firm is here but we’ll probably one of the only firms with people generally get access to to be co-investing with.

Buck: Basically what I’ve seen in the space and the reason why okay well listen oil and gas is a is appealing to our listeners very much because many of them are w-2 wage earners or they’re you know high paid professionals making five six hundred up to a million dollars a year in some cases where they’re just getting w-2 and so there’s obviously these huge tax advantages you know I’m not gonna have you guys you know act as CPAs but I’ll just tell you that our own analysis shows about a hundred percent depreciation of your investment if you invest in a fund similar you know like the HomeBound fund. So obviously if you can is a w-2 wage earner write that off against your income and then have an upside that’s very, very advantageous. The problem in this space though that I have found over the last decade and I have invested in oil and gas before ever meeting you guys but most of these are complete BS you know charlatans you know we hear basically what we’re gonna do is we’re gonna take your money we’re gonna take huge fees upfront then we’re gonna drill a little bit and if we find money great we’re gonna we’re gonna split it but if we don’t well at least you got your tax break right?

Tom: That’s exactly like every fund that we looked at.

Buck: This is different because there is significant skin in the game at multi levels and it’s not like an assets under management structure and so those are some of the main things that I think that I found really that I appreciated about sort of the business model in general. So let me ask you this I mean this is obvious maybe to you guys but you know in in terms of okay you get money now and regardless of oil and gas prices what are you doing with that money and what are you buying and then when you buy obviously you’re not going to pump this oil out, are you just gonna you know store it can you just close these things down how does that all work?

Stefan: So I’ll take that obviously wells don’t like to be shut in they need to be pumping no no shock to the reservoirs, we have engineers here that are strictly against shutting the well completely down. So all of our properties have been designed to be able to store minimum of thirty days. We have pushed that out sixty to ninety days and like Tom just mentioned we’re working on a huge storage facility that we were going to do in the first place because we’re adding midstream to our pronged about approach here and now it’s just a matter of you know keeping them going, continue pumping them, store the oil and sell it at the correct time for the correct prices.

Tom: You know Buck I want to add something also on their strategy. So I’m not a geologist/geophysicist I’m a finance guy and economist. So one of the things I liked about their strategy right now for this timing right now is the number of properties were buying has what’s called a secondary recovery feature to them and so that means that some of the investment that’s made today doesn’t actually show up in real oil for two years down the road and so that’s a wonderful thing and that’s why the companies will offload these at just incredible discounts and so that’s a number of them. Secondary recovery our chief engineer has a PhD and wrote his thesis on secondary recovery and he’s part of our team and for the most simplest because they don’t kind of same way it’s intelligent people but want simple explanations, secondary recovery is like taking a soda bottle shaking it up popping the top and the soda that comes out that’s primary recovery then the secondary recovery is taking that straw coming back in and pushing up by using water and pushing the oil up to the surface it’s a much longer sustainable and in many cases highly profitable part. Some people feel like shaking up the bottles and that’s where they want to live there’s this whole other realm of when you pull up te secondary reserves then the exons and the Chevron’s become your main buyer because they know that that’s a longer lasting asset.

Stefan: Yeah well the guys shaking up the bottle the ones that are taking the highest risk. When we come back to the secondary recovery it’s a lot more predictable oil is already there it’s just a matter of maximizing the return and think about it, it’s exactly right way if you shake it you’re only gonna get about a quarter of it out twenty percent to a quarter and the rest of its in the bottle. So that analogy Tom, I have to steal that. That’s great.

Buck: Well guys I appreciate you know you being on. This is, you know we have been discussing well these opportunities specifically you guys have within our private accredited investor club but I wanted to make sure that everybody had an opportunity to you know to hear about what you guys are doing because I think it is definitely worthwhile to look at in this environment. Obviously if you’re you know if you are an accredited investor and you you know you want to talk to Stefan or Tom, you want to kinda get to know what’s going on and you’re not already in our Investor Club you know shoot me an email at Buck@wealthformula.com and I’ll just forward it to them, otherwise can you give us a website address and stuff to contact?

Tom: Absolutely. It’s our company name, which is ResoluteCapitalPartners.com and when you go there you’ll have a place to sign up. You have to be referred to be able to get into our website so make sure to put Buck’s name on there and then you can take a look at the information. There’s also a great number of videos in there, six minute long segment of videos that really let you get to know the HomeBound team and the HomeBound story and it was professionally done and it talks about the various parts of this oil and gas stuff.

Buck: Good stuff. Again Tom Stefan thanks again for being on the podcast. We’ll be right back.