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The Entrepreneur DNA
How This Investor Found Bigger Returns in Oil & Gas | Alex Ottewell | EP 38
00:40:47
To learn more about Alex’s fund and investment opportunities, visit investinpetroleum.com --- In this episode, Alex Ottewell, a successful real estate investor with over 1,000 deals under his belt, shares why he transitioned from real estate to the oil and gas industry. He explains how managing oil fields has surprising similarities to managing rental properties, with a focus on maintaining assets and raising capital. Alex dives into his strategy of acquiring existing oil fields rather than drilling new wells, which minimizes risk and provides stable returns. He also discusses the political and economic factors that influence oil prices and why oil remains a valuable long-term investment despite the rise of electric vehicles. Throughout the episode, Alex emphasizes the potential of oil and gas as a lucrative investment opportunity for those looking to diversify beyond real estate. --- Connect with Alex! Instagram - @alex.ottwell LinkedIn - https://www.linkedin.com/in/alex-ottewell/...
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- [00:00]
A
But what I, what I realized was 2012, you know, I was watching interest rates and I was like, you know what? I think they're going to spike. So that was kind of the timeframe where I was like, okay, I need to identify a new revenue stream. And initially I thought of it as a secondary revenue stream, not necessarily a complete new venture like I did, but once kind of looking into the metrics of oil and gas. What a lot of people don't realize is outside of the geology and engineering portions, a lot of it really relates to real estate in the sense of property management.
- [00:32]
B
What is up the entrepreneur, DNA family. The guest today is a powerhouse real estate investor who has now transitioned into oil and gas. This guy is someone you need to pay attention to because he's making big moves in the oil and gas space. Alex Otterwell is here. What's up, Duro?
- [00:50]
A
What's up, buddy?
- [00:51]
B
Mate? Excited about this because, you know, I'm all real estate all the time, and I run multiple businesses. But I am very curious about your transition from being a badass in the real estate space. A thousand plus deals, crushing it and saying, you know what, there's a better trap, there's a better mousetrap, and it's oil and gas.
- [01:09]
A
Yeah.
- [01:10]
B
What took shape there?
- [01:11]
A
So, you know, over 10 years in the real estate space, fix and flip, whatnot. I had my call center grew that to 200 employees in the Philippines. That was another one nice. But what I, what I realized was 2012, you know, I was watching interest rates and I was like, you know what? I think they're going to spike. So that was kind of the timeframe where I was like, okay, I need to identify a new revenue stream. And initially I thought of it as a secondary revenue stream, not necessarily a complete new venture like I did, but once kind of looking into the metrics of oil and gas. What a lot of people don't realize is outside of the geology and engineering portions, a lot of it really relates to real estate in the sense of property management. You know, if you have a bunch of rentals, you have maintenance to do. You have, you know, staff to monitor things like that. A lot of it transfers over now, the widget changes. You're no longer dealing with a home, you're dealing with an oil well. But you still have a lot of mechanical components that fail, that require that ongoing maintenance and strategies to keep things online and optimized. There's a lot of stuff that's really correlating there.
- [02:19]
B
Yeah, I think, you know, we were talking Offline prior to the podcast episode, like I'm, I was digging in the trenches. Like I want to know way more and you know, I want to maybe kind of keep this a little surface level. And by the way, if you do want to know way more, make sure you're reaching out to Alex. Find Alex. Where's the best place that everyone can kind of find you?
- [02:37]
A
It's my name, Alex Ottawell. Igm on there. I respond to everybody.
- [02:41]
B
Perfect. So the thing that I found so fascinating is the synergy or the relatability to what you've done and what I do in real estate and kind of how that really does translate to the point of raising capital funds, uses of capital terms, you know, going in and stabilizing an asset that already exists that you got to basically stabilize. Very similar to all the things that we do in real estate.
- [03:08]
A
Correct. I mean, I think a lot of businesses have verticals that, you know, do relate. The kicker with oil and gas is it's kind of like how I was treating my real estate business. I was identifying distressed properties, bad shape, low income housing. Right. That was kind of my area of expertise. And in oil and gas, I'm not trying to go in and complete compete with the majors, go after the biggest plays, things like that. That's why my model is all built around acquiring existing oil fields that have already had 20, 30, 40 years worth of production. So I have a track record to check out, just like you would a rental property. And once you've identified that asset, we really tried to see how that owner's maintained it. Because the upside in the field doesn't necessarily have to be drilling a new well or recompleting a well. I mean, oil and gas terms, a lot of it's just based on pure maintenance. Guys don't have the money or they're just spending all the money they're making on the field. They don't put it back in. You know, they're unwilling to do the maintenance. And especially towards the end of their lives, you know, if you got an operator that's late 60s about to retire, they don't want to, they stop putting the money in.
- [04:16]
B
Yeah.
- [04:16]
A
So you have a few year window where they're not doing anything and that's the best time for us to come in.
- [04:21]
B
Well, so you have a current project right now? We were just talking about this. I'm excited for you. You have a current project. Is this the one that will be all in a hundred million or is this a no? How big is this upcoming Current project, Jeff.
- [04:33]
A
So as of now, we bought two initial assets. They were kind of test assets, right? Just smaller stuff, just so I can figure out the space. I mean, bear in mind, I don't have an oil and gas background. I just really good at hiring the right people. I have a reservoir engineer, I have a really good legal team, geologists as subcontractors, things like that. What we kind of want to do is when we're diving into each field, we really want to see kind of a diversity amongst them. How do I want to put it? So risk mitigation is a super important part with oil and gas. So we're looking for fields that are larger. 100 plus wells. That's one way of diversifying. Right. If you have 100 wells, they're all producing two, three barrels, you protect your downside. Exactly. One goes down, it's not a big deal.
- [05:17]
B
That's right.
- [05:17]
A
To go deeper than that, we're doing a 25 million dollar fund on this first one, which in turn will translate to a hundred million dollars worth of assets because we're going to leverage at 25 million. The reason we're doing that is because my target buy box is between 10, 15, 20 million dollars per deal. So now I can put 4, 5, 6 deals into one fund. So not only are we diversifying for each field, we're also diversifying by having multiple different fields in one fund.
- [05:45]
B
This is the class. This is why I'm so intrigued by what you're doing, bro. I mean, you really got me. And I think people really, if you're like, real estate, love real estate. In real life, you got to get with Alex because everything you're saying, literally, you could draw direct comparison to real estate. Yeah, right. Everything from raising a fund, leveraging that fund with other leverage. Right. Banks or whatever. I mean, that's exactly how I've built my portfolio. I don't go out and just spend all my cash and build it that way. I use other people's money through investments, they get a return. There's a lot of people in the real estate space that don't want to be in real estate. They just like the idea of real.
- [06:22]
A
Estate or the money.
- [06:23]
B
Right. They don't want to deal with the tenants in the. In the toilets. Right?
- [06:26]
A
Yeah.
- [06:27]
B
Same thing for you. Like, you know, myself and so many people probably watching this and listening are like, bro, I would love to be a part of the gas play. I don't know a thing about gas. Yeah, and that's the point. That's why they would reach out to you is because they don't have to.
- [06:39]
A
Yeah.
- [06:40]
B
You're going to be able to go out there and you're going to be able to diversify where the cash is going. You're going to protect your downside. I want to buy as much real estate as possible because as we all know, if you have one rental property and the tenant vacates, you're screwed, you're bleeding.
- [06:55]
A
Yeah.
- [06:56]
B
So you take that same philosophy in gas, right?
- [06:58]
A
Yeah. And we're definitely oil focused.
- [07:00]
B
Yeah.
- [07:00]
A
So natural gas was one of our test fields. Right. So I bought eight natural gas wells. They were drilled by marathon oil, like 15 years ago. They were 15,000ft deep. So a lot of people don't realize how deep some of these wells go.
- [07:12]
B
15Th.
- [07:13]
A
Yeah. So three miles into the ground, that's how deep they are. Then they go one mile laterally, too. So that's kind of a newer thing. In the last 20, 30 years, it's become way more popular to do horizontal drilling. Because if you kind of think of a earth as layers of a cake, Right. You have different formations, getting a little technical, but you got different layers in the cake. And when you drill down, you can kind of sip on the oil or the gas vertically in one spot. But what they do is they drill down and then they go horizontal. Because now you're not only capturing one area, you're capturing right through the middle of that formation.
- [07:50]
B
Yeah.
- [07:51]
A
That allows you to drop more oil, gas, whatever. Oddly enough, though, I went the complete opposite realm with how I built my buy box. You know, just like real estate. You know, hey, I buy single family homes 2004 or older, blah, blah, blah. Those are the same metrics I put in place when it comes to buying an oil deal. I want to see certain things there before I jump in. For example, with risk mitigation, the deeper your well, the bigger the rig. You need to work on it.
- [08:19]
B
Right.
- [08:19]
A
You have workover rigs to do the maintenance activities on them. And the bigger the rig, the more, the higher the cost. So part of my buy box is we only buy Wells that are 7,500ft or less because of the shallower well, smaller work of a rig. And on top of that, we, we only go after vertical walls, the conventional style, because we don't want to deal with. With the horizontal wells, you have a very fast depleting well. So traditionally, the first 15 years of a horizontal well, it's going to deplete really fast and then you're going to kind of hit a steady Decline. With vertical wells, you're only going to have maybe five years of rapid decline and then it's going to stabilize.
- [09:02]
B
Yeah.
- [09:02]
A
So I want to buy after it stabilized. It's almost like a lot of depreciating assets. Right. You go buy a Ferrari or whatever it may be, Lamborghini, you have that initial hit. Yeah, just like oil and gas. You have an initial hit, then it's going to kind of go down, and then you're going to hit that kind of price point where it's not really going to drop much faster. That's kind of the same with oil production. You can see a rapid decline. And then after that five year mark, it kind of stabilizes a little bit more.
- [09:27]
B
So was your jump from real estate into oil and gas purely, like, where did that spark? Because I think a lot of people do new things, start new things, but they don't really have a plan place. Right. They just say, okay, well, I just want to try this new thing. It's hot, it's sexy, it's whatever. What made you say, all right, real estate was great, did really, really well, but it's time to go into a different venture.
- [09:50]
A
I was already looking for a new venture before I stumbled on oil and gas. And it was actually at Nick Perry's a figure cartel. You know, a couple of people there were discussing oil and gas and, you know, it created some buzz, some interest. And then I kind of decided, there's no courses on oil and gas. Right. There's no guru. We're so used to the guru world of real estate, where everybody's got a course. This is a case where I hired a mixture of experts to teach me, literally on a whiteboard. First three months of the business, and I'd shut down all my real estate operations, I was completely out. We had 25 ongoing flips. When I said, hey, I'm done fixing flipping, we still had a JV business. We were doing some wholesaling disposal like that. But, yeah, I just, I said, hey, you know what? I gotta go to 100% in if I'm gonna do it. And real estate afforded me a good amount of capital. So I wasn't like nervous about running out of money tomorrow. It was just more the fact that I knew it was such a big business. You know, the infrastructure of oil and gas as a company, just massive. I mean, to give the viewers a little reference point, if you're under a hundred million dollars company in upstream oil and gas, you're deemed mom and pop, of course.
- [10:59]
B
Yeah, yeah.
- [11:00]
A
100 million is, is the breaking point where you start deemed like a company. Right. So it, it fascinated me because as a fix and flipper, you know, JV wholesale stuff, there's a cap to that income. You know, I don't really think there's many guys, you know, maybe a handful here and there, but doing, you know, eight figures a year net profit, it's just not, not really occurring that much. There's a few, don't get me wrong, but you have to be a rescaled scaled operation, you know, 10 million a year or more. Whereas oil and gas, a handful of assets will take, take you to 10 million a year or more in net profit. So it's almost like I'm doing the same work I would be doing in real estate. Obviously a different area, you know, different knowledge base, but it's the same effort with a bigger number and a higher yield.
- [11:46]
B
Less is more.
- [11:46]
A
Yeah, correct.
- [11:47]
B
I mean, not, I don't want to totally compare it, but it's kind of the same thing Grant was telling me because I've been single family homes my entire career, he's like, bro, you could do 1,000 door deal, one deal. Not a thousand deals, one roof. Right. Like you just focus on the one versus going to scale, same type of concept.
- [12:07]
A
Correct. And, and oddly enough, you know, just like we were discussing earlier, in real estate, you get a bunch of people that really aren't knowledgeable fully on a subject matter. Right. So they'll kind of poke at you when you say something or hey, you're wrong, you're wrong. The same thing occurs in oil and gas. I mean, we're advertising, you know, for our fund right now. And we get a lot of people that bash us and say, well, EV is going to destroy the oil industry. But what a lot of people don't realize, only about 40% of an oil barrel actually goes to make gasoline, maybe even less, depending on the refinery. A lot of it goes to plastics and general components of life. Right. You have 6,000 products being made from petroleum, like makeups. I mean, they're petroleum based. All these things derive from a barrel of oil. So one of the difficulties with the general public, and something I'm working on personally, is understanding why we need oil. And I'm not doing it just because I'm the guy that just got into oil. Right. Like, I've never been one to hold my words. Even if I was against my own industry, I'd probably speak about it. But I realized the deeper I dived that if we don't have oil we are in trouble.
- [13:15]
B
Yeah.
- [13:16]
A
As an entire nation. I mean, there's just so many things that run off of petroleum based products.
- [13:21]
B
Totally. And even myself, I don't even know all those things. Right. Like as a common human, right now in this space, I'm sitting here thinking, every drop of that barrel goes to gas.
- [13:33]
A
Yeah.
- [13:34]
B
Most people do. Right. Because I'm not educated. I've been taking the time. I just say, okay, well, you're digging for oil, that oil turns into gas, et cetera.
- [13:41]
A
Correct.
- [13:42]
B
And you could be the next or the first guru in our space and I would back you and support you, but I think people need to understand the opportunity that's out there. Right. Because it's not going away. To your whole point, your mom and pop, when you break a hundred million, I literally just told you this. I made a post about this, you know, Kamala proposal about a hundred million. And people think like, not many people are going to get affected. It's a trickle down effect. But a hundred million, respectfully. Right. I'm not quite there yet. Although I own big apartments and all that kind of stuff. Like, if you're playing the game right, you can get there.
- [14:15]
A
Yeah.
- [14:16]
B
You know, and for you, you don't even have to play the game on a big, big level.
- [14:20]
A
No.
- [14:20]
B
That's the craziest part. Right. I love that. So, so talk to me about your big mission. Kind of this fund. Is the fund totally full? Are you still raising for the.
- [14:30]
A
No, no, it's a, it's a newer thing. So when I went into the space, one of the early things I realized was just like real estate, it's a very community based thing. Right. Everybody kind of knows each other. Well, the downfall is oil and gas. These people have known each other for 50.
- [14:46]
B
Oh yes.
- [14:47]
A
Very tight knit old boys club community. And early on I was calling up different operators and offering them offers for their fields and they were like, well, that's a really good offer, but I don't know. You have a good one.
- [14:58]
B
Right.
- [14:59]
A
And one of my favorites. We offered a company $15 million for their field. And you know, it's a good amount of money. It was a fair price. And he's like, yeah, it's a good deal, but I don't know you. And it occurred to me, I was like, well, maybe I need to brand not only to the general public for capital, I need to brand myself in the, in the oil industry. So, so we reached out to naep, which is the largest upstream oil and gas convention in the country, arguably the world too, because they have such a big event. And we said, hey, you know, do you have some sponsorships available? Well, they ended up having one that was dead center. It was the main sponsorship. So there's four premier sponsors each year, you know, and this event has Exxon Mobil, Marathon, Chevron. Every big player's there as a giant booth.
- [15:42]
B
Right.
- [15:43]
A
I said, I'll take it. So I, I bought the biggest space dead center in the, in the event. 10,000 people attend it, and I did this massive spread which put us on.
- [15:54]
B
The map, no doubt. Now, do you mind sharing how much that investment was?
- [15:59]
A
So oddly enough, you don't have to, but it's not as bad as you think. So. Because I'm pretty good at isolating things, right. I'm like, okay, well, we're going to need some marketing materials, we need some banners. We need this and that. We kind of pieced it out between me and my executive assistant. We, we basically, we found a booth. It was two story. It looks like a thunderdome, right? Yeah, we got that for 15 grand. That's not bad at all. No, it was 150,000 new. The company used it three times. They were getting a new one and I offered him 15K and they said, hey, let's do it all in. I would say we're between 150, 175 grand.
- [16:36]
B
What did they actually. Just because I run events and, you know, you. I both know a lot of people. What was the actual. Just a straight up sponsorship spot.
- [16:42]
A
50.
- [16:43]
B
50.
- [16:43]
A
Yeah.
- [16:43]
B
That's reasonable.
- [16:44]
A
Yeah.
- [16:44]
B
And if you're the main. But if you're the main guy, that's really reasonable.
- [16:47]
A
It is, it is. So oddly enough, the event has a lot of other verticals they make money with.
- [16:52]
B
Right.
- [16:52]
A
We did have other expenses on top of that that did occur. It was more of the fact that that premier spot was used by somebody else the prior year. They happened to just step down out of it. So the spot became available. All the other spots have been filled for years. So we were fortunate.
- [17:07]
B
And timing correct. Now, you know, timing and preparation equals luck, right?
- [17:12]
A
Yeah.
- [17:13]
B
How much of that do you feel like is on your side right now with everything that's going on with the interest rates to your point, you kind of saw the writing on the wall about a decade ago with the real estate market, the lack of availability? So for you to make the exit from real estate and go into oil and gas, how much of this is going to play into what you think, you know?
- [17:32]
A
Well, fortunately, it's kind of. It's Ironic a lot of people don't realize this, but if you look at history of oil and gas prices, when a Democrat's in office, oil and gas prices are higher. The reason for that? They're restricting the amount of drilling going on. So each year, governments give different amounts of leases out to create new drills, new participation, you know, millions of acres a year. The Biden administration recently only issued 200,000 or 300,000 acres, so they were a tenth of what usually gets issued. That's why we've been supporting higher oil prices right now, because the production isn't there to support the demand. We use about 14 million barrels a day of oil. So if the production is not there due to the fact we're not drilling. New stuff, because a lot of people aren't aware oil wells decline over time, and the rapidness of the decline is initially the first year, but it's also the highest producing year.
- [18:28]
B
That's right.
- [18:28]
A
So in order to keep that production up, we have to keep drilling more and more based on the fact that half our production is from wells drilled in the last two, three years.
- [18:37]
B
Yeah.
- [18:38]
A
So a lot of it's new.
- [18:39]
B
So is there. Is there a way for people to get into your world right now? I want to circle back to the question.
- [18:44]
A
Sure.
- [18:45]
B
The fund, the $25 million fund.
- [18:46]
A
Yeah.
- [18:47]
B
Is that full or is that opportunity?
- [18:49]
A
Sorry, I kind of went off in a rant. Yeah, no, it's still available. It's accredited investors, 506C. Reg D. A hundred grand minimum. You know, we're leveraging it, too. So the cool part is you're taking 25 million and getting $100 million worth of cash flow value.
- [19:03]
B
Of course.
- [19:03]
A
So it's a. It's a better structure.
- [19:06]
B
Again, I'll just make sure. Follow him. Comment, ask questions. He's. We only have a certain amount of time for the podcast, but you know, your wealth and knowledge, so the. Do you have any concern about, and this is a very naive question, but, like the United States going dry of oil relative to the rest of the world?
- [19:26]
A
No, because imagine this, there's about 5 million wells in the United States. 20.
- [19:31]
B
A lot more than I would have thought.
- [19:34]
A
20% of them are online right now. The reason for the other 80% being offline is a lot of major companies will go drill wells, and then when they get down to, like 20, 30.
- [19:43]
B
Barrels a day, you know, they don't care anymore.
- [19:45]
A
They don't care, so they plug them. So it's not always necessarily the fact that our production is not there. Anymore and the reservoirs are run dry, it could be a mechanical failure. And this is part of our business model of going in and doing the maintenance. Because if you can imagine, when you have an oil well on the ground, you have a piece of production tubing that runs down. Tony. It's only two and a quarter inch, two and a half inch in diameter. You have paraffins coming up. All this material coming out of the ground is, you know, warm and whatnot. That starts closing off that pipe over time. It's like your arteries clogging with cholesterol.
- [20:17]
B
Sure.
- [20:18]
A
So as it closes, your production is decreasing.
- [20:20]
B
Yeah.
- [20:20]
A
Not necessarily the reservoir, it's depleting. It's the fact that your production tubing isn't.
- [20:25]
B
You actually can get it through.
- [20:26]
A
Correct. So that's one maintenance exercise. But. But overall, I mean, production in the United States is here and we're discovering new oil all over the place. I mean, Florida hasn't even been touched yet. I mean, there's only seven wells in Florida that are active. Seven or eight. And they're all owned by the Collier Group down in, what's it called? The Everglades.
- [20:46]
B
You know, it's funny, I guess again, because I'm so naive to get. You just don't really think about these things. Right. You would. Again, I would have thought most states or areas that have oil, they've been tapped, they've been found, there's companies there. But you're even saying that's not even the fact yet. Like there's. There's still a blue ocean, if you will. Right. Of just opportunity.
- [21:08]
A
They've been talking about it for 30, 40 years that we were running low on oil. It's been a narrative for a long time. But bear in mind too, a lot of the narrative comes from people wanting to get away from oil. So if you talk about the fact we're depleting all the time, well, that's going to create a narrative.
- [21:23]
B
Or electric cars, everything.
- [21:25]
A
And like my original statement, I mean, EV isn't going to take a real dent into oil and gas because of the other need for it. I mean, and people don't really look into like lithium mining. Right.
- [21:35]
B
You totally. That's huge in North Carolina.
- [21:37]
A
Yeah. And well, in other countries though, like Chile and stuff, they use child. Child labor comes in and they're handling that stuff. And it's been reported. This isn't hearsay.
- [21:47]
B
Yeah.
- [21:47]
A
The thing is, it's not in front of people, so they don't see it. Right.
- [21:50]
B
Sure.
- [21:50]
A
So you have electric car companies Talking about bettering the environment. But you're digging these massive miles and miles of craters in order to extract this lithium to put that battery in which the car is wrapped in petroleum based plastics and everything else. We don't talk about that. But that's the only way to make that EV work.
- [22:09]
B
Huh.
- [22:10]
A
Unless we have a better battery source than using lithium, it's forever going to be environmentally damaging to drive ev.
- [22:17]
B
Interesting. I like it. And I don't play too much in this. I'm a normal kind of gas car guy, so I don't, I don't know a whole lot. I know there's massive lithium plants that, you know, I was going to buy a package of real estate deals up in this area in North Carolina. And the big thing is they have this lithium dig that they're doing there. Right. So it employs a lot of people.
- [22:36]
A
Yeah.
- [22:37]
B
So tell me what people need to know more about like the oil and gas opportunity out there. Right.
- [22:43]
A
I think I talked about this before. The biggest with you outside of.
- [22:47]
B
Yeah, yeah.
- [22:47]
A
The biggest differentiator between me and all the other companies is majority of oil companies drill. So they raise capital to go drill wells. Now drilling is very beneficial as I spoke about and you get a high tax credit, you know, you get 70, 80% deduction for your taxes and whatnot. But what I do is I'm buying stabilized assets already to an extent and I'm making them better, making them run smoother, increasing production slightly with just maintenance based activities. So it's a very easy performer to look at. Right. We're not the highest yield fund. Like you're not going to come in and, and make a 10x return. Right. You could do that with a drill sometimes. But they don't talk about the fact you could have a 50, 50 shot of that new drill working. So what's worse, going with a fund that has stabilized assets that you know what that cash flow is each month even before we buy it or going into a field and drilling stuff and potentially losing half your money. So we're a conservative non correlating asset. I mean we don't correlate to the stock market, we don't correlate to the real estate market. Were correlated based on economic usage.
- [23:54]
B
I mean if we use old demand.
- [23:56]
A
Exactly.
- [23:56]
B
Yeah.
- [23:57]
A
So. And there's ways of hedging it. I can go to the detail but.
- [24:00]
B
Well, I think a lot of people are just on, I mean even myself. Right. I'm sitting here, I'm asking you questions because I just don't even know. Right. I'm just getting informed by you. I just think people, you know, they want diversity in what they invest in.
- [24:11]
A
Exactly.
- [24:11]
B
They want to know like, and trust that people are investing in. Right. And so my thought is, if you are educated enough to say, hey, we're protecting our downside, we're diversifying. A lot of those economic foundations are what keep people in business a really long time.
- [24:26]
A
Right.
- [24:26]
B
They may not be the boom of dogecoin type numbers, right?
- [24:31]
A
Yeah.
- [24:31]
B
But they might be around for the next 300 years because they run a business model that is sustainable for the things. They're knowledgeable, they're looking around the corner, they diversifying, they're in, they're protecting their downside. But again, to your point, right, like again, they're not going to have that extreme 10x return annually, but it's a safe bet it's in a new, it's not a new industry. But maybe for investors like myself or people that know you're diversifying, instead of buying stock in real estate now you jump into a little bit of oil. Right.
- [25:00]
A
And the thing with me coming from a real estate world. Right. Though I've gained all this knowledge, we try and do a really good job of breaking it down for real estate based people because a lot of people have had a rental or something like that.
- [25:11]
B
Totally.
- [25:12]
A
But they may not have been in oil. So when we have our presentations on what we do and stuff, we always kind of compare those two because it gives a better understanding to the oil and gas space. I mean, I can't teach the average Joe geology and petrophysics and all these other fun stuff I had to learn. But I can show them how it relates to what they're doing so they have a better understanding in order to make an investment or be a part of something. Right. I mean, we're. 100 grand is a drop in the bucket in the real world. But if I compile that with a bunch of people, I can take regular people that are in real estate or whatever it may be and bring them into the oil space so they get a chunk of, you know, that profit.
- [25:45]
B
So who's, who's the best avatar that you'd be looking for?
- [25:48]
A
I mean, you have to be accredited, so you got to have, you know.
- [25:51]
B
A million dollars net worth.
- [25:52]
A
Yeah. Or 200 grand, 300 grand as a couple, you know, annual income.
- [25:55]
B
Yeah.
- [25:56]
A
But I would say it's kind of for the guy that is intrigued by the space, believes in, you know, American energy, things like that. But they also want to get a bit of knowledge. Because one of the fun parts about working with us is throughout the time I'm educating people on what we do. It gives them an understanding. Because the better you understand things, the more comfortable you are with investing. So it's a win win. I mean, for me, I want to educate so people know and they can come in. But realize coming from a real estate background, I don't want to roll the dice. I was a fix and flipper. And sure there's a level of risk there, but calculator risk. I did the same approach going to oil and gas because I don't want to go lose, you know, a hundred million dollars like some of these drilling companies. I mean, I personally know a handful of guys have lost over 50 million on just one drill. So one drill one day or 30 days. But yeah, disappointing that.
- [26:48]
B
I mean again, how so let's even talk through that. How would someone. Were they just going for the big boomer bust? One drill, one rig, one huge in it bust.
- [26:57]
A
Yeah. So you know, the average conventional well, shallow oil, is probably 3 to 8 million dollars to drill a new one. When you get into the horizontal wells, you're probably low side, 9 million, up to 20 plus. What ends up occurring is, if you can imagine, we have a lot of environmental regulation on us. Of course there's regulatory every month. Even though people think we're just destroying the planet. Like even if I have a small amount of oil spill, I have to report it and it gets cleaned up and remediated or whatever it may be.
- [27:26]
B
Yeah.
- [27:27]
A
But a lot of it comes to if you have an issue when you're drilling. So if you're drilling down and you miss a zone, you miss the area because you think you're going three miles down. You could only be off a foot up top and you're half a mile off down.
- [27:41]
B
Oh yeah.
- [27:42]
A
So a lot of it comes to either drilling the wrong area or they could run into an issue where you hit fresh water. So fresh water is a problem because we want to keep that cased in and sealed. So sometimes drills go bad based on the fact that people are not expecting to see something down there. Right. We can have 3D seismic and studies and all that stuff, but it's still operator, you know, you still have a manual person controlling things. So you can run into issues where you get those massive dilemmas, delays. If you're paying for a rig that costs, I don't know, 25 grand a day, 50 grand a day, you're keeping on site too long, then you're going to have further issues. There's a lot of things that come into play.
- [28:20]
B
Is there, is there a lot of cost in the actual rigs and materials.
- [28:26]
A
To like 100, that's all.
- [28:28]
B
Could that be the, the L that people take because it breaks or something? You know, it won't be a 50 million dollar L, but no.
- [28:34]
A
So this one was. He kept trying to. I can't remember why, he couldn't get the casing to seal or something like that. I couldn't cement in. And he kept trying, trying, trying. And I don't know the exact metrics, but it basically just kept amounting to more money. Whereas, if you can imagine, like the field we're buying right now, you know it's gonna be over 500 wells. The production is diversified. Every well does a barrel, two barrels, three barrels a day. Though that doesn't sound amazing. But when you put 500 wells out.
- [29:02]
B
There, 1500 barrels, is that.
- [29:04]
A
Yeah, a day? Yeah.
- [29:06]
B
I mean, but that's what I love about what you're saying. It relates to me in the real estate space. Right. Like you understand when you protect, your downside is being able to scale the portfolio. I'll tell most people in the real estate space, getting in, don't go out buying rentals right away. Create income, create the opportunity to buy a lot of rentals. Because buying single family homes and having three is more of a nuisance than it is. There's not as much upside by having 30. Now there's a little bit of economies of scale. Four or five of those homes go vacant at the very same time. You have 25 to hold up the operation.
- [29:41]
A
Correct.
- [29:41]
B
So what you're doing is you're focusing on lots of lands that are already existing, that are already performing. And you're saying, I want volume, I want scale of digs. And that is why that's so appealing to me. Right. And again, this is coming from the layman, I don't even know the opposite. I would just say if I were to be an investor, if I was looking into this, I would want to know you. Because if you're just going for one grand slam home run, one swing at the bat, one time, hit it big, have 10, 15 time return like, bro. Yeah, but what if we missed the ball? Yeah, right. That's the downside.
- [30:13]
A
Yeah. And our structure too, oil and gas debt, as far as going to a private lender and stuff. And we leverage our fund, as we said, but when we go for that debt, it's typically a five Year debt plan because the cash flow is so strong on oil and gas deals that they structure five years. So our goal is while we're repaying that debt over the five year span, we're giving a preferred return and we're giving, you know, additional cash flow if it's higher. But at the end of it, we're left with an asset that's now paid off with only the, the fund's capital into it. Let's say it's 25%. Well, the asset is a very slow depleting asset anyway because I'm targeting mature assets. So if it's depleting 4% a year and we've increased the production 20, 25%.
- [30:55]
B
Yeah.
- [30:55]
A
You know, realistically we could be at 80 or 90% of the asset value at the end after paying off all the debt and then we return the investors capital and split it. Now, conservatively, I built the model around getting 60 or 70% of the initial value because I didn't want to, you know, over deliver. Right.
- [31:12]
B
Yeah.
- [31:12]
A
So I've definitely not done that. And when we sell the asset, let's say we're splitting 40, 40% at the end. I mean it's a really good multiplier. You get 2.2, 2.3x. But you've got cash flow the whole time.
- [31:25]
B
Yeah, yeah.
- [31:26]
A
You have a asset that's already been stabilized. It's, it's a really good play. The way I structured it.
- [31:30]
B
I think now when you're going into a fund in real estate specifically, so I don't know if there would be any difference. There's no like real great tax write off. Right.
- [31:39]
A
Okay. Yeah.
- [31:40]
B
Is there anything here in this play that.
- [31:42]
A
Yeah. So we actually, I changed my PPM structure probably about two, three weeks after we started and we went back and rehashed it and reset it back up because we wanted to pass through. There's a depletion allowance of 15% per year. So what that means is let's say they have $1 million of this. Right. And it's 10% preferred return. So let's say that year they already got the pref. Well, that's 100 grand. Why did that hundred grand. 15% of that profits to them, the realized profits is tax deductible. So it's not a major thing like drilling where 80%. But bear in mind you're a lower risk profile asset and you're also getting 15% of that deducted a year, which is nice.
- [32:24]
B
Yeah. And the way I kind of look at it is if you're going to be cutting a check to anything. All those things play on to the decisions at least I make. Right. If you're a high net worth individual and you have a million net worth and you're making quarter million a year, you know, something like 15% is 15%. You know, I don't want to pay to IRS.
- [32:42]
A
Yeah. And on top of that, if we do any workovers, you know, down hole projects, whatnot, a lot of that is to tax deductible at 80%, 70% tangible intangible drilling costs. So when we're doing maintenance activities, a lot of that is tax deductible to almost the full amount. You get that also.
- [32:59]
B
That's great, dude.
- [33:00]
A
Yeah.
- [33:01]
B
I'm going to pause for a second. So I usually keep these 40 minutes ish. I don't know where else you want me to go. I've tried to hit the things that I would have probably wanted to say if I were you, but I'm happy to take it wherever you want.
- [33:15]
A
Maybe where they find out about the fund because my. I got two domain names. I got OWP Capital Group and I got Investin Petroleum.com. which one would you plug?
- [33:27]
B
Are they Both for the 25 million race?
- [33:29]
A
Yeah, they go to the same place by OW Capital, OWP Capital Group or Invest in Petroleum dot com.
- [33:37]
B
I like Invest in Petroleum dot com. I just feel like it's a, it's.
- [33:40]
A
A pretty strong domain name.
- [33:41]
B
Yeah. So it, yeah.
- [33:43]
A
So if you want to bring that up, like where would they find out more information about the fun part?
- [33:46]
B
I will end it that way no matter what.
- [33:47]
A
Okay.
- [33:48]
B
But that's also why, I don't know, 10 minutes ago I was like, hey, is there still availability? Like I want them to realize, okay, I could reach out to this guy, but is there anything else? And by the way, if you're like, dude, I not I said what I want to say, that's fine too. Maybe I don't want you to miss anything though.
- [34:05]
A
Maybe go back to the commodity price part. Like what's going to happen with the election year and stuff.
- [34:09]
B
Oh yes, roll with that.
- [34:10]
A
Sure.
- [34:12]
B
All right, dude, I'm going to change subject a little bit. Right. It's an election year. We're all aware of it. Everyone's talking about it. I just made a ridiculous post that is getting crazy comments.
- [34:22]
A
Yeah.
- [34:23]
B
What happens to this industry during election years?
- [34:26]
A
So I kind of touched on it earlier. With the Democratic Party typically pushing higher oil prices. Right. Because they're not drilling. So if we do go Republican which is kind of what we're, you know, aiming for as far as an industry. You know, I personally prefer to see.
- [34:38]
B
I feel like the whole oil and gas world is Republican, but that's the outside looking in. They're very.
- [34:43]
A
Yeah, if they, if it goes back to Republican, we'll see a drop in, in oil prices. So right now we're fluctuating between 72 and 80 a barrel. If Republican Party comes in, opens up drilling, we'll see about a dollar sixty barrel. Now, if you can imagine, the assets we're buying are traded on decline production amount and commodity price. So for us being in acquisition phase for the next year, with the fact that we're raising the capital, we bring that in, we go deploy it, it's a very good time for us to buy. If it becomes a Republican Party.
- [35:15]
B
Yeah, for sure.
- [35:15]
A
Now the counterpart, because they clearly have to be accepting of both parties just in case it does happen. It does go Democrat, prices get pushed up, but they get held for four years anyway. If anything, they'll keep increasing. They'll go to maybe 90 or $100 a barrel. And then after a couple more years, it might be 120. So though we'll pay a higher price, we'll still be able to alleviate those assets in a way that we're going to have four years of consistent pricing.
- [35:38]
B
Why do so again, from the layman point of view, why would you want a cheaper cost of barrel for you.
- [35:45]
A
On the acquisition front? It means less capital out of pocket to get a higher production volume. And if you can imagine, my fund is five years. So if Republicans are in office, sometimes it flip flops. I mean, if Trump does get elected, he wouldn't be back in the next year.
- [35:57]
B
So this we're talking about acquiring the.
- [35:59]
A
Actual buying the fields.
- [36:01]
B
The fields, yep. So you'll keep the field cost low in terms of acquisition because of the cost of barrel being cheaper.
- [36:08]
A
Correct. And on our exit being five years.
- [36:10]
B
Yeah.
- [36:11]
A
That would be potentially switching to a Democratic Party. Oil goes back up. Now I'm exiting.
- [36:15]
B
So you want to buy in Republican, you want to sell in Democrat.
- [36:18]
A
Yeah.
- [36:18]
B
Interesting how that plays into that.
- [36:20]
A
If you think about it, if I'm at $60 a barrel with Republican Party and then Democrats coming, it goes to 120. That's a 2x just on my commodity price. So my asset value actually goes up.
- [36:30]
B
Just on the commodity price.
- [36:31]
A
Based on commodity price. And if I can keep that production stable, I could literally buy today at $6 a barrel and double my money at a 120 barrel.
- [36:38]
B
And in five years you're going to pay it off all the debt.
- [36:41]
A
Right.
- [36:41]
B
I mean the upside is massive.
- [36:42]
A
You have a free and clear asset. The only money that's in it is the fund which 25%.
- [36:46]
B
That's right. And you have a multiple just on the commodity price.
- [36:49]
A
Right.
- [36:50]
B
Phenomenal, bro. I'm geeked up about this.
- [36:52]
A
Pretty cool.
- [36:53]
B
Yeah, there's no doubt. Listen, where, where can people find more about the fund?
- [36:58]
A
Okay, yeah, so OWP Capital Group is the name of the fund. But if you go to investinpetroleum.com that's our domain. It takes you right to our landing page with all the information.
- [37:09]
B
Invest in petroleum.com you'll learn way more about the fund. Alex himself. Follow Alex for sure. This guy's a wealth of knowledge. Obviously I'm sitting here just picking his brain. He can go way deeper than we're going right now. But make sure to go follow you on Instagram, Facebook, TikTok, all the things, anything you maybe want to leave the audience with about gas, petroleum, commodities, you know, time of year, interest rate, anything else that might play into.
- [37:38]
A
Yeah, I mean I think interest rates are going to come down a little bit because they're trying to, you know.
- [37:44]
B
I just got something in the real estate world that now they're at 6.4. I just got notified which they came down a little bit now the Fed didn't cut the rate though by the way they just came. I think the banks are inclusively saying hey, we need to.
- [37:56]
A
Yeah, what we're seeing with vehicles too. Right. Tesla's buying down the rate and things like that. I, I just would say when you're looking into oil and gas, try not to be biased on a lot of the narrative in most people is oh yeah, I invested in a drilling project, it went bad, blah blah, blah, blah blah. Realize that I'm coming from the real estate world and we're trying to buy cash flowing assets just like out of the gate. So it's a different model. So even if you're not going to invest or partake, at least read about what I'm doing. Yeah, because it'll give you a different insight into how it really works. You know, a lot of oil and gas guys don't want to share this knowledge. I'm actually a forefront. I mean I got featured in Nate magazine as CEO recently because they, the massive organization was like hey, you're front runner into the new generation of oil. I mean I'm 33 years old. The average oil operators in his 70s.
- [38:44]
B
Yeah.
- [38:44]
A
So I'm coming into a new industry, really aggressively. Big booth, a lot of attention. I got. I got the featuring because of the fact I'm disrupting. And now it's saying I'm changing the whole industry. Right. I'm too small for that. But as far as an educational point, my goal is to educate the general public on what really occurs with oil and gas, because I think that's the preventative to stop oil and gas being canceled. I mean, that's the truth of it. You know, if people try to cancel it, though we need it. It still could be a case where legislative passes that restricts the, you know, the smaller companies. I mean, independence in oil and gas are huge. They're a massive portion of the production. But the majors right now are swallowing each other up, you know, marathons. Being swallowed by ConocoPhillips has been other major exits. They're consolidating, which in essence turns into a bit of a monopoly.
- [39:31]
B
I was going to say that.
- [39:33]
A
Right. So independent operators need to still exist, but in order to exist, they have to have realistic legislative. If you put these crazy fines and crazy rules on the smaller operator, they'll be gone. The majors will be the only ones left. And now we have a real problem.
- [39:48]
B
In my opinion, man, there's just so much into this. This is. I can see why you got attracted to this. You know, it's exciting.
- [39:57]
A
Correct?
- [39:57]
B
Dude, I want the best for you. I want you to disrupt it. I know there's a whole old school, good old boy network and I think you fit in as a person, but I also think you can kind of change the narrative. Change and disrupt. Disrupt it in the best way possible, dude. So name the website one more time. So everyone.
- [40:15]
A
Invest in petroleum.com.
- [40:17]
B
Invest in petroleum.com. go see Alex all over Otter. Well, all over Instagram, Facebook, LinkedIn, TikTok. You name it, brother. I appreciate being on. Appreciate it. Right on. All right. If you guys liked one or two of these things and you think it's worth sharing, if you know someone looking to invest in gas or whatever, make sure you share with at least two of your friends. I'll see you on the next episode with another incredible guest. Peace.