Podcast Summary: The Entrepreneur DNA – Episode 38: How This Investor Found Bigger Returns in Oil & Gas | Alex Ottewell

Released on September 23, 2024

Introduction

In Episode 38 of The Entrepreneur DNA, host Justin Colby from Bleav sits down with Alex Ottewell, a formidable real estate investor who has successfully transitioned into the oil and gas sector. This episode delves deep into Alex's investment strategies, the synergies between real estate and oil & gas, and his vision for sustainable and profitable ventures in a traditionally volatile industry. Whether you're an aspiring entrepreneur, investor, or simply curious about alternative investment opportunities, this conversation offers valuable insights into scaling a business and creating lasting wealth.

From Real Estate to Oil & Gas: A Strategic Transition

Alex Ottewell's journey from a seasoned real estate investor to an oil and gas powerhouse is both inspiring and instructive. With over a decade of experience in real estate—crushing over a thousand deals and managing a call center with 200 employees in the Philippines—Alex identified the need for a new revenue stream in 2012. Observing potential spikes in interest rates, he sought diversification to safeguard and grow his capital.

Alex Ottewell [00:00]: "I need to identify a new revenue stream... once kind of looking into the metrics of oil and gas... a lot of it really relates to real estate in the sense of property management."

Alex recognized the parallels between managing real estate properties and maintaining oil wells. Both industries require meticulous maintenance, proactive problem-solving, and strategic oversight to ensure ongoing profitability. By leveraging his real estate expertise, Alex seamlessly transitioned into oil and gas, treating oil wells akin to rental properties—focusing on maintenance and optimization rather than drilling.

Investment Strategy: Diversification and Risk Mitigation

Alex's approach to oil and gas investment is deeply rooted in principles familiar to real estate investors. His strategy emphasizes diversification and risk mitigation, ensuring that his investments are both scalable and resilient.

Diversification Through Scale: Alex targets large oil fields with over 100 wells, spreading risk across multiple production sites. This volume ensures that the underperformance of a few wells doesn't significantly impact overall returns.

Alex Ottewell [05:17]: "We're looking for fields that are larger. 100 plus wells. That's one way of diversifying... you protect your downside."

Leveraging Funds for Greater Exposure: By employing a leveraged fund structure, Alex multiplies his investment potential. Initiating with a $25 million fund allows him to control $100 million worth of assets, amplifying both reach and returns.

Alex Ottewell [05:17]: "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."

This model mirrors real estate fund strategies, where capital is pooled and leveraged to maximize investment opportunities across diverse holdings.

Understanding the Oil & Gas Industry: Beyond Gasoline

A significant portion of the discussion revolves around demystifying the oil and gas industry for those unfamiliar with its intricacies. Alex emphasizes that oil's role extends far beyond fueling vehicles.

The Multifaceted Nature of Oil: Only about 40% of a barrel of oil is refined into gasoline. The rest is crucial for producing plastics, cosmetics, and numerous other everyday products.

Alex Ottewell [13:14]: "Only about 40% of an oil barrel actually goes to make gasoline, maybe even less... you have 6,000 products being made from petroleum."

Alex challenges the prevailing narrative that electric vehicles (EVs) will render oil obsolete. He points out the environmental and logistical challenges associated with EVs, such as lithium mining and the pervasive use of petroleum-based plastics.

Alex Ottewell [21:34]: "Unless we have a better battery source than using lithium, it's forever going to be environmentally damaging to drive EV."

Building a Brand in a Tight-Knit Industry

Entering the oil and gas sector posed significant branding challenges for Alex. Unlike the expansive and community-driven real estate market, oil and gas operate within a more insular "old boys' club."

Strategic Sponsorship for Visibility: To establish credibility, Alex secured a premier sponsorship at the North American Energy Pipeline (NAEP) convention—one of the largest gatherings in the industry, attracting major players like Exxon Mobil, Marathon, and Chevron.

Alex Ottewell [15:42]: "I bought the biggest space dead center in the event. 10,000 people attend it, and I did this massive spread which put us on the map."

This strategic move not only elevated his presence but also demonstrated his commitment to the industry, facilitating trust and opening doors for future collaborations and investments.

Political Influences on Oil Prices and Investment Timing

The conversation delves into how political climates, particularly election years, significantly impact oil prices and investment strategies.

Democratic vs. Republican Policies: Alex explains that Democratic administrations tend to restrict drilling, leading to higher oil prices due to limited supply. Conversely, Republican policies often promote drilling, increasing supply and potentially lowering prices.

Alex Ottewell [17:32]: "When a Democrat's in office, oil and gas prices are higher... Biden administration only issued 200,000 or 300,000 acres, so they were a tenth of what usually gets issued."

Strategic Investment Timing: By anticipating political shifts, Alex positions his investments to capitalize on lower acquisition costs during Republican terms and benefit from price hikes under Democratic administrations.

Alex Ottewell [36:14]: "If Republicans are in office... we'll buy today at $60 a barrel and double my money at a $120 barrel."

This foresight allows for strategic acquisition of assets at favorable prices, ensuring robust returns regardless of political outcomes.

Tax Benefits and Financial Structures in Oil & Gas Investments

Alex highlights the substantial tax advantages inherent in oil and gas investments, making them attractive compared to traditional real estate funds.

Depletion Allowances and Tax Deductions: Investors benefit from a 15% depletion allowance annually, which is tax-deductible. Additionally, maintenance activities such as workovers and downhole projects offer almost full tax deductions through tangible and intangible drilling costs.

Alex Ottewell [31:30]: "We're also getting 15% of that deducted a year, which is nice... a lot of that is tax deductible at 80%, 70% tangible intangible drilling costs."

These incentives enhance after-tax returns, providing a compelling case for high-net-worth individuals seeking tax-efficient investment opportunities.

Future Outlook and Sustainability: The Necessity of Oil

The discussion emphasizes the undeniable reliance on oil for modern society's functioning. Alex advocates for the continued importance of oil despite the rise of renewable energy sources.

Oil's Integral Role: Oil remains essential for numerous industries beyond energy—manufacturing, healthcare, consumer goods, and more depend heavily on petroleum-based products.

Alex Ottewell [21:25]: "If we don't have oil, we are in trouble... oil is a necessity for so many things."

Sustainability Through Maintenance: Instead of focusing solely on drilling new wells, Alex's strategy involves maintaining and optimizing existing wells to ensure steady production. This approach not only stabilizes current operations but also contributes to sustainable energy practices by maximizing the efficiency of existing resources.

Call to Action: Investing in Oil & Gas with Alex Ottewell

As the episode concludes, Alex invites listeners to explore investment opportunities through his fund, emphasizing the blend of stability and growth potential it offers.

Investment Opportunities: Alex's fund, OWP Capital Group, seeks accredited investors interested in a leveraged, diversified oil and gas portfolio with robust tax benefits and sustainable returns.

Alex Ottewell [33:00]: "InvestinPetroleum.com you'll learn way more about the fund."

Educational Commitment: Beyond investment, Alex is dedicated to educating investors about the oil and gas industry, drawing parallels to real estate to facilitate understanding and confidence.

Conclusion

Episode 38 of The Entrepreneur DNA offers a comprehensive exploration of Alex Ottewell's dynamic investment journey from real estate to oil and gas. Through strategic diversification, leveraging financial structures, and a deep understanding of industry dynamics, Alex presents a compelling case for oil and gas as a viable and profitable investment avenue. His commitment to education and sustainable practices further distinguishes his approach, making this episode a must-listen for entrepreneurs and investors alike.

Discover more and invest in petroleum: InvestinPetroleum.com
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