This is an LFI episode and LFI is now part of PassivePockets.
I’m excited to have Troy Eckard with us. He is the CEO of Eckard Enterprises, a family-owned and operated alternative investment firm specializing in the US oil and gas industry. Troy is also the host of Energy Talk with The Texan Podcast. Troy, welcome to the show.
Thank you for having me. I really appreciate it.
The way we usually start out is I’d like to know your journey, how did you get into oil and gas, and where you’re the CEO of your own company.
In 1985, I was going to college studying Economics and Finance, and I had a stepbrother who had a small investment firm in Dallas, where there was a big push for high-net-worth investors with high-income looking to drill on gas wells for tax advantages. I was convinced to finish college at the University of Texas Dallas. I moved to Dallas, started working in the financial sector, got my license, and did that for three years with my stepbrother’s company.
Being an entrepreneur at heart, I quickly realized I wanted to work for myself. I ended up starting my own investment company called Eckard Investment Services. In 1995, I started my own oil company because I wanted to control the product. I’m going to sell something. I want to know that I own it, invest in it and that I’m going to control the outcome. In 1995, I started raising capital for my own ventures, and that covered everything from pipeline investments, minerals, salt, water wells, drilling ventures, real estate programs, etc. I’ve been doing this for many years.
You’ve done it all in the oil and gas industry, but now you’re concentrating on the mineral rights.
The mineral or oil and gas market is much like real estate. You have some investors and entrepreneurs who want to be in the raw land development, and they’re going to go out and forward look at what the land could be, and that’s the exploration. It’s shooting seismic, acquiring data, and hiring geologists and geophysicists. You’re way out front, but your reward, like land development, can be 3X to 10X, depending on what you pay for and how you develop it.
You then get into the production side, so in real estate, that might be the developer, the guy that’s going to put Target, Walmart, or Chick-fil-A on it. They’re spending capital to develop the land or the minerals that have been acquired and that have a lower degree of risk, but you’re still exposed to a tremendous amount of capital. As you go down the line, like in real estate, everybody has their role in that play. The one thing that was available, but not in a commercial investment grade opportunity, was to be the mineral. I wasn’t a third-generation Oklahoman. I wasn’t born into a rich family in Texas. When you think about minerals, they’re usually tied to large ranches, farms, and large landholders.
When the Shale Revolution across the US became more of a great commercial opportunity, it opened up about 300 million or 400 million acres and now contains a tremendous amount of oil and gas, and these owners of the mineral rights didn’t realize what the value is. They also recognize it was a once-in-a-lifetime opportunity to maybe sell off part of their mineral rights, still keep the surface rights, but they can now create a $500,000, $1 million, or $5 million worth of sale of mineral rights that allowed them to pay off their ranch, debt, and set their families up forever.
That all opened up in 2010. The private sector didn’t get a chance to bite at that apple until 2016 because private equity and Wall Street were doing all the buying in the early stages. Once their plate was full, they realized there was no way they could eat everything on this buffet. It’s a trillion-dollar industry. That gave a perfect wind of opportunity for somebody like myself who’s very good at working with high-net-worth clients, looking at arbitrage opportunities, being able to assemble a team, and now I can compete head-to-head with major companies in the mineral space where I couldn’t in the expiration space.
Let’s start from the beginning. There are mineral rights and surface rights. What are mineral rights? What are surface rights? Are there other rights? What minerals are we talking about?
The United States is one of the only countries in the world that allows you to have three rights when you bought a piece of real estate many years ago. One is when you got your 640-acre stake in the ground and given a land grant, over time, they realized that you had the right to the surface, everything attached to the ground. You had air rights, everything above your property, but not tied to the ground. You had the right to everything that was dealing with natural resources below the ground.
We’re the only country in the world that lets you separate or partition those three rights. You can have three owners over the same piece of property. What has happened as a result of looking at mineral rights, people realize it could be precious metals, silver, gold, copper, traditional mining, and other natural resources that are specified in particular categories beyond the normal precious metals such as uranium, etc., and then there’s the traditional oil and gas.
When we buy mineral rights, we own all of the natural resources below the ground or surface, but in certain areas, you’re more prominently going to find oil and gas, different precious products, natural resources, etc. In our case, we only focus on the oil and gas value when we buy minerals, but that doesn’t mean we don’t have the right to anything else that may be discovered later on. We own it all, from the surface all the way to the core of the earth. There are minerals to be developed if we can find the right person to do the developing.
[bctt tweet=”When we buy mineral rights, we own all of them. We own all the natural resources below the ground, below the surface.” via=”no”]
If you don’t own the surface, how do you get underneath the surface?
Every state wants its natural resources developed. What they will do is put in their own legal precedence, the ability for a mental owner to be able to access the surface to develop those minerals. There are proceeding law in place that says, “If we need to go drill a well, the landowner cannot deny you ingress and egress and cannot deny you the right to develop those minerals.”
You’ll have to pay for that right and for that ingress egress in order not to be held hostage. They’ve got preceding values. In this county, for this 60-foot-wide road, you’re going to pay $1,000 per linear foot, so they can’t hold you hostage and try to charge you some ridiculous rate, but the exploration now is completely different than it has been in the last 100 years.
Now, you can literally find a location to put your drilling rig. You’re going to drill down vertically 8,000 to 12,000 feet, 2 to 3 miles below the surface, then you’re going to go 90-degree angle sideways with your drill bit, and you’re going to drill 1 to 2 miles out horizontally. You might cover 1,280 acres, 2 square miles, in a rectangular pattern. You may drill a well that goes down 2 miles out, but you only have a 3-acre footprint or pad site.
Everybody in those 1,280 acres shares the minerals, reserves, oil, and gas. You don’t have to win the lottery ticket. You have to be inside those squares. The surface owner can’t stop you. You have the right to development. There’s a minimal footprint, and major billion-dollar oil companies are doing all the spending, capital exposure, and liability, and as a mineral owner, get your percentage in the form of a royalty, and you never pay a dime. Once you own the mineral, they lease it from you, assume all liability, and you get a check every single month for every drop of oil and every molecule of gas produced from now until forever. It’s the most passive investment in the United States.
You don’t do any development. You’re not digging wells. You’re trying to find where there might be minerals, and then you’re buying those mineral rights and figuring out how to access it.
You’re very close. I’ll give it to you in a real estate term. It’s like a triple-net lease but even better. Even with a triple net lease, I still have tenants moving in and out and some costs and liabilities associated with it. As a mineral owner, the way the lease documents are written between the mineral owner and the oil company literally says, “I’m Chevron. Troy, I’m going to lease your 1,280 acres to drill a horizontal well. We’re going to pay you a lease fee upfront for three years to lease your property. We have the full right to development. If we drill a well in three years, we then have the right for all future development, whatever zone it is, however deep it is, it doesn’t matter, and however expensive the well is. We get to produce, operate, and manage it. We take 100% of the cost.”
Depending on how sophisticated of a mineral owner I am, I will be able to negotiate a royalty percentage. It’s usually between 12.5% to 25% that the mineral owner retains without any obligation with zero capital cost and zero liability. Chevron drills the well, puts it online six months from now, and it’s making $1 million a month. I’m going to get $125,000 to $250,000 for that month as my share of the royalty. All I pay is 1099 ordinary income tax on it. That’s it.
I basically have wells producing. Your comment about we got to figure out where the oil is, we don’t figure out anything. What we do is use modern technology that is now available online that wasn’t available a couple of years ago to find out who has the leases, who are drilling the wells, how good the wells are, run it through our engineering program, and we are able to dissect entire 40-million-acre basins to determine where’s the best probability for the highest amount of oil and gas with the best oil company with the most economic value. It’s completely been a game-changer in the last couple of years.
Let’s say you buy some mineral rights and negotiate a deal with a production company. How long does it take before they’re digging oil and putting money in your pocket?
In our program here at Eckard, we only buy producing minerals at the time we acquire them. In other words, we know it already has income being generated from day one when we decide to buy it. What we’ve done is avoid the subjectivity of the timing of development. We don’t want to buy a mineral acre that doesn’t have a well, permit, and activity on it because we don’t control the oil company.
We’ve fine-tuned our model to be specifically looking for minerals that are already generating income. We then have a very proprietary methodology that we go by that tells, “Troy, you’re looking at five mineral tracks. Let’s assume they’re all the same price. Which track is the one that’s most appealing?” “It’s track number two because the well that was drilled on there was the best performer out of the five. If I’m the oil company that had those five tracks, I’m likely to drill a 2nd, 3rd, 4th, or 5th well next to the mineral lease that produced the most oil with the most success.”
What’s better is we’re able to look and see that that oil company has filed four permits and that permit then rotates into an application to permit, then drilling. From our timing element, to answer your question specifically, because we buy producing properties, our revenue starts being dispersed within 180 days from the time you write a check because we already have income the day we close.
It takes about 3 to 4 months to file your document in the courthouse and send the recorded ownership to the oil company. That’s the lessee. They run it through their land department and accounting department and, finally, send us our check. The first check will normally be for three months’ worth of revenue to catch you up, and then it’s every 30 days thereafter.
No matter what happens to oil prices, we’re not subject to bankruptcy or withholding. No matter what happens to that oil company, they must pay us every single month for the gas, oil, and natural gas liquids for whatever wells are on our minerals. The good thing is we get lots of upsides and minimal downsides, but we get paid before anybody else gets paid because, in our lease document, we have zero liability. If they file bankruptcy, the lien holders are going to file against the oil company for their share of revenue because ours is absolutely exempt from any liability or retention.
Why do the mineral rights owners sell it when it’s producing? Presumably, they know the value of it, so it’s affordable. I don’t understand why someone would sell an already-producing well or mineral rights to it.
It has to do with the old adage. You have an investment that’s making you $1,000 a month, so that’s $12,000 a year. You think you can get $8,000 in year 2, $7,000 in year 3, and $4,000 in year 5. All collectively, over the next 7 to 10 years, maybe you make $75,000, or I sell that 40 acres for $10,000 an acre based on the current income, and I get $400,000 versus $70,000 over 7 years.
What most sellers will do is say, “I’ve had it in my family for 100 years. I don’t want to sell it all. I’ll sell you half. I’ll sell you 20 of my 40 acres for $200,000.” They make $200,000. It’s double what they would’ve made by holding revenue. They pay off their tractor, their farm, and their kids’ college, and put their mother in a nursing home and still own half. As a result, the landowners have figured out this is a great way to monetize their portfolio.
We closed four brothers that are in their 70s. The minerals have been in their family for over 100 years. They’ve been getting revenue for almost 90 years from these minerals. They know it has a tremendous amount of oil and gas, but they said, “What we want to do is we want to clear up our estate. We don’t want our kids trying to fight over who’s going to lease and revenue. We’re going to sell it, split it four ways, put cash in the account, and the kids can live on the money. We think this is the best thing to do.” It was a very rare opportunity, but we closed on it. It was a $70 million transaction. It was four 75-year-old to 76-year-old brothers, and that’s how you find the minerals.
On the flip side, several years ago, before horizontal drilling took place, many of these areas didn’t even have a well on them. Oil company A, several years ago, drilled a well. That mineral owner started off with good revenue because it’s like shaking up a 3-liter Coke. It comes out real hard and high volumes in the first couple of years. As the well comes down, I might have been making $100,000 a month as a mineral owner, and by the time I get 4 or 5 years out, now it’s down to $2,000 or $3,000.
They are not sophisticated. They don’t understand the energy business, but what they know is their check dropped from $100,000 to $2,000 or $3,000. We know because of the trend and a macro-overview, that particular mineral track is probably going to end up with twelve wells over the next 3 to 5 years drilled on it, but they don’t have the time and the comprehension.
Based on the metrics that we have, “We’re going to offer you $9,500 per acre. You’re going to sell us part of your acreage.” Some of these guys get $1 million, $2 million, to $5 million at a time in the bank. That’s a big number to somebody who’s been farming a ranch in their whole life or somebody who’s already made all their money going, “I don’t know how long it would ever take to get this money.” We buy it because we know that when those four new wells get online, we are going to make somewhere between 20% and 30% return on our money. We probably have another 5, 10, or 15 wells that’ll be drilled. We know we have 25 to 50 years of economic life with zero cost, zero expenses, zero holding cost, and a check every 30 days. It’s the only investment of this kind in the country.
Who are your competitors in oil and gas companies buying these up themselves? Why are they letting you buy them and leasing them?
Some oil companies do buy their own minerals, but oil and gas are a lot like real estate. The guy who’s going to get financing to get equity partners to do raw land development doesn’t go vertically. He doesn’t build the apartment or doesn’t build the shopping center. He titles it, makes his profit, and sells it to the next guy. The next guy buys it as commercial property.
The first guy bought it per acre, and the second guy bought it per square foot. The last guy buys it on a cap rate because it has now got tenants in it. The oil industry’s broken into three sectors. You have upstream, which means anybody in the stream of the oil and gas process that starts on the very time seismic was shot until the oil and gas come out of the wellhead. That’s called upstream.
Midstream is anything that has to do with processing and transportation. It’s connecting a gathering line to the well in the field, picking up the oil at the tank, and the transportation processing. That’s all midstream. When you finally get down to refineries, that’s called downstream, where they process it, turn it into natural gas, diesel, plastic, and we end up buying it as a consumer.
When you look at the three elements of oil and gas, the guys that are in exploration, their money, financing, and entire equity stock holdings are based on, “We’re a drilling company. We drill.” When they get robust revenue like they’re seeing now, and they know there are not any more drilling rigs to deploy and capped out, now they’re coming back saying, “We don’t have any other way to spin these record earnings,” so they’re going out trying to buy their own minerals to increase their position.
Our competitors are private equity-backed or PE-backed mineral managers. The guys who think they know what they’re doing, they’ll go out and talk to somebody like NGP, Natural Gas Partners and say, “We’re smart guys. We think we can buy $1 billion worth of minerals and do it right.” Natural gas partner says, “We’ll give you $400 million. Here’s the box you have to play, and here are the economic parameters. Go do it.”
We left a conference, which was in Houston, which was all the so-called big boys in minerals. Some of these guys are talking about, “We raised $200 million from private equity in the last few years, put it to work, and now we tapped out. We’re waiting to see the cash money monetize.” My company will have over $250 million worth of mineral acquisition this 2022. We have put together more money than major private equity-backed groups because our track record has been so good. Our methodology is unique methodology.
The main thing I wanted to point out is our competitors are people who have high net worth family offices, private equity, or maybe a few public companies, and they all are tied to the same problem, which is economic parameters set on major discounts to value. They have a box, but it’s pretty tight what they can play in. We’re a different breed.
Do you ever sell your mineral rights? Is this a buy-and-hold forever? If you sell and the investor cash out, is there an upside to these investments or purely cashflow?
This is a unique opportunity. Depending on your personal situation, probably 70% of our partners have the intention of buying and not reselling. These are assets you can pass on to your kids, and you can’t screw them up. All they’re going to do is get a check. The only way they can screw it up is that they go take drugs or jump off a bridge with it. They don’t have any decisions to make. They don’t have any bills to pay or taxes that they owe. They have to get their checks twelve times a year and then file their 1099 and not have tax evasion. It makes it a great asset to put into an estate and pass on to your heirs.
From the standpoint of liquidation, our strategy has always been based on what we call AML, Aggregation, Maturation, and Liquidation. We aggregate all these small mineral blocks, put them into portfolios, and let them mature over 3 to 5 years because the wells come online and generate revenue. They have established cashflow, plus they now have proven reserves in the ground. We let them match the rate, which increases the value, and then we have a choice like, “Do we liquidate?”
Typically, we’re looking at a five-year liquidation consideration. That consideration is based on current tax laws, what the capital gains are, where else we can go, and make 19% to 20% of our money, etc. If somebody has to sell, we do have means by which you can sell those minerals. In fact, we already have the number one engineering firm in Oklahoma that represents our business, which can help us evaluate those minerals and get them sold. We have a number of outlets.
I would be willing to bet because of how our clients have been seeing their revenue increase month after month. I’m going to find very few partners who want to sell even in a robust market because they love that cashflow. All they got to do is not get a paper cut when they open up the envelope every month because that’s all they’ve got to do. The smart ones have ACH bank wire deposits and don’t need to open an envelope.
I’m being a little funny, but it’s serious. I have investors who are doubters. They were like, “I don’t know if this is going to work. This sounds crazy. It’s a new market.” Now, I get texts every day. “It’s distribution time, the 25th of the month. Troy, you’ve changed my portfolio and my life. I want to do 1031 into it.” It has been a mixture of perfect timing in the market, where minerals became more acceptable to private investors, and a perfect plan that I put together because I’ve been doing this for many years. Because of that experience with timing, we’ve created a beautiful scenario for our investors. Now, we’re sitting at about 1,000 high-network partners as clients. A few years ago, we had 120. We’ve grown eightfold in the last few years as far as investing partners.
How long are these opportunities going to last? Is this sustainable going forward? Is this the new way it’s going to be? Are these long-term investments going to pay off?
If you asked me this a few weeks ago, I would say we’re probably getting near the end as far as getting what I consider to be very good minerals at a very good price because a lot of new players showed up because of the robust earnings from the higher commodity price. You get $6 or $7 natural gas and $90 oil. You’re going to attract attention. Even if they’re told by their money source, “We don’t want you investing in fossil fuels,” they go, “Sure, but we’re going to hold those and do it anyway because it’s got better returns.”
In Houston, what we heard from most of these larger players is that inflation is killing their capital because they can go out and buy these older seven-year-old wells and going to make 6% or 7% return on those older wells, but their bank debt is now 8% to 10%. If inflation’s 10%, they got to be targeting closer to 15% to 20%, or their bank’s not going to approve their loan, and their line of credit’s going to be shrunk. They can’t even generate enough cashflow to cover the servicing of the debt.
In this big conference, we sat there for twelve hours, listening to all these so-called big boys up there saying, “Last quarter this 2022, we didn’t have any money to spend. Banks have given us all they can. Its new debt, new lines of credit, and new private equity terms are going to now be based on at least a 10% cost of debt and capital, plus we have to offset inflation by 8% to 10%. Most of us are not going to be able to play in the market in 2023. We’re only going to be able to use cashflow to buy new minerals. Otherwise, we cannot tap new sources.” Eckard is an all-cash buyer between us and our clients. We pay cash for everything. We have no debt. We have no taskmaster that we have to answer to.
[bctt tweet=”Most of us will not be able to play in the market next year. We will only be able to use cash flow to buy new minerals. Otherwise, we cannot tap new sources.” via=”no”]
A couple of months ago, I might have had ten people competing against me for minerals. Now, I have maybe two. The reason why it works so well for us is because we’re willing to buy a 10-acre track, 40-acre track, and 7-acre track, and we’re doing 500 to 1,000 acres a month. These bigger players are feeding a lion. They don’t need chicken wings. They need a whole side of beef. They don’t look at 5, 6, 8, and 10 acres.
We have hired the three top land companies in Oklahoma and spend about $500,000 a month on landmen who are going to the courthouse to find Susie, the third-generation granddaughter of Mr. Smith who now lives in Seattle, who owns the right, and she doesn’t even know she owns it. We’ll call on the phone with our land team and say, “Ms. Smith, you’re the granddaughter of Johnny Smith, and you own 100 acres of minerals in Oklahoma.” Her first thing is, “I do?” “You do.” “What do you want?” “We want to buy them from you.” “How much are they worth?” “Based on 100 acres where you’re at, it’s worth $10,000 an acre. We know you own it. We can close and wire you the money in seven days for $1 million. Are you a seller?” “I’m a seller. How fast can you get the paperwork here?”
We made a lot of very wealthy people over the last few years. There are multiple ways we get it. You’ve got to think. It’s now covering 30 states in the country, Pennsylvania, Ohio, North Dakota, and Wyoming. You’ve got all these states with thousands and thousands of mineral owners who own the surface and didn’t know they owned the minerals, and even if they know they owned it, they had no idea there was only gas in it because the rig is 2 miles away drilling 2.5 miles under the ground. They don’t have a clue.
We’re very fair and conscious of making sure the seller knows what we’re doing. We don’t have to trick them out of their investment because Susie, in my example, might’ve said, “My granddad said never to sell it. Can I sell you 20 of 100 acres?” “Sure, you can. When you’re ready to sell the rest of it, come back to us again.” We do this a lot where a guy might sell 50 acres of 300 because he is got to put his 82-year-old mother in a nursing home. He says, “I’m only selling it because I don’t have the money put in a nursing home, but I want to keep the rest.” We’re okay with that. The bigger private equity-backed guys don’t want to hear it. They want it all or nothing. I don’t mind eating squirrel as long as it’s tasty.
How does the ESG movement, which is Environmental, Social, and Governmental for the readers, and the anti-oil and gas sentiment going around affect mineral rights?
Every single thing you described is music to my ears. Everything Biden does when he opens his pie hole gives us another $5 or $10 a barrel in value. Everything they’re doing to constrict future development, muddy the water, and confuse the market is causing all these oil companies not to go build 100 new drilling rigs. They’re not out buying new equipment or new pipes. They’re basically only operating off a cashflow.
GSC, Green Deal, and all the endowments pulling back all their money, saying, “We don’t want our money spent on fossil fuels,” what they’ve done starting in late 2019 was they essentially said, “We’re going to starve the industry of money.” Obama tried to kill the industry of horizontal drilling by cutting off water. We need a lot of water to frack the wells. Obama put the EPA out there to try to grab rights on a federal level to every single tributary and dry bed creek across the country.
President Trump unwound that when he took office. What the current administration and their environmental nut cases on the left decided is, “We can’t stop him with EPA. Let’s go ahead and choke off the capital. Let’s put all these regulations in banking, private equity, carbon footprint disclosure, and GSC. Let’s make these pressures so great on anti-fossil fuel investing, and it will choke off the industry.” It worked for a few years. What they weren’t expecting was for oil to go to $129 a barrel after Russia invaded Ukraine. Now, the oil companies have record cashflow, basically making up for 2020 and 2021 cremation, where they got totally decimated. Now, they’re making record profits, but they’re making out of their own cashflow.
These CEOs of Chevron and Exxon said, “We’re not going to go any faster than our cashflow. There are no more rigs to deploy. All of our rigs are gone. We haven’t made new rig equipment in 5 or 10 years. What we have is we have a capital supply withdrawal and a supply chain dismantling.” This country has locked in at about 12 million barrels a day, and we’re stuck. In fact, it’s going we’re dropping production and not going up, which means as a 20 million barrel-a-day user, we’re only making less than 12 million barrels a day. We have an 8 million barrels net requirement from imported oil, but even if you add demand destruction and stop having a recession that drives away a lot of demand, you could lose 2 million barrels a day and still be 6 to 7 million barrels short.
OPEC did us another favor. They cut back 2 million barrels a day. Between OPEC dropping 2 million barrels to any strategic petroleum reserves being sucked dry by 245 million barrels that stops in 10 days and Russia dropping over 1 million barrels a day in output, we’re going to be 4 million to 5 million barrels a day globally, less than we were before. That’s 4% to 5% less oil in the market. You should see oil at $125 a barrel by Christmas.
Especially in this environment, what’s the risk of owning mineral rights? It sounds like there isn’t a whole lot, but there must be oil and gas boom or bust. What’s the risk here?
The risk is the sharks. Oil and gas minerals are so easy for a crook, promoter, or Ponzi scheme to run. They sit there and tell you, “You’re in the Anadarko Basin in Oklahoma, and you can buy anywhere. The wells have a 99% success ratio. It’s $30,000 an acre.” He didn’t tell you that you’re the gristle on a T-bone and on the outer edge. Nobody’s going to drill at any time soon.
Probably, it has some oil and gas in it. It technically is in the Anadarko Basin, but you won’t see any revenue coming from that mineral for 50 years because no one’s going to drill without the infrastructure. They need roads and pipelines and saltwater wells infrastructure. I’ve seen multiple Ponzi schemes and people ripped off investing in minerals where they were told they were in a certain basin, but you’re so far away you can’t even smell gas, much less be having gas come out of your minerals.
The biggest risk to minerals is 1) Buying it for the wrong person at the wrong price. You’ll never make money. 2) It’s an outright Ponzi scheme. There are lots of those in minerals that go around. 3) The only way to make real money in minerals requires activation. If I’ve got 50 million barrels of oil in place under the minerals I own, I got to have somebody drill it. I got to have that company have enough money to drill the 2nd, 3rd, 4th, to 10th wells. I got to have that company competent enough not to drill it cutting corners and drilling it half-assed. I need them to drill it to the best of their ability.
[bctt tweet=”The biggest risk to minerals is buying them for the wrong person at the wrong price. You’ll never make money.” via=”no”]
I need activation with the right operator and the right amount of capital that ensures I’m going to have 8, 10, or 12 wells poked in the ground that’s going to make me 3, 4, or 5 times my money and my cashflow should be 15% to 30% cash-on-cash return. The way we set our system up, we’re 74 portfolios in, cashflowing across all portfolios with over 19.1% return cash-on-cash to date over a couple of years. Realistically, that is probably going to be in excess of 25% cash-on-cash and returns across all portfolios by probably May of next 2023 based on all the new wells we’re putting online.
We have 1,509 wells and 0 dry holes. We’re in 640,000 gross acres. I’m not giving you stats to sell to anybody. I’m telling you that we cover an enormous pathway in Oklahoma in Anadarko Basin. Because of that, we know the best operators, the best rock, the best place, and the fastest production. That’s allowed us to get better and better. I always believe in the philosophy, “Being a jack of all trades is a failure. You got to be an expert at one thing.” Focus.
[bctt tweet=”A jack of all trades is a failure. You’ve got to be an expert at one thing. Focus, focus, focus.” via=”no”]
We’re typically real estate investors and investing in syndication, so we vet the operators and have some processes to figure out, “This is one we want to invest in and maybe not this one.” How does a passive investor, like someone in the Left Field Investor Community, vet you as an operator or anybody in this space or a mineral rights owner? How do we vet the operator and make sure that it’s not a Ponzi scheme but with someone who knows what they’re doing?
First off, I’m the only sponsor out there, including your real estate sponsors, and the only sponsor I know of. I invite every one of my clients to an annual conference. I put 500 to 1,000 people in a room and say, “You have three days to talk to every one of my employees and every partner that I have, good, bad, small, tall, rich, or not so rich, and ask any question you want.”
As my older client used to say, he said, “Troy, you’re either the dumbest guy we met, and we’re going to hang you like a piñata in three days and beat your stuffings out, or the smartest guy we know because we’re going to believe and know you’re the most honest guy and going to invest with you forever,” which has been the case.
The one thing is you can look up any records or files in Oklahoma. You’ll see Eckard Land and Acquisition filed in 967 sections. Number two, we spent about $2 million of my money investing in the most advanced online application or app that allows you to get on, put in your password, see every track, well, and all the production scraped from the tax office and the production office. It will tell you what every one of the wells on every mineral track you have is doing. You can then compare that to your revenue check when you get it 90 days later when the oil has been sold, and the checks come through.
All of the deeds are filed. We manage it for you for free. You can then take those deeds that we have, and you can verify them in the courthouse. It’s like a traditional real estate venture, but it’s even more disclosed than a traditional real estate venture because I can’t show you what’s under the ground, but I can take you to the courthouse, ownership, show you the deeds, take you and stand at the gate, show you all the wells at Exxon, Chevron, Occi, or Continental have drilled.
The other thing is I’m probably the most transparent blunt guy you’ll ever meet in your life. I don’t have that great a memory. For me, I tell it like it is. You either love me or hate me. I am extremely focused on education and information. Most of my client’s biggest complaints are, “You do 4 videos a day, 15 educational videos a week, and have dinners and conversations and meetings. There’s not a single thing I have to ask that you’re not already on top of in advance.” Why do I do that? The way Ponzi schemes and crooks work is they’re always good about talking up front, and once you write the check, you never hear from them again because they don’t know how to lie and cover up that bad mistake. I’m the most advanced educational front-running person you’re ever going to meet in your life.
Explain it again. If someone invests in one of your wells, is it a fund, or own a piece of it with somebody else? Do they own actual square footage under the ground in the mineral rights?
Think about it this way. We’re going out looking at 40 million prime mineral acres in the Anadarko Basin in Oklahoma. The way Oklahoma set it up, they do everything on what’s called force pooling, which means they’ve broken the whole state up into square miles, which is 640 acres. If there’s a well in section 32 in this township, I don’t have to be the lucky mineral acre. I need to have an acre or acres inside of that 640-acre square mile and get my percentage or share.
What we do is go to the specific areas that we know we want to buy in. We might buy 10 acres from John Smith and 20 acres from Tamie Johnson. That’s two different owners in the same square mile, and we may do that across 60 or 70 sections of land covering 400 square miles of area that we want to be interested in. We take those different blocks, 7 acres, 10 acres, and 20 acres from different sectors, and put them into a portfolio. We give you an exhibit that tells you all the different tracks, deeds, wells, and details, and we say, “This is a $5 million mineral portfolio. We’re offering it at a $25,000 or $50,000 investment. Your investment becomes the numerator, and the denominator is the total gross acres.”
If I put up $500,000 of that $5 million portfolio, I own 10% of every mineral and every track across the board. What happens then is that we get checks in from the oil company for each one of those wells and each one of those tracks and then an ownership deck that says, “We’ve got 10 partners at 10% apiece, $500,000 investment across $5 million acres. Each check, block, and well is mathematically calculated through our accounting software.”
The way we manage it is, in my case, we’re spending as a company $20 to $30 million in inventory that we have built up. We will select out of that inventory the right blocks of minerals to get us to our economic goal. Our goal is to make a 10% minimum per year over five years. Now, we’re averaging closer to almost 20% return. We’re crushing and beating our own financial model, but we hold the minerals in the title of Eckard Land, but your purchase sale agreement says, “They’re your minerals. Eckard is only managing it for us,” because you guys wouldn’t be able to figure out how to make sure your minerals are paying in the right percentage.
If you get tired of my voice or my ugly face in 30 days, you say, “Troy, I don’t like you anymore. Can you assign out my minerals?” “Let me assign out your fractional piece of each one of those mineral tracks out of that portfolio. We’ll assign it to you.” 60 or 90 days later, the oil company recognizes Eckard Land is no longer getting the check. Now, it goes to Tom Smith directly, and you’ll get your checks directly from the oil company.
We manage for free because I got to process that gross check to get mine and the other partners out. We don’t charge for management. We charge an upfront fee one time. When you buy it, you’re buying it at a price we set it. We, 99% of the time, have already gone out ahead of you and bought $30 plus a million worth of minerals. You got to think about it. What sponsor do you know in real estate or any other asset class buys the asset before they broker it to you?
Basically, they got to have your money to close that apartment or self-storage. They’re getting your money, making a fee, and have virtually no risk in it. They got a backside and make a management fee, and you’re saying, “How to do that real estate guy is not lying to me?” He may not be lying to you, but he has a heck of a reason to stretch the truth or stretch it because if he doesn’t get it sold, he doesn’t make a living, but I’m different.
Clients will say, “Troy, what if I don’t invest this month?” “I don’t care. I’ve already paid for the $30 million. If you don’t want it, I’m going to keep it anyway.” It’s a great relationship that I have 1,000 high-net-worth and high-income partners made up of engineers, lawyers, doctors, and oil and gas geologists. They put me to the test by saying, “Is he creating an inventory that is tier one or top-notch? If not, we bypass him.” That’s how we work.
How is this taxed? Does it comes to us 1099, and it’s ordinary tax income?
It’s very simple. You’re going to get twelve distributions a year, one per month for all your wells and minerals. It goes out of our office on the 25th. At the end of the year, we’re going to give you 1099, an ordinary income. It’s 1099 taxable income, but the IRS lets us take a 15% depletion allowance which means I’m only paying taxes on 85% of my income. That gives you an increased IRR and value. They do it because they know you’re depleting your reservoir.
If I make $1 million this 2022, I’m only paying tax on $850,000. What we do here at Eckard as more of a service than anything is we find drilling opportunities in the areas we buy minerals, and in a lot of cases, in the exact same minerals that we own will participate in the wells with that oil company because we’ve already determined that’s the oil company we want to be under. If there’s any interest that’s available, we’ll drill it.
This 2022, I’m thinking we’ll do close to $40 million in drilling, and the clients who have high income who’ve invested in the mineral say, “I’d like to participate in drilling to offset my taxable income for my practice, my banking business, or manufacturing. Also, I made $1 million in income off the minerals this 2022. I don’t want to pay all those taxes, so I’ll invest some more back in drilling.” We offer that more as an ancillary service than we do as anything we promote.
What’s the minimum investment?
Every portfolio has a minimum of $25,000 on investment, but I’m going to be blunt with you and your audience. If you’re not going to be willing to put in at least a couple hundred thousand dollars, you’re trying to spit on a fire. The way it works is if you look at one rent house, it’s going to be $200,000 to $400,000, so 1 tenant, 1 income. If you buy an 8-plex or 12-plex, it’s $1 million or $1.5 million.
[bctt tweet=”If you’re not going to be willing to put in at least a couple hundred thousand dollars, you’re trying to spit on a fire.” via=”no”]
In our view, we want you to be diversified. If I bought in portfolio A, it might have 20 sections of land and 40 wells. That’s great. They’re all very low risk, but I’d rather you be in portfolios A, B, C, D, and E. You might have 80 to 150 starting wells, but you have the ability, like buying a pen of pregnant rabbits. That 100 to 150 wells will probably end up in 300 or 400 wells over the next 5 or 10 years. It diversifies you in geology, operators, well, and timing as far as activation, and it gives you a link in a broad base portfolio to maximize your returns and minimize your exposure.
Again, we got 1,500-something wells and 0 dry holes. I’m not worried about hitting a well. Most of our older portfolios that we’re funded by the end of 2021 are averaging 25% to as much as 60% return. The only reason why our average return is 19.1% is we’ve done $250 million this 2022. Our denominator exploded on the amount of capital. The top line is not caught up yet because those wells and revenues haven’t come through yet, but even with that being the scenario, we’re still at a 19% return.
If I knocked off the last $100 million of our portfolios we funded in the last 90 days, we’re probably close to 25% to 30% return cash-on-cash. I’ve never had so much fun in my life as I’m having now. No complaints and no dry holes. All people are complaining about is, “You’re making me so much money. I got a new tax problem.” That’s what I want to make you mad at.
I wouldn’t mind being mad at that, either. The last question I always ask is, what’s another podcast you like to listen to?
I’m not a big podcast guy. I like watching podcasts when I drive to my house in Colorado, but it’s usually about murder mysteries because I like to learn about the human character. What I like about podcasts is I like podcasts with people who are off the cuff and blunt. I have listened to a lot of podcasts and what I don’t like is most of the podcasts I hear always seem to be tainted toward the product that the podcast providers were giving.
I’ve got a second podcast, and you’re probably not even familiar with this. It’s called Talk with the Texan: Money and Life. I’m talking about real issues like, “Why do so many millionaires commit suicide? Why do entrepreneurs find themselves in depression?” It’s because they’re isolated. “Why do macro creative thinkers find themselves totally lonely in a room full of people?” They’re already seeing the next building they’re building, the doorknobs, the paint color, and the grass growing, and the other person’s saying, “You shouldn’t put a hotel in that piece of space.”
What I’ve learned about wealthy investors, podcasts, and all these different so-called financial gurus is they all have click words and are well-spoken, but in reality, very few have substance. I’m more of a cut-the-crap guy. Tell me like it is. I always tell people that if I walk into my doctor and he gives me that funny look, I’m going to go, “What’s the problem? Am I dying? If I am, I need to know how bad, when, and what’s it going to look like. How much pain am I going to be in? How many days do I have run left? Tell me like it is.” That’s inherent in my personality.
If I find a podcaster that’s blunt and raw, maybe talks a little bit tougher than I want to hear, but at the end of the day, I want raw data. I don’t have somebody I follow at this point. For me, I like exactly what you and I are doing now. You represent a group of people that you built a lot of trust with. You’re trying to get people on your show that have substance and the true meaning of what they’re doing. You’re going to say, “Here it is unabashed. Make your own decision, but I’m trying to get the right people to be exposed to, and then you’ll have to make your own decision.” It’s fantastic you’re doing this. A lot of people invite me on that have a directive or an agenda where they’re going, and I don’t like that. I call a spade a spade.
How can readers get in touch with you if they’re interested?
We’re very easy to find. EckardEnterprises.com is our website. We have four wealth managers who are salaried employees. It doesn’t matter what they sell or volume. They’re here to answer your questions. You can invest in your self-directed IRA, 1031 tax exchanges, ordinary income, or investment account, but our wealth managers are trained to help you figure out what you want to do with your money. Are you more focused on income or focused on growth? How do you want to spread your portfolio? You can contact us at EckardEnterprises.com.
You can always call me on my cell phone at (469) 422-1781. I am probably the most proactive and available-ready CEO you’re ever going to meet. Why? I know what my job is. My investors are my bank. You’re not going to invest if you don’t trust me. You’re not going to keep investing if I don’t perform, and you want to talk to the guy that’s going to manage your money.
I probably talk to 40 to 50 partners a day. Most of them become very good friends. I get texts on weekends and nighttime and Mother’s Day. I’ll say, “It’s Mother’s Day.” They’ll go, “You’re not my mother, so I’m calling you.” I said, “Great.” I want to do business with people I like because I’m the same way. I’m calling people at 3:00 AM. My wife says, “You can’t do that.” I said, “If he picks up the phone, I can.”
You can reach me at TEckard@EckardEnterprises.com or the cell number I gave you and call. I’ll put a wealth manager with you that’s going to be patient. There’s no pressure. We already own it. We want to earn your business by giving you the evidence and the questions and answers you need, and then you’re in the driver’s seat. If you don’t want to do it, don’t do it. If you want to start a portfolio, we’re here to help you.
That is a great place to end it. Thank you so much for your time. This is very enlightening and interesting. We appreciate you being on the show.
Anytime. Thanks for having me. To all your readers, thanks so much. I will leave you with this. The fraud’s coming out. I’m seeing a lot of deals where people are pushing 15% to 22% returns. There’s no way in a down market in multiple markets you can have better returns than last 2021, and that’s called desperation. They need to pay their rent. They need fees. They need to generate. I’m going to tell you now that this is when the scalping of an investor begins in a down market. It’s because everybody realizes they’re getting unemployed, can’t make fees, and can’t make a commission. Juice up the story and sucker in those who are not walking very carefully through that sharded glass laying on the ground waiting. Be careful. Have a great holiday, and thanks for having me on.
Thank you, sir.
Appreciate it.
—
That was interesting. A lot of information in there. Some of the things I got out of talking with Troy, I knew some of the rights, and I didn’t realize there were surface rights, air rights, and then resource rights below the ground to any property in the US, so you can sell off those rights. I remember Matt Picheny talked about his air rights in New York City that he sold off. Now, you could sell off the mineral rights underneath.
It’s interesting to know that those options are available. The way that they’re finding a lot of these mineral rights is by talking to people who might own smaller parcels where the big boys aren’t so interested, where someone who doesn’t even know that they have these rights. When they find out they can make $1 million, it makes it much easier to sell.
He also mentioned this is like a triple net lease but better. It does sound like it is not much you have to pay for, if anything, as an owner of these mineral rights. You lease them out, and you don’t have any liability or obligations. As long as those are producing oil, you’re going to make money, and that’s a big if. If they make oil, you make money, and that’s the challenge.
It sounds like Troy has some methods for finding those wells that do make money because, as he said, he doesn’t have any dry wells. That’s a good sign. He was talking about you need to look out for people that are not being honest or Ponzi schemes in this oil and gas industry and everywhere else. This time of the market is a time when a lot of people are coming out with things that are too good to be true. If it looks like it’s too good to be true, then you might want to be cautious and make sure that you’re vetting the operator, getting references, and doing all those things that we talk about when trying to find sponsors.
In the end, he said a couple of things. One is to do business with people that you like. That’s important because if you like somebody, you’re going to be more apt to want to talk with them and learn about your investment and get additional information. It just makes sense. It’s not always the case that you can do business with people you like, but it makes it a lot easier. That’s part of the thing that I love about Left Field Investors and all of the community. Everyone’s likable, and it’s a great community. I agree with the, “Do business with people that you like.”
It’s interesting knowing Troy. He’s a guy who tells it like it is and tells you his opinion. As he said, you’re either going to love him or hate him. Either way, it sounds like he could possibly make some money for you. As he said, do business with people that you like. You got to factor that in there. It was an interesting episode. I will be looking into it a little bit more. I’m cautious about the oil and gas stuff, but if you want to be in oil and gas, this might be an opportunity for you. That is all for this time. We’ll see you next time in the next episode.
Important Links
- Eckard Enterprises
- Energy Talk with The Texan Podcast – Apple Podcasts
- Talk with the Texan: Money and Life – Apple Podcasts
- TEckard@EckardEnterprises.com
About Troy Eckard
36 years of working in the energy space representing high net worth investors who want to be direct energy asset owners. I have covered al areas of upstream and most of midstream in by 36 year career. I am enjoying being a more passive participant who invests for my own account, those that are invited in to join my firm and to be able to say “no” ten times more than yes! The road ahead is a wonderful view and the road in the rear view mirror is full of great life experiences, memories, relationships and lessons learned. Onward!
Our sponsor, Tribevest provides the easiest way to form, fund, and manage your Investor Tribe with people you know, like, and trust. Tribevest is the Investor Tribe management platform of choice for Jim Pfeifer and the Left Field Investors’ Community.
Tribevest is a strategic partner and sponsor of Passive Investing from Left Field.