How to Own Mineral Rights as an Alternative Asset with Special Guest Troy Eckard

Attorney Kim Lisa Taylor interviews Troy Eckard, founder of Eckard Enterprises, about investment opportunities in mineral rights on properties that get leased to big oil companies for oil field development.

Learn the difference between mineral rights and real property ownership, how mineral rights are packaged and leased, and whether mineral rights are a viable alternative to investing in real estate.

Episode at a glance:

• What are "mineral rights"?  
• Strategy for buying mineral rights
• How do you get someone to lease the mineral rights you've acquired?
• The primary risks of investing in mineral rights related to oil and gas

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Transcript

Krisha Young:

Hello everyone. This is the Syndication Attorneys free monthly podcast. Welcome to the “Raise Capital Legally” podcast and YouTube channel where we talk about topics of interest to real estate syndicators and fund managers with the opportunity for live questions and answers before we sign off. I am Krisha Young and this is attorney Kim Lisa Taylor, the founder of syndicationattorneys.com. Before we get started, please note that audio and video from this event will be posted on our podcast platform, YouTube channel, website, and social media, and will be available to the public. You can ask questions at the end of the broadcast by raising your hand or typing it in the Q&A. Information discussed during this event is of a general, educational nature and should not be construed as legal advice. So today I'm going to pass this over to Kim Lisa Taylor, and we have Troy Eckard and “How to Own Mineral Rights as an  Alternative Investment.” Take it away, Kim.

Kim Lisa Taylor:

Hey, thanks everybody, for showing up. Our guest is Troy Eckard, founder of Eckard Enterprises, and he has some really interesting opportunities, mostly for passive investors who want to invest in mineral rights on properties that get leased to big oil companies for oil field development. I have a personal interest in this because some of you who know me might know that I am also a licensed professional geologist in the state of California. So that's my claim to all things geology. I never did work in the oil industry, but — perhaps missed an opportunity there — worked in the environmental industry instead. But when I met Troy, I thought, “Wow, this would be really cool to interview him.” And half the reason I interview the guests is because I want to introduce them to the audience, but the other half is because I want to know about what they do. And so, Troy, welcome.

Troy Eckard:

Thank you so much for having me. I really, really appreciate it. Met you a couple, two or three months ago, we had a nice beginning conversation, found out what you did, you found out what I did, and thanks to your invitation, so we can maybe let some of your listening audience find out what we do together and maybe it presents an opportunity, or at least more education.

Kim Lisa Taylor:

Absolutely. So tell us about how you got started in the oil and gas industry.

Troy Eckard:

Well, there's nothing like poverty that drives you. So I was in college starving to death, getting my economics and finance degree, and I had a relationship with somebody who owned a small boutique energy firm that was working with high net worth investors, drilling wells, getting tax write-offs, and building direct energy portfolios. They made me a job offer. I moved to Dallas, started getting involved in the brokerage side of investments while I was continuing my education. Within three years, started my own investment firm, had that for 22 years. This year is my 40th year being involved in domestic oil and gas exploration. I've owned my own now for almost 30 years, and so I moved from brokering to locating and finding assets. Now we have just under a billion dollars, about $850 million of assets under management over the last five years for high net worth investors in mineral rights, drilling, working interests, and pipelines and midstream assets.

Kim Lisa Taylor:

Wow. Well, that's quite impressive. That's a pretty impressive track record. So, hey, for those of you out there that are just getting started, all things are possible. You can start anywhere and you can go as far as you want to go. You don't just have to stop with a couple of multifamily properties. You can go as big as Troy did.

Troy Eckard:

Conquer the world is what I say. Conquer the world.

Kim Lisa Taylor:

There you go. I love that. So I know you have an offering right now for mineral rights. Tell us how does that work, what's it about?

Troy Eckard:

Well, I'm going to describe what I do like being at a train station. There's always an investment coming by every 15 minutes, there's another mineral portfolio, another opportunity to drill, another multifamily, another residential. It's deciding which train to take, what's the price of the ticket, and what's the final destination. In my business, the oil and gas industry has evolved to where now it's no longer a mom-and-pop business. The separation between the majors and small geologists and family-run oil and gas exploration companies has never been wider and more spread in my career. To drill a well now is $10 million to $15 million, used to be a million dollars you could drill a well. So there's no more middle class in the oil and gas business. It's either you're really, really big or you're really, really tiny.

So that evolution provided an opportunity. That opportunity was what if I could design a system, a path of business that allowed me to buy the mineral rights underneath existing wells that were already producing, already being developed by major oil companies that were in early underdevelopment stages with a lot of future growth, could that be done? And the answer was yes. So back in 2018, I created a model, a business plan, put together a team over the last seven years, and now we have 7,000 wells covering almost two million gross acres in two major states, which is Texas and Oklahoma, and we've done all that in under 65 months. So it's been a great plan, great process, but you don't do that without having 40 years of experience that gives you that insight.

Kim Lisa Taylor:

So you're actually buying the mineral rights under existing wells. So is that with the idea that there's some additional horizons down there that could be producing that aren't yet tapped?

Troy Eckard:

Well, since I know you have geology as a background and you went the environmental versus the exploration, what's happened is 20 years ago we were drilling a single seven-inch well bore like a paper plate down 5,000, 8,000, 10,000 feet, and you were hoping that the reservoir had enough oil and gas in it to be commercial, you tried to guess the boundaries of it, the thickness of it. So there was a lot of risk. And honestly, by 2006 or '07, we were drilling 60% dry holes in this country, we were running out of oil. What they realized is that these buried basins, the equivalent of today's Grand Canyon, we have about nine of them across the country, Ohio, North Dakota, Wyoming, Texas, et cetera. What they realized is there was more oil and gas there than we could ever produce, but we didn't know how to get it out. It was all about technology. So they applied technology to it, which is horizontal drilling, going down and turning sideways, going down and frac stimulation, breaking that rock like a jackhammer on a wet concrete slab.

If you break that rock up, all the oil gas molecules will flow. So over the last 18 years, they developed that, they designed that, and the engineers have become the heroes because now these huge basins loaded with unbelievable amounts of oil and gas that were never commercial 15 years ago are now what's made America the number one oil and gas producer. So it's technology, it's advancement in efficiency, they've turned the oil and gas industry to really a manufacturing process. So what we do is we say, "Look, I don't have to be the smartest guy in the room. I need to be next to or I need to join the smartest oil companies on the planet. Wherever they drill, I need to figure out how to buy minerals underneath their wells.” Knowing the future exploration is like buying a pen of pregnant rabbits. It's not the rabbit I'm buying. It's the next 8, 10, 12 rabbits that'll be developing over time. And that's really the game here. The game is buy de-risked knowing that it's underdeveloped with long-term future growth.

Kim Lisa Taylor:

Wow. And that's got to be a little bit of a talent for conducting the due diligence and making sure that what you are investing in is sound. Correct?

Troy Eckard:

Well, the good thing for me, and I think everybody asks me what was my advantage when I started the business plan I say, "Well, I was on the other side." I was the lessee, the oil company, leasing minerals for mineral owners, drilling wells, so I was on the side of being like the tenant if I was a landlord. So really mineral owners are better than triple net landowners, we have no liability, no expense, but we got to get somebody to drill the wells to create the cash flow and the value. So the idea is do I want to buy minerals and hope and praise somebody leases and drills? No. At my age, 60 years old, what I wanted was I wanted as little risk, if any, that I could, so don't guess where they're going to drill.

Go where they drilled a well seven, eight years ago, they drilled horizontally with the new technology, thousands of acres have been drilled, but the sequential success on the offsetting lease, two leases away was, well, one well didn't work. It took 2, 4, 8, 10, 12 wells. So we come in and buy those producing de-risked minerals knowing that it's just a matter of time that they drill the three, the five, the 10 additional wells. Well, we use the same thing that Elon Musk used, we use technology. So today I can get data on every well in the U.S.; 10 years ago, I couldn't tell you what Exxon drilled. I didn't have it.

So these software companies created scraping. They went to all the courthouses, scraped all the completion data, all the well data, all the geological data, and said, "Here's every well in the U.S." Now there's software we can do that runs analytics comparing thousands of wells in a single day: what was drilled, how are they drilled … to come up with analytical numerical values that tell us what I can expect in production and timing and decline curves and value, something we didn't have 10 years ago. So it's really an advanced game. And the only reason why it worked for me is I drilled wells for 39 years, so I knew what the tenant wanted. That makes me interpreting the operator's motives and intent, made it a lot more easy for me because I've been doing it for four decades.

Kim Lisa Taylor:

So what specific geographic areas are you looking in?

Troy Eckard:

Well, number one, geographically is based on red or blue. I'm working on red states, not blue states, because if you're going to have to go out and buy minerals and be involved in oil and gas, don't double your risk by being in the wrong state that's anti-fossil fuel. So the first thing was narrowed down by state political, politics. Second thing was in each state in this country they have different rules. So North Dakota is simple and Oklahoma's simple. Back in the land-grant days, they cut it all up into square miles. If you have one acre in that 640-acre square mile, you have the same rights as the guy that owns 639 acres. The state rules make it fair. So a one-acre guy can't stop the 639-acre guy from drilling because he happens to be a tree hugger, and the flip side is they can't run that one-acre person out because they're the big horse and I'm the small fry.

So I like states where the state rules are conducive to equalizing shareholder rights, owner rights, and the rules don't allow somebody to manipulate me by contracts. That's going to be Montana, that's going to be Oklahoma. Texas, we're in, it's a little more complex, but being born and raised in Texas, I know that system. But I will tell you the two easiest states for me are North Dakota and Oklahoma because of those state rules.

Kim Lisa Taylor:

Wow, that's interesting. I don't think a lot of people probably realize or understand how much control the states can have over these kinds of mineral rights.

Troy Eckard:

Well, absolute control, and that's the thing is that it's like playing any board game, if you play a board game and you know the rules, unless you cheat, the rules are the rules, then it's just a matter of luck and understanding how to manipulate the game based on the rules. Well, in certain states, a mineral owner can buy those minerals and know whether it's Exxon or Chevron or a major that owns the bulk, and Troy Eckard and Kim Lisa Taylor own two acres, we're just like Exxon or Chevron, we have the same rights, so you can't squeeze us out. That's a pretty powerful asset to own, really.

Kim Lisa Taylor:

Yeah, that's amazing. But I guess in every investment strategy there's always some secret sauce, so clearly you must have established some relationships with these people that are going to lease this land from you and put the wells in, right?

Troy Eckard:

Well, we don't buy any open leases. In other words, all the minerals we buy have already been leased. Why is that important? One of your biggest risks as a mineral owner is not knowing who your dance partner is, who's going to be oil company. You can get Johnny Joe Oil Company, and they cut corners, they don't have a big budget, and they drill mediocre to poor wells, that means the extraction of the oil and gas under my minerals can be significantly discounted because I've got a poorly operated, inefficient, poorly run company, or they're very capital-constrained. So we like to buy existing producing minerals because we know who the lessee is, we know who operates it, and we know their track record. So our secret sauce is pretty simple, we have five things we go off of. 

1. We want to buy only in states that really have very, very friendly fossil-fuel regulation and rules, because that helps us from the very get-go.
2. We only want to buy existing producing minerals so we know who the operator is. We have cash flow from day one, we're making money the day we close, and file it for deed in the courthouse. 
3. We only want to be in areas geologically that have multiple formations, because what's going to happen is as you drill wells, they deplete. So I want more wells, higher density, but I want multiple layers to give me decades and decades of revenue because it gives me a terminal value greater than what I paid. 
4. We also look at the economics and we only want to have oil and gas mineral rights that we believe — with our background and 40 years’ experience — can generate much higher than a 10% rate of return. We'll take 10% as our minimum, but our target is 10% or higher in rate of return because of the alternative asset. 
5. And the last thing is we want to be, in my view, in areas that are predominantly oil-based or liquids-based. Natural gas is a tough market because we can turn on gas so quickly, and because that price and that volume gives us a very tight margin on natural gas, it makes a lot of money. Oil is the one that really gives you the big upside, so we focus on oil basins or the oily part of basins because we like the liquids component from value. 

That's what our internal model is from a 30,000-foot elevation.

Kim Lisa Taylor:

All right. So then you've got these leases in place and now you own the mineral rights, so they have a lease agreement with you for your mineral rights. Correct?

Troy Eckard:

They have the lease agreement with the operator and the lease agreement with us as mineral owners. We know what the terms by which our royalty, we've got 18% or 20% royalty. So we then buy the minerals, we file our ownership in the courthouse, because it's real estate, we file the deed. We get it back. Our land team sends that deed of title ownership to the oil and gas company. That's the operator, the one that's the general contractor, and we say Exxon, Chevron, whoever it is, we now own 20 acres in this one square mile, we're in that well, we now own a piece of that any future development, they recognize through their land department that we bought it, we have an effective date, and from that date forward we get every drop of oil, every molecule of gas. We get paid from whatever depth, vertical wells, horizontal wells, any formation, we get paid forever. But what we're doing is we're buying essentially existing producing wells, and then we look at what we call regulatory.

Well, that particular mineral shows that Exxon has three wells that have been applied for application for drilling, permitted, they've already drilled and they're waiting to turn them on, or they've already been drilled and turned on, but the seller hasn't gone to file their record. And so they're trading that value based on, “Hey, I got three new wells, they're coming online, they’re online, here's what my value is in the marketplace.” So the way we do it is probably one of the most analytical ways of any mineral buyer I know. We look at it from exploration, we use engineering software, we use all kinds of regulatory applications, we have an actual analytic service that tells us when Chevron files an application, it turns into cash flow within 187.5 days. So we know the days from application to permit to drilling to fracking, and all that analytics goes into what we are willing to pay and how we create our portfolios.

Kim Lisa Taylor:

And then these leases, are they structured so that you get a share of royalties, you said? How do royalties work?

Troy Eckard:

Well, in the old days, some of these leases are since the 1950s because these vertical wells have been on for 80 years, so the lease might've been 1950, and in those days you were just lucky to have an oil  company drill a well. So you might've only been able to negotiate a 12.5% royalty, so you got what I consider to be the lowest amount. We'll discount what we pay for it because they gave up royalty, so it's worth a lot less. Today's market are pretty sophisticated oil and gas mineral owners, they're trying to get 20% to 25% or higher. So a royalty percentage with 25% is worth twice as much as 12.5% on the pay. We blend that depending on the lease, the royalty payments. So you might have 60 sections of land, might have 120 different leases at different royalty, and the average blend in Oklahoma is like 18.275%, in West Texas is more like 20%. So it's a function of timing, the aging of that contract or lease a document and how that comes out as far as calculated value per acre.

Kim Lisa Taylor:

And then of course you guys keep a share of that and pass on a share of that to the investors, right?

Troy Eckard:

No, the way we do it is pretty simple. I decided from the very beginning the way I wanted to do it, in order for me to be exempt and comply and follow SEC guidelines, I actually buy the minerals, I own them free and clear, I've taken all the risk. If nobody writes a check, I'm buying what I'm willing to keep and retain. We then utilize our high net worth investors as our bank, our capital source. So I have some great relationships, I've had for 40 years. I go back to my partner and say, "Look, I'm about to buy a $10 million portfolio. Do you guys think you're in liquid position to do that?" Yep, we're good to go, we're ready to stand behind you.” “Okay, great.” My job is to go out and buy those minerals at 25% to 40% below market value.

Banking's tight, there's no liquidity, so there's very few buyers that can buy with cash. Our success has been for almost six years that were the number one buyer, we're the only cash buyer, we've never missed a close, and we now own close to 62,000 net acres, almost a billion dollars in minerals, all cash paid for. So what happens is somebody comes to Troy and they want $4 million. Say, "That sounds good. We're looking at maybe like $2.7 million is the right price." Why? I've got to do all the work, all the back office, then I got to put it together, buy it, and then I offer to my partners at average about a 35% gross margin markup. Why?

By the time I pay the taxes on the money that I've generated, by the time I do the back office, the long-term maintenance on it, we don't charge any equity, we don't take any equity out, it's a one-time investment, we don't charge any fees for managing it. So you're buying with one time a piece of real estate. What we then do is we do all the back office, we manage, we do the distributions, and that it's all part of your investment. So our partners enjoy the fact that it's a single investment, it's real estate, it's titled, we do all the work … there's no reduction of your equity, so it's a great statement. Initially, engineers, geologists, guys in the business were like, "Well, that seems like you're marking it up a lot." I say, "Well, then don't invest in me. Go invest somewhere else." And they come back about six months later and go, "I can't find the minerals of your quality and I can't find them at your price."

I say, "You know why you can't? Because you can go buy five acres and spend $100 grand. You don't have the money, the clout, or the team to find that $5 million package. And I'm getting it cheaper because I'm buying it in one bulk, I do the work, and I hand-deliver it to you at cheaper than what you could buy yourself." Now I've got engineers, Exxon attorneys, CPAs, geologists, they're all my partners because they're like, "Nobody can buy them at your price or the quality of minerals." So it makes for a great symbiotic relationship. Investors don't know oil and gas. We do. Investors have cash, but they don't know where to put it. We don't have the cash. So together jointly we creat a great unity, which allows us to do what we do, which is buy minerals at below-market price and provide great returns for our investors.

Kim Lisa Taylor:

Wow. Well, that sounds like a really nice model. Okay. So you do have an offering, it is open, it's a 506(c) Reg D offering?

Troy Eckard:

That's a good question for my lawyer. What we do is we actually sell it as real estate. So when we put together a portfolio, it does not have a tax ID, it's not an SPV, it's a straight up... Let's say right now I have a $10 million package called the Atlantis. You could say, "I'll put in a million dollars and that means I'm going to own 10% of all the minerals, all the sections in there." We'll give you a purchase sale agreement. You sign that you're going to buy it. We agree to manage it for you. We'll hold title, we'll do all the work for you, but it's yours. You'll get an exhibit that shows you every single section, every legal description, every mineral in there, and it shows you your fractional ownership of every mineral tracked in there with that exhibit, and that purchase sale agreement.

But it's yours, it's real estate. You own it. So there's no tax ID. This is 12 distributions a year, once a month, and a 1099, no connectivity to an SPV or a single taxable entity. We then created an application called Eckard Insights. And Eckard Insights is the only app like it in alternative asset space. We wanted to be mainstream. So on that app, when you become a partner, you fill out the purchase sale agreement, you fill out the documentation, you invest, we'll upload all of your deeds, all of your records, all your PSA. Now you have every well, every detail scraped every single day for wells, what they produced, your apps, your information. Some of our partners got themselves in financial jams here in the last six months.

So now what we created is a second part of this information app and this access app, besides all the education, now we created what's called a PTP market, partner to partner. We don't charge a fee, we don't charge commission. Says, "Hey, I'm in a jam. I got cancer, got divorced, I need to pay off a loan." They go on and post, "Hey, I bought minerals from Troy last January, I want to sell 100,000." 2000 other high net worth investors look at the minerals, and now they buy them from each other. So we provided that service to give you that liquidity component you normally don't have inside of alternative assets. The idea for me is I just want to buy minerals that I want, and I can't afford to buy a $20 million package, I need my partners to put up $17 million and I'll put up $3 million.

So I get a huge advantage in buying the very best minerals in the market at a super big discount. And that's what I want for Eckard. And I do that by partnering with investors and bringing them in to be side by side with me. And we're more than willing to manage it because it's one big gross check in and net checks out, there's no expenses, so I'm not having to do all this accounting and software. Here's your 12 checks, 12 bank wires, 12 deposits in your account, here's a 1099. Simplest accounting I've ever had to do in 40 years. And we kicked out $54 million in distributions last year. I think we're going to put $75 million to $100 million in distributions out the door this year. Straight cash, no expenses.

Kim Lisa Taylor:

Wow, that's nice. How long should investors expect to hold their interest? Is this indefinite hold or?

Troy Eckard:

Well, it's real estate, it's however long you want to hold it. So some partners that are new to the industry will go, "Okay, if I put five new wells on today, well, obviously they're depleting, you're draining the reservoir, so I got less reserves in five years.” If I don't believe there's more reserves down there, I might be thinking, “Wow, I've got a great return over the first five years. Maybe I've made 60%, 70% cash on cash return, I should go sell that because these wells are depleting and I'll go reinvest in something else." What a lot of our partners are finding out after they've been with us a year or two, go, "Wait a minute. I saw this revenue come in, the wells declined, and they put two more wells online, and then they start doing that, put three more wells in line. I'm like, ‘Well, I'm getting a second, third, fourth tranche’." 

For me, we created an “AML” strategy:

Aggregate fractional interest — (the “A” part) — that nobody else wants, no big private equity group's going to chase a 20-acre tract of land. So we're out there doing the dirty work, picking up all these great high valued metals. We're doing it 5, 10, 20 acres at a time. 

The second part is the “M,” the maturation. You’ve got to let these wells drill, come online —  you know this from geology — your highest production rate is in the beginning 24 to 36 months. Well, you get a lot of cash back, but once that well stabilizes, these wells are projected to last 25 to 50 years. So you got the long-term cash flow. 

But the “L “part is the hard part, it is what was your basis getting in? Are you doing a 1031 and you simply want to hurry up and buy the minerals and cash out in five years to go back to traditional real estate? Are you taking this cash, using the cash flow to invest elsewhere or buy more minerals? Every individual has their own protocol.

We're finding less than probably 3% of our owners want to sell. They started off thinking they wanted to sell, but now they're like, "Wait a minute, I'm making $10,000, $20,000. $30,000 a month. No expenses … no liability. Why would I sell that asset?" And I go, "Now you understand." So it's a learning curve.

Kim Lisa Taylor:

You brought up a really good point though, is that people, because they actually directly have a deeded interest in the real estate, they can 1031-exchange in and out of it.

Troy Eckard:

Yeah, it's incredible. We were really not focused on that five years ago, and I don't know, last year I think we did $30 million in 1031, and people are selling houses 1031 again, selling buildings, offices, and they're doing 1031s. And we've got a guy right now looking at a $30 million 1031. And what I like about it, if the 1031 investor gives us notice, they can say, "I'd rather pay a lower price breaker, get more growth minerals, meaning that the development won't start for two or three years, or no, I want to put that 1031 and I want to be front loaded with brand-new wells coming online, or I want to blend." If they tell us what they want, we can blend several 1031 packages they can identify in their timeframe and it gives them a simple 1031 immediate cashflow from day one, and that is a really, really valuable 1031 exchange tool, especially if you don't want to roll back into an overpriced traditional real estate market, but rather be in something like minerals, which is going to drive the same direction as inflation.

Kim Lisa Taylor:

So why would somebody pick the deferred return? Is there a bigger benefit for them?

Troy Eckard:

Yeah, my engineer partner who started this five years says, "Look, I don't need the income." He says, "I would much rather have growth." So instead of paying an average of $13,000 an acre in this portfolio, this portfolio for 9,000 acres is just fine. I know they're going to have five, 10 wells drilled, but maybe the oil company, they own 300,000 acres, they've got five rigs drilling, he just knows they're going to drill it, but it might be the third or fourth year, he'd rather take that net present value discount on the purchase price, buy it at a lower cost breaker, and let the revenue kick in three or four years. And the old adage is if you think oil and gas will be higher valued in 3, 5, 10 years, buying it today at a lower price makes more sense.

So that's why I think Exxon bought Pioneer. Exxon looked at Pioneer at $60 billion and said, "Pioneer has essentially run the gamut. They've got as high a value as they're going to get. They own thousands of locations and just about a million acres." And Exxon said, "We're stealing this company for $60 billion because we're using one year's income to double our position." And in my calculations, I think they bought it for $60 billion, I think it's got a half a trillion to a trillion dollars in future value. So Pioneer thought they got a great deal, Exxon thinks they stole the deal, and that's the differential between what you think today's value is and where you think the value is in 10, 15 years. I've got minerals I've owned for 30 years that started off kicking off $1,000 a month. Here I am 25, 30 years later, now I'm making $3,000 a month three decades later because price of oil is higher, wells are extracting more, horizontal drilling. You're like, "It's a gift that just keeps on giving."

Kim Lisa Taylor:

Nice. Okay. Krisha, you want to tell us about the book offer we have for people?

Krisha Young:

Yeah, absolutely. This is so fascinating, Troy. Thank you.

Troy Eckard:

You're welcome.

Krisha Young:

So for anybody who watching or listening, we have two books here. If you are new to capital raising, the first one is for beginners and the second one is for more advanced capital raisers. If you would like us to mail you a physical copy, you can text the word syndicate — S-Y-N-D-I-C-A-T-E — to our phone number at 844-796-3428. Again, text the word SYNDICATE to 844-796-3428. Or you can head over to our website — syndicationattorneys.com — as well, and there's a button on there where you can access your free book that way as well.

Kim Lisa Taylor:

Thanks a lot, Krisha. I appreciate that. All right. Well, Troy, this is truly fascinating and I'm so glad that you're sharing this information with us. It's making it clear to me I went into the wrong field, should have gone into oil and gas. I should not have gone into environmental.

Troy Eckard:

I don't know. Environmental is a pretty healthy industry and it's going to be becoming more important, but the thing is that no one knew this shale was going to produce. George Mitchell spent 13 years developing horizontal drilling and fracking and shale. The whole industry made fun of him: “You're crazy old man, you're trying to frack wet concrete, what are you? Stupid?” And he just kept plying away and he said, "It's the most organically rich formation. If I can ever figure out the combination between exposure of well bore and how to release those molecules," he's going to come up with the answer. And he did in about 1997. It didn't take off really until 2010 because it took oil going to $145 a barrel for finally the oil companies said, "Okay, now there's enough reward to take the risk." And that's really what happened; today, it's really cool, because today what they've done is they've turned the whole industry into manufacturing.

Now they going out and they'll drill four to eight wells at a time, they're using drilling rigs that walk on paths like Star Wars, they'll pick up, move over 50 feet, set down, they can do it in six hours. It used to take three or four days. You've got guys in logging trucks, and on the drilling rig you'll see these guys there, it's all computerized in plexiglass, and they've got their hands on pads, and they're drilling and taking the rig and breaking apart without anybody on the floor of the rig anymore. It's crazy.

So that advanced technology has turned us into a manufacturing business. We're with one little company now that said, "We're going to drill 70 or 80 wells. We'll go drill them vertically, come back and then drill them all horizontally. We'll then come back and frack them all at one time. Then we'll come back and equip them all at one time." So it's just this whole assembly line. And what's happening is they're figuring out how to shave cost, be more efficient, and through redundancy the wells are getting better and better and better. Wells that were really good five years ago are half as good as the wells being drilled today. So more oil, less money, less rigs, less people. It's just really a cool way things are evolving.

Kim Lisa Taylor:

Well, I just want to point out that this is a little different than what I used to do as an environmental consultant, because my memories of those days were standing behind a drill rig with steel-toed boots and hard hat, breathing diesel fumes while the drillers are collecting soil and groundwater samples. But it wasn't quite the experience you're describing.

Troy Eckard:

Well, you definitely made the right choice, because to be candid with you, in the last probably 10 years there's very few geologists in those meetings. I don't need to know where there's a basin, a Grand Canyon barrier that covers 40 million acres. I really need engineers. Now, I do need one geologist to maybe keep me away from some faults, so I don't have drilling problems, but honestly, I have not had a true dry hole in like five years, six years. You virtually hit 99%, usually … a mechanical failure or something happens from a mother nature perspective more than a fact there's not oil and gas in place. So engineers have become the mainstream of what we need. It's all about the efficiency, it's all about aggregation, but geology is still very important.

This is weird, they're actually finding brand new zones in West Texas, they didn't think it was even commercially productive 12 months ago, and they go, "Well, we drilled it horizontally, we didn't think it was going to work, and now it's 100 foot full of oil and gas we didn't even give credit to a year ago." That's why mineral rights continue to go up in value is you would think, well, if I'm depleting this oil and gas zone, mineral is going to be worth less. Well, that's not true, because 14 years ago, all this shale plate was non-commercial. It had zero value. By 2015, we were at 2% or 3% recovery factor, meaning 97% was sitting in one place, we didn't know how to get it out. Today we're running between 8% and 10%. You get to 11%, 12%, 14% recovery factor and you double, triple, quadruple the value of your mineral. So I think artificial intelligence is going to increase oil and gas efficiently by 30% to 50% in the first four years.

Kim Lisa Taylor:

Yeah, I was going to ask you what you thought AI would do to all of this, because it seems like there's so many numbers and so much data to be crunched, that seems to be a good place for AI to step in and start creating efficiencies.

Troy Eckard:

Well, I think AI is going to take the human element right off the bat. If I'm Johnny Joe at home on Sunday night, my wife and I are fighting, I got to put kids in bed, and I got to go take a rig, $10 million well the next day and drill it, I'm not focused. I need coffee. You apply AI instead of getting in and out of that formation, now AI’s going to take thousands of wells of computation using XY coordinates and satellite imagery, and they're going to stay in that zone four miles of the ground within inches, because why? AI is going to use analytical data to guide that computerized drill bit versus Johnny Joe. And the other thing that's going to happen is you're talking about way in advance, all these wells now have solar panels, all the oil and gas production, the stats on the wells are being fed to the satellite going to Houston, Dallas, these main offices, they're watching these wells 24 hours a day.

Well, the advance is, “Hey, that well is showing indications that maybe it's loading up with water.” So they'll go out in advance, take the water off and keep that well producing. I was just at my own conference this weekend, we had three guests speakers, all three said the same thing: AI is where everything's going to be. AI and oil and gas can increase massive production, and AI is going to increase gas demand by 30% to 50% because AI takes so much consumption of energy. So on two hands, AI is going to improve us, they're about to add a huge amount of demand for natural gas, which is a great place for a mineral owner to be, meaning somebody's going to have to use my product and we're not drilling as many wells, the price is going to be much, much higher in the future. So at 60 years old, I found out I've won the lucky chair, I'm in the right spot, and it's about time after 40 years of hard work to finally be in the winner's chair. And that's a good thing for my partners as well.

Kim Lisa Taylor:

Well, part of my undergrad was a major in environmental studies, and I remember them telling us back then — and I'm not going to tell anybody when that was — so we were going to be out of oil, fossil fuels were going to be gone, they were going to be depleted 100% within 20 years, and I will tell you that that time has long gone and passed. So what about that Troy?

Troy Eckard:

I did a whole paper on peak oil theory, and even today, I argue with my own geologist, and my own engineers in my own company, they're like, "Well, all the tier one wells have been developed." I go, "Really? Define tier one." "Well, it's the best rock. Wherever the most oil and gas we're getting material is the best rock." I said, "Okay, so these minerals are in the best rock, they've drilled two wells. How do you know that at $85 a barrel you can get more reserves because you can afford to drill a better well with more frac sand?” Well, that's true. So that tier two now becomes tier one because of commodity prices. What if you find a new zone like you did eight months ago that had no value? So the idea for peak oil theory is that you discount rising demand and you discount commodity price.

You get to $400 a barrel, you can triple, quadruple the amount of oil gas that can be discovered on this planet. So oil and gas is in abundance from North Sea to Africa to Guyana to U.S. It's a function of risk and reward. So for me, I look at peak oil theory, that's nothing more than a bunch of ways to sell books, it's a bunch of BS. I thought that 30 years ago and I think it today. Today what it is, it's truly, I think, oil and gas limitations on supply is a function of demand. If you've got demand that continues regardless of commodity prices, you have billions of barrels of oil that are sitting there waiting to be discovered, all it takes is enough financial reward to make it work. So I'm a firm believer on the demand side on this product, because I think we have plenty of supply. Supply is only limited by demand and the commodity price paid. That's it. We'll never run out of gas.

Kim Lisa Taylor:

So we have a government push and a lot of environmental concerns pushing everybody to go to electric vehicles. How's that going to affect this?

Troy Eckard:

That is great news. Every time Biden opens his mouth, oil goes up $5 or $10 a barrel. See, the idea is you can have an alternative energy idea, except for one thing. If the consumer can't economically use those alternatives, have easy access, consistency and reliability of that access, the consumer never adopts it. What we have is this push for unrealistic alternative energy. In my calculations, and people that I've talked to, you would look at, let's say, solar and wind and say, "For that to be economically pari-passu or value add compared to crude oil or natural gas, oil would have to trade at over $150 a barrel." So without subsidies, solar and wind don't work until oil prices are $150 a barrel. When oil is at $150 (a barrel), now you can afford wind and solar, and without subsidies. So as long as we continue to have successful low costs per energy unit in oil and gas, it makes the distance between alternative energies even being remotely viable further and further and further away from reality.

So I like when they pass... Right now they've told banks, “Don't lend to oil and gas.” Great, we'll drill off our own money. “Don't offer any kind of incentives. Deregulate this, deregulate that. Stop them from drilling in federal land.” The more they do to constrain supply, then those who have supply on private lands with wells being drilled in states that are friendly oil and gas, the higher we're going to make. We're going to get extremely wealthy off of doing what everybody else is afraid to do, and that is giving the customer what they want: Reliable, low-cost energy in abundance.

Kim Lisa Taylor:

Well, and the other thing that I don't think a lot of the people who are pushing for the electric vehicles don't comprehend is that electricity all comes from fossil fuels, right?

Troy Eckard:

Yeah, you have some nuclear and you have some other ways, but I think the reality of it is that you have to remember that every car that Elon Musk builds is almost 100% made from oil and gas, the metal, the tires, the plastic, the coat. So who was the first person during the Russian war when it started that came out and said, "Drill, baby, drill"? It was Elon Musk. He came out and said, "We got to drill more wells. Why?" Every part of his car, the fuel at his factory, the conveyor belts, everything that runs that system there is made from oil and gas. So the truth is it's not that oil and gas is going to go away, but in the future growth of total energy over the next 50 years, let's say we go up by 30%, alternative energy might take 20% of the growth in wind, nuclear, and solar, but oil and gas consumption and demand is going to go up over the next 50 years. It's going to be much more higher than it is today.

Look at pre-COVID, we had about 98.7 million barrels a day that the globe was consuming in oil every day. 98.7 million barrels. Here we are five years later, we're at almost 103 million barrels a day. With $10 trillion spent on green energy, we're actually four million barrels a day up. Why? Everybody knows we have to have fossil fuel. So what we want is we want the best fossil fuel, we want to have people that are responsible, we want to drill formations that are more clean, we want more natural gas, LNG, et cetera, but we're going to take the lion's share of energy growth. And for everybody who doesn't believe that, you either have one or two choices, buy minerals and be an owner like me and receive those royalties every month, or be my customer. I win either way.

Kim Lisa Taylor:

And I don't know the truth of this, I haven't fact-checked it, so if anybody else wants to, they can. But I heard somebody on a radio show just recently talk about a big electric fuel-charging station for vehicles in Nevada that's run by hundreds of diesel-powered generators. Okay, so there you go. So when you're thinking about electric vehicles, we always do have to think about where does that fuel source or the energy source come from. And, yes, some of them might come from nuclear, but nobody's letting anybody buy or create new nuclear power facilities anymore. It's difficult to create new fossil fuel refineries and processing facilities also. So what happens with all of that? You can get the oil out of the ground, but are you always going to have enough capability to process it?

Troy Eckard:

Yeah, I think the reality is that we're limited on refineries, but let's go back to the core. So if I'm looking at traditional real estate, I got raw land, I got raw land developers, I got what I'd consider to be developers where they're hiring architects, repurposing the land, getting changes in zoning, et cetera, then I've got developers who want to build shop, we have property managers. So there's a whole systematic chain of participation in the traditional real estate, oil and gas, the same way. You're not going to stop at Exxon and Chevron and Diamondback and these major companies, they're going to keep doing what they do, it's predominantly on private lands. So I look at this and say, "How's the safest, best way to be part of oil and gas that prevents you from having a lot of this downstream problems?"

Like, "I don't know if I want to be in processing because now I've got a smokestack with carbon coming out and they're mad, and they want that refinery to trap that carbon and put it in the ground." We've got a carbon project coming on our pipelines right now. So I said, "What's the safest, best way?" Well, I want to be the mineral owner, because if Exxon files bankruptcy, that's too bad, I still get paid even if they're in bankruptcy. 100% of the oil and gas in the ground is mine, I have an oil company assuming all the liability, all the risk, all the drilling, all the plugging, they assume all the risk, and I get my royalty for free even if they file bankruptcy. So if I'm looking at an industrial nation like the U.S. that is constantly seeing more demand, more innovation, I want to own... This is about scarcity. There's only nine big basins in this country that hold all the oil and gas we have.

Had we not discovered horizontal drilling and fracking these basins, well, it'd be over $300 to $400 a barrel today. No ifs, ands, or buts about it. So why not buy that scarce asset that gives you 100% revenue that the entire country has to use at about 79% to 85% utilization, and do it for free where I get paid every single month without any interruption or disruption to my revenue? Great investment. Do I worry about what might happen? Oh, there are going to be regulations, they're going to restrict them on this, they're going to slow down a processing plant. Everything they do though does what? It restricts supply, which means whatever's coming out of the ground from my wells is going to be paid a whole lot higher value. It's economics 101, I put myself and our partners in business saying we own it.

Kim Lisa Taylor:

How can people learn more about investment opportunities with your firm, more about your company and what it does?

Troy Eckard:

Well, I'm a real simple guy. So my cell phone number is 469-422-1781. I give it out for one reason, I'm the most hands-on chairman of the board you're ever going to meet. I talk to my partners every day all day long. I am going to give you our website, which is that eckardenterprises.com. On that website, you'll find Eckard Insights; sign up, login. You don't have to be accredited or either way, it's about education, hundreds of hours of videos on how it works, why it works, why people sell, why we buy. Hundreds of hours of training and educational videos, because if you're not smart at an asset class, you're going to lose. If it's real estate or if it's anything else, you got to be smart. So my job is to provide all the education.

If and when you decide it's now time to get involved, I have salaried wealth managers, all they do is inform and educate, try to figure out what you're trying to do and explain it. So it's Eckard Insights on eckardenterprises.com, call my cell phone or email me at teckard@eckardenterprises.omm. I'm pretty much a workhorse. I'll be 60 next month, but I've been doing this since 1985. I'm super excited about what we're doing because not only is it working, but we're one of the only players, one of the only buyers out there with cash to buy, which means we're getting inbound, like a firehouse, some of the best mineral opportunities we've seen because there's no buyers in the market. I like when I'm the only guy in the auction house and nobody's competing with me.

Kim Lisa Taylor:

Can you go ahead and give us your phone number and your website one more time?

Troy Eckard:

Yeah. My phone number is 469-422-1781. Just let me know that you saw me on the Kim Lisa Taylor show and then give her kudos for doing such a great job, and then I'll get back with you. If you want to go to our website, it's www., obviously, eckardenterprises, plural, .com. And then Eckard Insights, our app, is inside that application. Look, we're the most transparent, easy-to-find company you've ever looked at. I believe in one thing, just tell it like it is, be blunt, be truthful. If you don't like my comments, don't invest me. If you like what we do, learn, because I got news for everybody listening right now, Kim Lisa, and that is every asset you have in the stock market, every one of your real estate are all affected by energy, in this inflation we're in now, oil and gas is being a victim of inflation caused by the stimulus, the next three years, inflation is going to be driven by energy. Energy is going to shove inflation through double digits.

So if you don't own it or invest in either public equities or directly, the rest of your portfolio is going to suffer and you have nothing to counterbalance it. So we have pretty sophisticated investors that are buying energy to act as a counterbalance to make sure their position for the next three to five years. That's just what I'm hearing from the guys that work with us, guys and girls that work with us.

Kim Lisa Taylor:

All right. So we have a few questions, let's see if we can get through a few of them. Somebody wants to know if they can use a self-directed IRA to invest. I don't know if you know the answer to that.

Troy Eckard:

75% of our investments have all been through self-directed IRAs, and we have a big portion of 1031s. It is a perfect asset to own in your self-directed IRA because it's only cash in, you don't have any bills or expenses, you're really not going to lose any money from the standpoint it's a mineral, it's a piece of real estate, and it allows you that compounding effect and you're getting a check every single month. So perfect for self-directed IRAs, and that's probably 70 plus percent of our capital is coming from SDIRAs.

Kim Lisa Taylor:

What about tax benefits?

Troy Eckard:

With minerals, the IRS has declared that you're not going to lose money because they don't give you a tax write-off, but they do allow you to pay taxes on only 85% of your income. So 15% of your income is not taxed outside of your IRA. We only deal with accredited investors, so it's accredited investors, it's people who are looking at utilizing income or assets on the books to do it. Traditional accounts, IRA, 1031, they all qualify, it's real estate, so follow your real estate brain when you're thinking about making this investment, because you're going to get titled and deeded and a PSA that shows you what you own. You're buying real estate.

Kim Lisa Taylor:

Okay. So this is a question I'm going to answer because someone said, "As syndicators, can we bring investors to you as a package? Can Kim translate for us how this would work as real estate syndicators moving into the space?" So yes, you could. So what's interesting about this is because your company is going to actually own the real estate, it's going to give you maybe a little added benefit than if you're, say, investing in some personal property interest in somebody else's offering. But you could put together a group, but it is for accredited investors only, so that means that your entity has to be comprised of only accredited investors, or it has to have over $5 million in assets to qualify as an accredited investor. So yes, if you can meet one of those tests, then you would be able to put together your own LLC comprised of your investors that then invest in this, at least from an accredited investor perspective. Anything you want to add to that, Troy?

Troy Eckard:

Yeah. We've had hundreds of people come to us about raising money, they want to be paid commission, they want to mark the deal up. I said, "Look, I'm basically in the oil and gas business buying minerals … (if) you want to charge them a fee, you're more than welcome to do that. I'm not going through FINRA, I'm not going through investment advisors. I'm basically offering real estate for sale." So what I tell people is I said, "Look, you can always do it legally, and you can always do it professionally. And the real value add here is how you structure it." To me, if you want to create an LLC, follow the law, get Kim Lisa to do your work for you and make sure you're legal, then you'd come to us and say, "Hey, I've got $5 million, I want to buy in minerals with my group." That's great.

We just don't want you being out reselling a security, we don't want you going out there pitching a deal. You're not representing us, you're not an agent. You're buying as an entity following the law, and what you do inside that is up to you and your lawyer that you're working with. … People are always like, "Hey, we want to raise money for you." I go, "Well, I did $300 million by myself with eight wealth managers …  I'm not being arrogant. I just know what I'm doing and I'm a workhorse; I act like I'm 40 when I'm 60, and we have built in a tremendous..." Right now we're averaging almost 15% cash on cash across 100 portfolios, so we're crushing it on performance, crushing on capital, we'd love to talk to you about what you could do with us and how you could help us, but we'd have to have somebody like Kim Lisa going, "How do we do it legally?" Because I don't believe in gray. It's black or it's white.

Kim Lisa Taylor:

So talk to us if you want to put together a group to do this, and we can go in-depth on what the requirements would be. As far as I think we've gone through all the questions, we've answered everything that's out there. Troy, I want to thank you so much for joining us today. I've got an education, I know I'm going to have to listen to this again to be able to absorb it all, and I'm going to suggest that you all do too. We will be putting this up on our podcast channel, “Raise Capital Legally,” also on our YouTube channel, “Raise Capital Legally.” If you haven't already gone and subscribed to our YouTube channel, please, please do. We're trying to get our subscription numbers up so other people can realize that this is a great resource for learning about all different kinds of stuff related to investments in real estate. And Troy, again, thank you so much for coming. Any parting words you want to say?

Troy Eckard:

Thanks for having me. I really appreciate it. Yes, ma'am. Well, I want to leave this with your capital raisers. You need to start with what the client wants and create your product to match that. The reason we're having so much success is we didn't try to put together something for us to go raise money, we put a great asset together and said, "What would we want if we were the investor?" I'm hearing a lot of people having tough time raising money. Raising money is super easy, finding a great asset's very, very difficult. So I would just encourage you to use Kim Lisa Taylor and people like her to sit down and really take a look at what you have, what you're doing, and how they match, legally versus what the customer wants, and you'll find that the doors of how much capital you can raise to be wide open, there's plenty of money out there, they're just being a little more select who they give it to. Anyway, thanks for having me. I hope you guys contact us. If you do, let me know. Thank you, Kim Lisa. I appreciate it.

Kim Lisa Taylor:

Thank you. Bye-bye.

Troy Eckard:

Take care.