Philip Racusin, CEO of EnergyFunders talks to Finance Digest about investing in the energy industry in the United States of America.
Please tell our readers about EnergyFunders and what makes it unique.
EnergyFunders is an online investment marketplace disrupting the energy industry by evolving the way capital investment and energy projects come together to generate more profitable commerce. We founded EnergyFunders in 2013 in Houston. The fintech company currently offers professionally vetted oil and gas projects as financial opportunities for accredited investors nationwide and internationally, with the goal to soon opens the marketplace to every type of investor. Our team of experienced securities attorneys and trusted specialists in the oil and gas industry allowed us to develop EnergyFunders as the first platform to offer national and global participation in the $263 billion “small oil” market through equity crowdfunding. As a result, investors are able to buy directly into wells and reservoirs for minimums as low as $5,000. With more than 100 wells as assets under management, EnergyFunders has raised millions for energy ventures, bringing unprecedented access, transparency, and efficiency to one of the most elite and lucrative asset classes.
Who can invest with EnergyFunders? Is it available to global investors?
Yes. For now, accredited investors are welcome. Everyone can sign up for free. In the near future, everyone will be welcome, whether accredited or not, so they’ll have a head start if they already have a free account.
How many deals do you currently have? Please tell us about the top ones.
We generally strive to put up one deal a month. Of the many deals we initially review, only a very small percentage of deals make it through to the end. Top deals include multi-well packages in Texas and other oil producing American states, such as Kansas. In some cases, these oil fields were formerly operated by household names in the oil and gas industry using technology that’s nothing like what we have today, and that means up to 80% of the oil can be left in the ground. We are focusing more on projects where reserves are already proven, and it’s even better if there’s existing production.
How does funding a well work? Do investors actually own a stake in the well? Can they visit?
Yes, investors are welcome to visit. We can help them arrange with the operator to visit the property. The investors own a stake in the well by owning units or interests in a LLC fund or Limited Partnership fund that owns the oil and gas assets.
What are investors earning? What about future potential?
In most cases, through their ownership in the fund, they are earning a pro rata stake (according to the amount they choose to invest) in an oil and gas lease with development rights, and pro rata ownership stakes in multiple wells that may be reworked to improve or restart production and wells to be drilled, including the various oil and gas facilities like pumps, tanks, tubing, etc. that is purchased or already in use in the well or on the surface. The fund has a type of mineral ownership known as a “working interest” in the lease, the oil and gas assets and in the facilities. They participate in the appreciation of the assets as well as the cash distributions from oil and gas production. Finally, by investing as a “converting general partner,” which is a way to effectively limit liability while providing them with unique oil and gas tax benefits, they can potentially write off against earned income tax, up to 80% of their investment in year one, and then the other 20% over the next several years, even before a drop of oil has been produced.
Where does your revenue come from?
Revenue comes from having a carried interest of 10-15% in each project. We are only paid from the project when the investor is paid. In practice, with the leverage gained from purchasing a larger ownership stake in the project such as $250,000 or $500,000, we work hard to negotiate a deal where the carry essentially disappears for the investor–that is, we’re giving the investor a deal that is still better than he could have negotiated on his own. This is because each investor can put in as little as $5,000 in each project and spread his exposure over multiple projects; rather than placing a very large investment into just one project.
What do you see as trends in oil and gas with regards to clean energy? What does that mean for investors?
The world will always demand the products and energy that are derived from oil and gas. We are working with technology partners and operators that produce clean energy from oil and gas, either because their oilfield production technology is much more energy efficient than traditional methods or the methods of production generate no waste with environmentally-friendly byproducts. When most people hear the term “clean energy”, they immediately think of renewable or alternative energy projects, like solar or wind. The fact is that technological innovations that are little known outside the oil and gas industry are changing oil and gas production from the old “fossil fuel mindset” into clean energy production. With certain environmental regulations tightening across the country and as always, a healthy level of respect for our shared environment, it is more important than ever to work with clean energy leaders in the oil and gas industry. For investors, this can mean potentially earning a greater return on the basis of clean energy tax credits for qualifying technologies on top of appreciation and cash returns, and being a part of a project that will always comply with regulations now and in the future.
What would be your advice for people who are new to oil and gas investment? Especially for those who are hesitant to invest because they don’t really understand how the platform works?
If you’re new to direct oil and gas investing, it’s best to educate yourself about this type of investing and what you’re investing in. To that end, we offer educational resources on our website that investors may find helpful. We also offer webinars for each project that involve the operator, and provide explanations and answers to many questions investors have asked or may want to know. There are excellent books for new investors, including Daniel Yergin’s “The Prize” and Raymond and Leffler’s “Oil and Gas Production in Nontechnical Language,” amongst many others.
How do you believe Donald Trump’s presidency is going to impact oil/gas overall and specifically as it relates to investing through EnergyFunders?
Yes, we believe it will be a net positive for the oil and gas industry and will increase investments in oil and gas technology. This is good for EnergyFunders because it will continue to drive awareness of direct oil and gas investing as an area for consideration within the alternative investment space. Modern wealth advisors are now recommending to their clients to have up to 20% of his or her assets in alternative investments. Alternative investments are generally riskier than investing in a mutual fund, a highly rated bond, or ETF, but can offer unique tax advantages and much higher returns to compensate for risk. Direct oil and gas investing fits comfortably into this alternative investment space, and EnergyFunders allows investors to spread their investment across multiple projects with low buy-ins.
Experts are discussing the possible deregulation of energy in the U.S. What areas of the oil/gas industry would you like to see regulation reform?
We’d especially like to see regulation reform in the testing and introduction of safe oil field technologies. We’d also like to see deregulation in the area of energy exportation.
What would regulation reform mean for oil/gas investors? And for operators?
For operators, it would mean lower production costs for each barrel of oil and MCF of gas produced. This means lower prices for consumers and better returns for investors. Also, it will increase the level of innovation in the oil field as more inventive companies are encouraged to use their technologies to enhance oil production.
How does the United States’ energy regulations compare to the rest of the world?
Since the United States is one of the only places in the world where one can truly privately own and produce oil and gas from mineral rights without public involvement, it stands to reason that it is more heavily regulated than most of the rest of the world.
“Original publication in Finance Digest Issue 1 https://www.financedigest.com/