Oil & Gas Investing: A Billion-Dollar Plan B (feat. Lee Novikoff)

Interested in oil and gas investing or building a legacy business in the energy sector?

This episode is a masterclass in risk, resilience, and the power of saying yes when opportunity knocks.

Lee Novikoff shares the pivotal moments and big lessons from his unexpected 30-year rise in the oil and gas world.

From nearly becoming a securities lawyer to drilling profitable wells in the shale revolution, Lee's story is a blueprint for making bold career pivots.

Discover how he turned his Plan B into a billion-dollar vision, and learn what it truly takes to succeed in high-stakes energy investments.


Timestamps:

00:00 – Teaser
01:00 – How Lee Accidentally Entered Oil & Gas
06:00 – The Risk and Reward of Vertical Wells
11:00 – The Frac Plug That Changed Everything
16:00 – Domestic Oil vs. Energy Independence
21:00 – What Landmen Really Do
27:00 – The Real Deal with Fracking & Water Tables
34:00 – From Flowback to Profit: How a Well Makes Money
41:00 – Tax Breaks & the Snowball Effect for Investors
45:00 – Green Energy vs. Oil: What's the Future?
47:00 – The One Thing People Get Wrong About the Oil Industry


Guest:

Lee Novikoff
Founder, Title Petroleum & Title Group

Host:

Bryan Hancock

Executive Connect: https://www.executiveconnectpodcast.com
YouTube: https://www.youtube.com/@ExecutiveConnect


Connect With Us:

Podcast Website: https://www.executiveconnectpodcast.com
YouTube: https://www.youtube.com/@ExecutiveConnect

Social:

LinkedIn: https://www.linkedin.com/in/melissa-aarskaug/
TikTok: https://www.tiktok.com/@melissa_aarskaug
X: https://x.com/melissaaarskaug

Episode Transcript

(00:00):
- I'm one of the three founders of the title petroleum.

(00:02):
I am the sole founder of Title Group.
I graduated from Texas A&M back in 1992
with the focus on law, security's law.
I lived at the San Antonio.
Because of my fiancee, of course, was from here.
She had an uncle that was a retired one gas guy.
He called me one day and asked me,
"Why don't you come over?
We'll start a little company."
And we're drilling a couple of wells.

(00:22):
Our first well was a vertical well.
We bounced around from doing all wells to natural gas wells
because gas prices were high and oil was low,
and oil was high and gas was low.
The oil was kept in the pore space of the rock.
So you can drill right through the eagle for shell
and until you frack it, you're gonna get nothing.
You've got to break that rock up
to let the oil come out of the pore space

(00:43):
to come to the well-produced.
It's a long process when you're looking for new areas.
It starts with curse research of where other people are drilling.
If we see some older production that we think
can be restimulated, we'll start looking in that area.
Welcome to the Executive Connect podcast.
We have Mr. Lee Novakov from the title group here today.

(01:04):
Lee, thanks for joining us.
You're welcome.
Can you give our viewers a high level of your, you know,
how you became, how you got into the well-embed gas business
and sort of a brief history of time there?
Sure.
Let me go way back to when it started.
I'm one of the three founders of title petroleum

(01:25):
in the sole founder of title group.
You know, I got out of graduated from Texas A&M
back in 1992 with the focus on law,
securities law investment related.
I moved to St. Antonio because my fiance, of course,
was from here.

(01:45):
And the goal was to go to St. Mary's Law School,
Videosat and everything else.
And she was still in school.
So I got a job to support her because she got out.
And in the meantime, she had an uncle.
It was a retired oil and gas guy.
He had him and he had a partner that had been in the only gas

(02:07):
industry through the '80s and into the early '90s.
And they had both retired.
And we got to be really good friends.
You know, and he called me one day.
And this is a back in '93, I think, going into '94.
And asked me, "Him it is, is old partner?"

(02:27):
I had a couple of leases, it was going to expire.
And he had this idea of, "Hey, why don't you come over?
We'll start a little company and we'll drill a couple of wells."
You know, some shallow stuff.
And of course, I'm 23 years old in my ambition and, you know,
here's where my wheels are spinning in.
And my thought was, "Well, let's do this.

(02:47):
I don't know anything about what we get."
You guys do that.
Y'all handle that, end of it.
I'll open a brokerage house, the title group.
And, you know, get a license back then.
It was in ASD that was a regulatory body, not Finra.
So open the NA, you know, a broker dealer and heartsome brokers

(03:07):
and started managing money.
And, you know, I'll handle that in, you handle this in,
and in a way we go.
So they, they're, whatever, they, they,
both there were like, "Okay, fine, we just want to drill some."
Well, well, that was over 30 years ago.
So, you know, in the interim, you know, it morph into quite a bit more

(03:28):
than that, of course.
You know, I was liaison for both companies.
I ran the broker dealer solely.
And the old company, I was a VP at the old company.
And I handled all of the, you know, everything between the two.
You know, as things progressed, I ended up taking a bigger
and bigger and bigger role in the old company.

(03:50):
And my, one of my two partners, they were both, you know,
22, 23 years my senior.
So one of the partners, he's passed away now.
We bought him out, I mean, me and Pat, we bought him out probably
10, 12, maybe 15 years ago.

(04:10):
And about 10 years ago, you know, Pat was ready to retire.
And before he retired, he turned everything to me.
We're, you know, I was, I took over the presidential role.
And I've been, you know, running it ever since, you know, I bought Pat out
probably eight, eight years ago, maybe 10.
And here we are today.

(04:34):
All right.
Well, so you kind of come at things from, it sounds like you wanted to be a
security attorney, but there was a better opportunity that showed up in life.
And that, that's sort of like your point of view on things.
And you had to learn the only gas business from your partners as you went along.
Ready to lead smarter and invest wiser on the executive connect podcast.

(04:55):
We unpack executive strategies for wealth and influence.
Hit the subscribe button now.
Don't just watch acts.
Well, and it's not, not just from them is from doing it.
You know, and I know more about law now than I would have,
than I, than if I would have gone to law school, I feel, you know,
we have her, I employ on retainer 12, maybe 14 different attorneys,

(05:20):
you know, they all have specialties.
So when we're, when we're dealing with the regulatory element, you know,
you've got to have a securities attorney, you're dealing with, you know,
only gas minerals, you've got a, a title attorney and mineral attorney.
You've got general counsel.
You, it's just, if there's so many different things, one that specializes in
the road commission filings and then there's, there's not one size fits all.

(05:43):
And in any profession, you know, it's very similar to, you know,
you go to, you go to your doctor and if there's something wrong,
he's going to recommend a specialist law is exactly the same way.
You know, everything you, you get into, you're going to have somebody that,
that's, that's their focus and that's where you need to go.
So, you know, I would have greatly restricted my knowledge base.

(06:10):
If I would have stayed solely just in the security drill and, you know,
hindsight, I wouldn't change the thing.
Right. For sure.
Well, it sounds like you guys are focusing mainly on the, the Eagle Ford
shell at this point, but I know you've done projects elsewhere.
Can you kind of just walk us through your journey there and, and how you landed

(06:32):
in the Eagle Ford shell, sort of your focus?
Oh, back in that one, since we started back in 94, you know,
our first well was a vertical well.
And a South Texas, we've been drilling South Texas ever since.
And our focus for our clients, L base was speculation.
He was written, you know, vertical wells are risky.
You know, you might hit one out of five and two or three out of those five.

(06:56):
We're going to end up being profitable, but they're very inexpensive.
So, you know, one well, if it's good, can come in and make you three, four,
five to one in the first year.
The issue with that is you've got a lot of wells that don't work and you've got a lot
of dry holes that go along with it.
So, you know, we bounced around from doing all wells to natural gas wells

(07:20):
because gas prices were high and always low, always high in gas was love.
So we had the flexibility to, to really go into different areas.
But from an investment standpoint, in a financial portfolio management type,
standpoint, you know, the goal of these of a, of a clients account is to where it gets

(07:42):
to the point where it'll, the, the funds that is generating will afford multiple more
investments.
So you'll have somebody come in on the first couple of investments and they'll take a
nice tax trial.
First year income starts, you know, and a lot of the income, 15% of the income is non-taxable.
And then with the residual, if they roll it back into another program, you know,

(08:06):
it gets written off again and there's no tax burden.
And that would work fine, but on verticals, you know, you get to the point where you're ready
to, you've made enough income to drill into the well and then you draw.
Right.
And you're starting all over again.
So, and that was what we battled up until 2008 when the shell boom started.

(08:29):
I mean, the Eagle for Shell was, was really the, you know, one of the, the,
the starts of the, the oil shell and, you know, it, a petra hog discovered it or started it.
And it was, you know, the, the whole revolution started by one, one component, one is called a
fractal.
Because, you know, we've been fracking well since the 60s and 70s, but it takes, you know,

(08:53):
there's only so much power that you can push and down the pipe at the same time.
So you're limited to how much of the formation you can stimulate.
So, you know, now we're, we're in, we can easily do 180 foot sections, you know,
back in vertical wells, well, your, your formations aren't that thick.
So you're stimulating maybe a 30 or 40 or 50 foot thick formation.

(09:16):
That's not hard to do.
But when you're drilling these horizontal wells, you might have 10,000 feet.
Okay.
And in the past, there's no way you could stimulate, stimulate 10,000 feet.
You know, so the invention there was this plug where you'll frack 180 feet,
stimulate it, put a plug, do the next 180, build plug, do the next 180, do a plug, do the next one.

(09:39):
You know, so you'll have, you know, our, our current, our current prospect that we're
going to start fracking next week is 88 fracks stages.
It's four wells across 88 fracks stages across four wells.
And, you know, up until, you know, this technology change, that was impossible.

(10:02):
There was, you know, the Eagle Ford was there, but it wasn't productive.
Nobody could figure out how to get any oil out of it.
And that changed the entire landscape here in the past.
So yeah, can you, our listeners may not be familiar with all the technology and
sort of the evolution of that.
I mean, has the, the horizontal drilling technology been around for a long time?

(10:22):
Or like what specific pieces of technology made some of what you just
talk about possible over the last hour, many years?
Are you a high income professional, looking for smarter ways to protect your wealth?
The Texas Freedom Fund gives you the opportunity to invest in energy assets,
leveraging proven fracking technology and prime access to global markets.

(10:43):
With strategic oil and gas investments, you can build real wealth while benefiting
from tax advantages under laws dating back to the Reagan era.
Take control of your financial future.
Visit Texas Freedom Fund.executiveconnectpodcast.com.
Bracklet. Right. Yeah, that's it.
And we've been, you know, we've been, uh, horizontal drilling has been around for a

(11:04):
long time. You know, the Alton Shotburn back in the the 90s, in 80s was all horizontal drilling.
You know, that was, that was, uh, very productive.
But the difference is that did not need to be stimulated.
You know, there were, it was a, is a big limestone section down,
you know, in South Texas.

(11:25):
And it has cracks in it in all is migrated through the, you know, from the Eagle for
Shale into these cracks and, you know, they will go, let's say the cracks run like this up and down.
Well, instead of drilling vertical wells trying to hit these, they would come down and they would
drill sideways. Right.
And they were several.
Uh, and that's what made it productive.
Um, but it did not need a stimulation.

(11:47):
Now, the, the shale is, you know, it's, the oil is kept in the poor space of the rock.
So you can drill right through the Eagle for Shale and until you frack it, you're going to get nothing.
You've got to, you've got to break that rock up to let the oil come out of the
poor space to come to the well for this.
Uh, so the, you know, the ability to frack a long lateral, if you just drill a,

(12:16):
a vertical well through the Eagle for Shale, your shale section might be 50 to 60 feet thick.
And you've just fracked that, you're not going to make any money.
You're, it's going to be terrible.
But if I turn and I drill 10,000 feet, I fracked the entire 10,000 foot interval.
Now we're talking about some, some good recovery rates.
Okay.

(12:36):
Yeah.
And I know that this, uh, this new technology and, and drilling in the shale formations is, is, you know,
it's been pretty revolutionary, at least for domestic production in the last tire of many years.
Can you talk a little bit about the, you know, how this plays into the domestic production here?

(12:57):
And, you know, America's energy independence and, you know, how much we're producing relative to other
countries now, which are up trail.
A lot of people that sound like it, no, they don't know about it is.
Oh, well, I mean, right right now, you know, we are producing, uh, more than we're consuming.
And it's, it's because of shale.
Because of the Permian, in which is, which is completed and produced the same way.

(13:20):
It's because of the EGLEFER, the Boc and shale.
All of this has come from this technology.
And this is us producing and extracting oil from our resource rod.
It's, it's limited.
You know, our energy independence is going to last about this long, right?
It's, it's not there forever.

(13:40):
It's, you know, we're drilling the, the hardest, uh, most expensive formation to drill, which is shale and to stimulate.
Nobody else is doing that.
Nobody.
We're scraping the bottom of the barrel.
We've, we were able to scrape it very, very well, very productively, um, at, at this point.
But it's, it's limited, you know, the EGLEFER now, uh, technology changes and improvements have helped our recovery rates, which have kept our production going.

(14:11):
But most of the core areas are already drill, um, most of the core areas in the permeant are already drill, which is where all this increased production has come from over the last 10 years.
Uh, so it's getting harder and harder and harder and more expensive to find.
I don't see this continuing unless, you know, we find a, some new undiscovered, huge formation somewhere in the United States that nobody knows about.

(14:39):
Or if, you know, the light bulb goes on somewhere and somebody invents some new, uh, incredible technology that's going to increase our recovery rates in these over wells.
You know, they have, they have improved over the years from a, maybe a 2% recovery in the EGLEFER when we first started to, we might be as high as 6 to 8% now.

(14:59):
Uh, but, you know, still most of the oil is left in the ground because it's, you know, we can't get it out.
Yeah, so to that point, um, you know, there's probably a lot of factors that go into projects that you look for, you know, so can you walk us through, you know, how you identify a new drilling location, you know, what's the anatomy of a deal.

(15:22):
And then, you know, middle and property size and how you negotiate the lease and how all that goes together.
I know a lot of folks are watching those new land man series on each, uh, not HBO, whatever.
I think it's on Amazon or something like that.
Paramount was some of the time a paramount.
I watch it too. I agree.
It's extremely, it's, it's, it's, it's grossly inaccurate.

(15:44):
But it's, it's very entertaining.
I don't know if there's a, um, some of the times when he gets on a rant, uh, you know, when he talks about windmills or wherever.
Right.
That's, that's great.
You know, some of that is accurate.
You know, he's taking his point and things like that.
I really get a kick out of it.
But all of the drama, you know, the pub jacks blowing up and all this stuff.

(16:06):
None of that happens.
Well, any man doesn't have a, my, for instance, here's, here's the biggest here.
None.
Um, you know, he's supposedly the land man.
And you know, the, the, the rig blows, the bun jack blows up and he runs and gets five brains and goes over there and fixes.
Well, you know, my, my head of land, you know, basically my Tommy from my company is a blonde here, Polish woman.

(16:32):
Uh, that's his stuff.
And he is, um, there drives a Porsche.
And she lives in Denver, right?
It's, it's nuts.
It's not, it's, it's, it's, it's not like that because, you know, they're negotiators.
I mean, she doesn't have anything to do with, with a well pumping, you're producing your work hours or anything like that.
You know, she is, she's out there hunting prospects, you know, uh, day in and day out, dealing with landowners, negotiating leases.

(16:59):
That's, that's what she does.
You know, you got to go to the engineering side when we're talking about maintenance wells and, and, and,
issues and, you know, we've never had any issues with cartels, but, you know, that I can entertain it as well.
Uh, so that's some of the differences and, you know, and not that it's, again, it's TV.
There's TV.

(17:20):
It's, it's a great, it's a great show.
I enjoy it.
I dig watch the finale last night.
I haven't once that you know, the, the method of hours were, I guess, you know, the evolution of, of a program in, in, uh, from start to finish.
It, it's, it's a long process, you know, when you're looking for new areas.

(17:41):
Um, you know, it starts with a, um, just a curse research of where other people are drilling.
You know, if you see a lot of activity in one area, we'll start looking around in that area.
Uh, you know, if, if we see some older production that we think can be restimulated, we'll start looking in that area.

(18:03):
And when I find an area that might be, that might be interesting, you know, the, the first thing that I use, it's, it all comes down to a spreadsheet.
It's all financial.
It's like, okay.
What are these offset wells producing?
What's it going to cost us to drill out there?
What's the extraction rate?
You know, what's my bang for my buck?

(18:23):
How much old per foot per cost can I get?
Is this going to make us anyone?
Uh, and if, if it, you know, I would say eight out of ten,
then I'll look at and never get past there.
Uh, if the ones that do, then we go to the next, um, you know, the next level, which is the curse research of,

(18:45):
are the minerals available or the minerals open.
Uh, and if, if they are, you know, the geology is working along the same time to look for faults and, and, you know, sand thickness and, and things like that.
But, um, uh, we'll start talking to the mineral rights owners and then we'll see what they want is for, you know, leasing goes and we'll see if we can't make, uh, you know, make a deal.

(19:11):
Now, a lot of these, uh, these leases at this point when we're talking about long horizontal laterals, it's not just one mineral rights owner.
There's several, you know, we have had areas where we've had to put together 70 different mineral rights owners, um,
to make one unit, uh, you know, to, to, to, for a drilling prospect.

(19:35):
And it takes anywhere from a year to some over three years, you know, I've got some programs I've working where the first leases, you know, I took three year leases.
And I've had to extend those leases because I don't have everybody else, you know, and, and every, every lease, let's say I'm putting together 700 acre unit.

(19:58):
Within that 700 acre unit, there might be 15 or 20 different parcels, the land that I have to put together to make this unit.
Uh, and every single one of those parcels, uh, might have 15 to 20 different mineral rights owners, you know, because the, you know, the great grandfather owned it or a grandmother owned it and, you know, she passed and left it to four kids and then some of those kids have passed and left it to four other kids.

(20:22):
So it's a lot of work that goes along with, you know, chasing who owns the minerals, uh, you know, when were they left, where they documented correctly.
Uh, it's a lot of legal work to put a mirror lease to go.
And then once, once that happens, you know, we create a, a security, uh, that is, you know, we're going to draw four wells on this partial.

(20:48):
It's going to take us 50 million dollars to, to, to drill ease and we'll break that up into shares.
We'll bring the shares over to the, to the brokerage house and then they get marketed, you know, to our client fill base.
And, you know, we've got clients and I think we're like, since in 47, 48 states, uh, and we've been managing clients, plenty since, you know, the early 90s.

(21:11):
And we've got different clients that are looking for, looking for different things.
I mean, so can you, I don't think people are maybe some of our listeners are super familiar with working interest versus mineral rights owners versus the lease holders.
And kind of how the pie gets divided up between those folks.
Can you maybe walk us through how that normally works?
Or actually, it probably varies a little bit by project, but the general structure is probably largely the same.

(21:36):
Yeah, it is.
I mean, there's two things that, that you have to, to, to realize in one gas, there's two different types of interest.
You've got mineral interest, you've got a revenue interest or working interest, I should say, working interest in revenue interest.
Working interest is a cost of development.
It's, it's what it takes to, to, to drill the well.

(21:57):
Revenue interest is what the well pays.
So if we go lease a, a parcel of property and let's just say it's from one person, well, they own the minerals.
They're theirs.
So if, if, if we want to extract those, we have to give them a piece of the pie.
In the Eagle for generally, it's about 25% go straight to the, to the mineral rights on with zero cost.

(22:24):
So he gets a 25% mineral interest ownership,
overriding roles, you know, whatever the wells produce.
And he doesn't have to pay a dime to, to develop these minerals.
He doesn't have to pay drawing costs.
He doesn't have to pay anything because there, there he is.
The owns, they own, when we come in, we're paying all the cost, 100% of the cost.

(22:46):
And we get 75% of the revenue.
So that's, that's the structure.
And, you know, the, the company will normally take a, will offer a 70%, you know,
since we're spending the time to put it together in the risks and all this,
we'll take a, a role, the interest as well, and we'll offer a 70% to the clientele base.

(23:09):
We, we get five.
And then we buy working interest just on the same basis as they do as well.
We'll put partners in the rest, we'll all go draw it.
And, and what it produces it produces.
Right.
Okay.
Hey, can you walk everybody through the, you know, one of the main things that attracted me to this sort of
investment was the tax benefits. So, you know, believe it or not, I grew up in Austin.

(23:34):
I've been here almost my whole life.
And I've never heard of this, which is, you know, I think people have a picture in their brain about
what Texas boys look like and, you know, what they do and don't do.
But can you just walk us through a little bit of the, the IRC codes, you know, the main ones?
And then, you know, like the lineage, my understanding is a lot of this stuff got an act in an 86

(23:57):
when they were trying to encourage drilling.
We have, there's a, there's a couple of the, the two, there's two main code.
One is the intangible drilling deduction.
If it's, it's, if it's domestic.
And what that states is if you're investing in developing minerals in, within the United States,
you can take 100% of your intangible drilling costs is a write off the first year.

(24:20):
What that means is, you know, your, if I spend $10 million on a drilling venture,
intangible drilling cost, I can take that $10 million and write it directly up on books as a loss
that, that year. So instead of, you know, paying tax on 10 and, and I'm, I'm left with six,
six million, I end up taking that entire 10 and investing it.

(24:43):
I've got no tax consequences to pay on that, on that, on that, the profit that I will have if I
have an invested it. So that's, that's one part. Now is, is the money comes back, of course, it gets
taxed, but it doesn't get taxed at 100% rate. The other part of this is called small producers

(25:03):
and the police allowance. You know, back in the 80s, you know, they did some studies when they were
trying to increase production here in the US. And what they discovered is the majority,
and now this isn't the same now, but back then the majority of the production in the United States
was called, was produced from something called a stripper well. The stripper well is a, a little

(25:24):
well that produces less than 10 barrels a day. You know, the problem with the stripper well is, is your,
you're barely breaking even, you know, at, if your, if your wells make a 10 barrels a day and you
have any problems with it, if it goes down, it's going to take three or four months just to get back to
end of the black. So they wanted to encourage these small companies, not Exxon and Moeville and

(25:49):
Texaco and all of this. They want to encourage these small companies to keep all these little wells
running. So what they enacted is a small producers, the police allowance. And what that says is 15%
of your gross income from, from, from, from a, from a well can, this considered a stripper well is

(26:09):
non taxable. Okay. So you had to be a small producer. What a small producer they defined as is, is,
you know, any producer that was producing less than a total production with everything they own of
a thousand barrels a day. Now these eagle for the wells alone do thousand barrels a day. So you know,
EOG or Conaco or Texaco or wherever it drills, one of these, just one of these wells, not every well they

(26:33):
own, just one. Well, it's going to be over a thousand barrels a day. But that's the case. It doesn't apply
to them. Now, when we put this package together, when you look at the tax code, any working interest
owner is considered a producer. So what that does, it goes back to him is if he owns one percent of this
program, then his one percent has to be over that thousand barrel of a threshold for him to be,

(26:59):
you know, for him to be excluded from that tax benefit. So all of our clients, when we put this program
together, they're put in his active owners, you know, they're in demified from things going wrong.
We've got insurance and all of that. So there's a lot of protections to for liability with the clients. But
from the tax standpoint, it's active. It comes off of their ordinary income tax. The rye off does,

(27:24):
the IDC code. And then the depletions the same way. So when it comes back to them, the income comes back
to them. They're able to take a 15 percent deduction on gross income with no tax consequences.
So, you know, we'll have clients that will come in and they'll invest whatever they're comfortable with.

(27:47):
Let's say they do, you know, $300,000 the first year. Well, they get to take that 300 most of that
300 is a rye off the primary year. So that's going to put their out of pocket somewhere in 180, 180 range,
maybe four, 300,000 on investment because they get the tax, tax rye off. The next year, we'll say these
three wells produce a half of that. They produce 150,000. Well, 15 percent of that 150,000, they get to

(28:16):
put straight into the pocket. So $17,500, whatever that is. They get to take the zero tax consequences.
If the rest is rolled in, it's written off again. And the third year, those four wells,
I actually got four wells produced. Those four wells will produce enough hopefully to draw one more
maybe two more wells. And it's the same process. So at some point, if these wells continue to produce

(28:40):
and the rate of return is is is what we look for it to be, you know, they're they're broken even by
their original investment, which we calculated is about 180 just them of the 300 just with a depletion
allowance. And in now they've got 15 properties producing for them. So that's the, that's kind of the
goal. It's kind of a, like pushing a snowball down here, right? It starts to gain speed. And then

(29:05):
you get to the point where it just continues to roll. You know, we have we have clients now that it's been,
I mean, they've been rolling with us for, you know, other 100, 100 programs in a row. And, you know,
they're just sending back the revenue that is generated by the wells they own and it continues to grow.

(29:25):
So it takes a while to get there, but it that strategy works where when with the older wells where you're
worried about dry holes, wouldn't get there. You know, the negative to the Eagle Ferdinases are extremely
expensive. The positive to the Eagle Ferdinases, they produce very well. They last a long time. And
risk wise, they're one of the safest formations that you can grow into. Right.

(29:48):
Well, let's talk a little bit about fracking because I'm not sure that everybody that's listening
really knows what fracking is. And I think that they probably have a lot of environmental thing, you know,
bells and whistles that go off in their head because they've heard certain things. So can we talk about
a little bit about the lineage of that and then also how it plays in the water tables and all the

(30:11):
concerns that people normally have? Everything that they think they know about fracking is wrong.
It's totally wrong. It's like watching Landman. Okay. It's all fictitious. Most of it is just meant to
to generate a response from people. The Nizmial likes to do that sometimes. All the times. But the

(30:34):
way for fracking works is, you know, the Eagle Ferdinases, we were pumping fresh water, not saltwater,
not acid, not nuclear reactive, anything down into the formation to just break it open. We're
trying to create porosity where there's cracks that the oil and the product that's in the formation

(30:56):
can flow and come to the well-walth. You know, when we're worried about the fresh water table,
these wells, and again, I'm, you know, we're talking about south Texas here, this, this,
this formation, right? We have one of the deepest fresh water tables in the United States, which is
the Currisso that goes down, not deep, this is about 4,000 feet. So everything below 4,000 feet is saltwater.

(31:19):
You're not, you're not drinking it. It's not drinkable. So that's what we have to protect. When we
drill these wells, you know, we will drill down through the, the water table down past 4,000 feet,
and this is all regulated where you have to set your surface casing. And then we'll put a nine
and five-eighths piece of pipe in the hole, cement it in, down past the fresh water table. So nothing

(31:46):
that ever happens, and that's drilled with fresh water in the first place. So now you have your,
your fresh water table totally isolated. From that point, most areas in the Eagle for, you don't need
any intermediate. So we'll drill another hole through the middle of that. We'll go all the way through
the lateral to 20,000 feet away, where it is, counting the, the horizontal leg. And then we set a piece of

(32:09):
five and a half, I said, one piece, a, you know, 20,000 foot, a set of five-eighths case or five and a half
inch casing, and cement that to surface. Now the Eagle for formation is in, it's, on average,
I'd say it's about 10,000 feet in South Texas. The fresh water table is at 4,000 feet. Now when we're

(32:33):
fracking these wells, everything is behind pot. Okay, so there's, there's no way to get into the
fresh water table from the well-bore. It's going to have to be seepage from the formation. On top of the
Eagle for, you have a formation called the, the Austin shock, which is a 700 foot thick,
solid limestone shield. So we're fracking a 10,000 foot, sometimes 11,000 foot deep, a section of rock.

(33:01):
When we frack this, we're looking for the frack to extend from the well-bore, maybe 150 feet in each
direction. Okay, that's all the power that you're given it. That's as far as it's going to go. The 150
maybe in some areas you'll get 200 feet in each direction. Well, a lot of people think that this

(33:24):
is going to contaminate the fresh water table. So when I'm pumping something that, you know, has a
certain amount of fluid that's, that we're looking to go out 150 feet in each direction, it's impossible
for that to permeate, you know, 700 foot of solid limestone in travel, 6,000, 7,000 foot through all these

(33:47):
various rock formations to get to the fresh water table. It's impossible. It can't happen. Now, if we
were fracking areas that were within the water table, okay, I can make an argument there, you know, if,
if let's say there was some formation at sitting right on top of the Creasow at 3,800 feet and we

(34:08):
go in there, we put a big frack on that, I could see that getting into the fresh water table. But
down here is it's not the case. That's not what happens. And these fracks were fracking in with fresh water.
So, you'll hear a lot about, I've heard many times about fracks causing earthquakes.

(34:31):
I'm sure you've heard that. In Oklahoma, they had this much earthquake because there's a bunch of
drillers out there. That wasn't even the fracks. That was water disposal. You know, the states and
stations charge of, you know, where they dispose of not just frack water, but, but any water produced
from only gas, they pump it back down into the formations in different wells. And, you know, it's

(34:56):
put back in there based on what the state ordinance requires. Well, you know, if the states make
them mistakes and they're having them put too much water in areas that are near fault lanes,
it could cause some things like that, but it's got nothing to do with fracking.
Yeah, so Lee, I think most of these projects you're talking about are multi-well projects,

(35:22):
right? So, how do you think about how close you put the fracking, I don't know what you call on
the stages, the wells to each other? Because you mentioned that 150 or 200 feet is about how far
the the fissures from the explosions and things like that are going to happen. How do you guys think

(35:42):
about that in general? And I guess, how does the industry think about it?
Grins, it depends on the area. You know, some area of warrant, if it's if the eagle for a sticker,
the sweet spot sticker, you know, they might have spacings from well to well down to 250 feet.
I've seen them as tight as 120, but that was early. Our fracture bigger now, so we're going to have to worry

(36:03):
about that. Some areas will warrant 350 foot apart, which is pretty tight,
summer 500 foot, summer 750 foot. It just depends on what you think your frack coverage is going to be.
Because the last thing that we want to do is rob from Peter to Paypal.

(36:23):
Like if I can have a if I can drain efficiently 700 acres with four wells,
well, I would rather do it with four wells than six. Right, because six wells are going to cost me
another 12 million dollars. So that's the key. And where the eagle for is really gone,

(36:43):
and where the rate of return is in the eagle for, you know, we can't affect all prices they are
what they are. But the advancement is kind of it's been more along the lines of cost management.
If I drill four wells at the same time versus one, it's much more efficient, because I've

(37:06):
got the same equipment out there. I've got one, I've got one pad, you know, the, the, it's easier on
cruises, easier on rental equipment. It definitely saves, it definitely saves money. It gives me some
benefits too when I'm producing. And lateral length is the same thing. For instance, if I have a
5,000 foot lateral, you know, I'm drilling down 10,000 feet and I'm turning, I'm going 5,000 feet out.

(37:30):
I've got a set cost. If I drill 10,000 feet out versus two 5,000 footers, well, I've only got one
vertical hole versus two. I've got the, the same amount of exposure to rock and the 110,000 foot well
as I did into the two fives, but it probably saved me 30%. So it's, it's more in the future,

(37:51):
morphing to how efficiently and how well can we control cost, which increases our rate of return.
Okay. So now we got the, we got everything fracked. So I think the next stage is we got to have
a flow back and, you know, we got to, we got to get the wall out of the ground. So can we talk a little
bit about that and how you monitor production levels and what's involved in separating the wall

(38:16):
from the gas and, you know, basically, how do we get the wall back up out of the ground at this point?
At that point, you just open the spake. Now, there's a bunch of equipment, of course, on the, on the surface,
you know, to handle the pressure and handle the fluid and where it's going. Now, when you first open a
well up, you're very over pressured because we, you know, we just fracked the well. We pump, you know,

(38:39):
10,000, 11,000 pounds of pressure in it. So your flowing rates are really high for the first,
you know, 30, 45 days, they're, they're going to be high. So we will have a crew on site 24/7 to
monitor the flow back. Once the well calms down and it's more manageable, then we have surface

(39:00):
facilities, it's probably already installed, but surface facilities get hooked up and calibrated,
where the, you know, the oil and the gas and the water coming out of the well,
where it goes into a separator, the separator sends the water to the water tanks, the oil to the
old tanks and the gas down gas line. And then we have a, it was called a gauge or go out every day,

(39:21):
you know, check the well, make sure everything's fine, measure the tanks, let's just know what the
old tanks have, it did in an oil production yesterday, what it didn't water, what it didn't gas.
Now, some, some areas, if you have multiple wells, you can set up some, you know, electronic

(39:42):
metering equipment where you can check on your phone or your computer or whatever it'll tell you,
what that well is doing on a, you know, real-time basis. Most wells don't need that. You know,
if I'm to the point where I'm eating that, I've got a flow back crew got there. So once you get them

(40:02):
up and running, we'll, you know, we want somebody to go out there and check it every day just in case
there's a problem, you know, it's there's something leaking if there's something that doesn't look right,
if the well goes down, then they call, they call back to the engineering at the office and say,
hey, this, you know, the compressor shut down or the, you know, the, the separators full of sand,

(40:22):
you know, was sent a crew out there for six years. Okay. So now you got the oil back up to the surface
and, you know, how do we get it to market? You know, what is the, what does that process look like? And
then, you know, can you just walk us through maybe a timeline of a, an OZAROL project? The, to market
most of the time, the bigger companies will have oil pipelines, the bigger companies in some areas

(40:50):
if they have a lot of production, you know, and they, they're just putting oil into the pipeline and
then the oil goes to the refinery. In the vast majority, they go into tank batteries and then the buyer
picks it up at the tank battery. It sends a truck out, um, drains it out of the tank and then takes it to,
takes it to market, takes it to the refinery. You know, when a buyer picks up oil, it's soon as it,

(41:16):
soon as it hits their truck, as theirs is their responsibility. You know, if they crash on the road,
we've got, you know, we've got no liability whatsoever. So it's, you know, we take it out of the ground,
we put it into our tanks, we leave our tanks, it's so, it's theirs. Fill up 66 is who we sell most of our
oil too, not always, but, you know, we can vary that contract if it, if it helps us financially, but

(41:42):
they've done, they've done well. We let them know how often, how many trucks, when to do pickups,
things like that. Uh, the end of the month, they send us a, a, a check on how much oil we've sold.
And it normally takes 45 days to, to get paid. For instance, you know, production that, uh, we sold in

(42:04):
December, we'll get a check on about the 15th February. Okay. All right. Yeah. So a normal project, you
know, if, you know, from investment stage, from an investor's point of view, from investment stage,
to when they get paid, you know, if they were to invest in one of your projects, it's, it's roughly a

(42:25):
what, how long of a process? I know it depends on the size of the well and some different things,
but what is it just like the one or time line look like? Yeah, it's, um, from the time the, the client
purchases, you know, you've got the, the funding process where we're placing people in the program,
that normally takes a couple of months. After that, we've got to drill it. Now, if it's, if it's, a

(42:49):
two well versus a four well versus a seven well program, you know, you're, it, that's going to vary the time
of course. So, you know, let's figure 14 days, which is a really good clip for well. You know, if,
if we've got four wells out there, you're looking at two months of drill time. So you've got two
months of funding, two months of drill time, after the well is drilled, we call for the completion phase,

(43:16):
which takes another couple weeks and you're probably looking at close to a month, three weeks maybe,
a fracking before we start flow back. As soon as we start flow back, we're seeing product
very soon thereafter. That product's going to be 45 days until, until the clients going to see a check.
So, two, three, four, four months, there's five, about six months. That's, month, month,

(43:43):
five, but yeah, and that's, that's if they're the first ones in from riding a check to receiving a
check. It'll be about six months. Sometimes it's quicker than that, but generally that's stark
finish. That's pretty, pretty solid time. Okay. So, Lee, what innovations do you see in the industry?
Like, what are you excited about over the next however many years?

(44:07):
Technology-wise, I'm not really seeing much. What we've seen out in the field is we've got a lot of
larger companies picking up the medium-sized guys and they're more disciplined. So, I see a stable
old price from that. You know, Conoco's got so much in the Eagle for now and they're not going to

(44:28):
drill, drill, drill, drill, drill. They're not. They would rather drill half as much as $78,
than overproduced in an old drop to 60 where they're married, barely making a profit.
So, I see that going on as far as technology changing in the field. I don't really foresee a lot.
There'll be some efficiency improvements here and there, but I don't see a lot changing from a

(44:56):
frack standpoint or from a drunken standpoint. I don't. We're seeing the drilling rig count
continue to drop. We're seeing the frack crew count continue to drop. So, you know, we're not ramping up.
I say things are slowing down. We are producing more per well now and a new well than we used to.

(45:17):
But again, you know, it's, I don't see supply increasing in any drag to great anytime of the near future.
All right. Well, you know, I know that a lot of the listeners probably are thinking about green
and energy and, you know, nuclear energy and alternative forms. So, they hear a lot about this
in the news. I mean, what do you see domestic wool production? How do you see that playing into

(45:41):
our energy future and like how it plays out, you know, worldwide? Well, oil has a built-in
inflation factor. And so does every other type of energy. You know, nuclear, I agree for electricity is
great. When you're talking about solar, when you're talking about wind, they're just, they're not

(46:02):
efficient enough. They're not. They don't make enough of the cost to make them viable at this point.
You know, if you take away the, you know, the artificial incentives from the government, it's,
it's, it's, it's, it should even be in the conversation to be honest. But what will change that is oil prices.

(46:22):
When we get to a point where oil supply gets less and less and less, demand keeps going up.
Demand will keep growing because we keep, you know, increasing the size of the world. We've got more
people. We've got more people driving. We've got more businesses. It's, it's not going to go down.
Demand is going to go up. Supply is the problem. As keeping supply where it's at, much less expanding

(46:46):
in is going to be difficult. So when oil prices get to be, you know, they're going to inch up
to, at some point, maybe not in our lifetimes, but, you know, you got $182, $200 a barrel for oil.
Well, now a lot of these other forms of energy start to become efficient. You know, it's that rate.

(47:07):
You'll see more solar and you'll see more wind than hopefully by then they'll make them more efficient.
That's the only thing that's going to transition us to be honest into a quote greener energy is
the price. That's it. Yeah, because you can. I'll go ahead. Yeah. So what's the one thing you wish

(47:29):
more people knew about the wall industry? Well, what I've learned from, you know, dealing with,
with CEOs in every type of industry out there is what I think I knew about every industry is,
is so far from the trees. So I guess respecting what you don't know would be, would be a wonderful

(47:55):
thing if everybody could do it, because it's really easy to, you see it all the time on the news where
you've got somebody singing a gas pump to a reporter complaining that, you know, that gasoline is
$2.95 while they're holding the bottle of water that they paid $4. And, you know, oil is, you've got

(48:20):
heavy state taxes at, you know, 60 cents a gallon. You've got expiration costs. You've got refining costs.
You're trucking oil. You're trucking gas. You're refying it into gasoline. You're running that. It's,
and all of that and, you know, it comes to a pump at $2.99 a gallon is incredible. I mean, it's absolutely

(48:43):
incredible. But of course, you know, nobody really sees all that. Nobody sees what it takes to put it to
where it is. And the efficiencies that are in place to get there, they think that, oh, greedy oil
companies are making all this money. And they just want to stick it to the consumer, where

(49:03):
the vast majority of oil production is coming from private companies, and, but, and, you know, and,
sometimes they're, you know, they're rate of returns or their stock price is doing well, and their
dividends are great. Other times, it's the absolute opposite. And it's just, it's, it's, it's tanking. So,
once you level it out, it's, you know, it's, it's pretty normal compared to most other industries.

(49:31):
But only gas does have, you know, most people will say the highest highs and lowest lows.
For sure. Either, you know, you can't drill fast enough, you can't sell enough oil because the price
is great, or it's the other way and you can't even make a profit. So it's, it's managing chaos is what it is.
There you go. Well, hey, Leigh, I'd really like to thank you for coming on to me.

(49:55):
Absolutely. I enjoyed it. Yeah, appreciate the time. That's the executive connect podcast.