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Should I convert my IRA to a Roth IRA?

What is a ROTH IRA?

A Roth IRA is an individual retirement account in the United States that is funded with after-tax dollars and allows tax-free withdrawals after retirement. Contributions are not deductible on one’s tax return, but earnings can be withdrawn tax-free upon reaching age 59½ or upon becoming disabled or after the death of the account holder, provided the account has been open for at least five years.

What are the Benefits of a ROTH IRA?

1. Tax-Free Earnings: Contributions made to a Roth IRA are made with after-tax dollars, meaning that you do not receive a tax deduction. However, the money in your Roth IRA grows tax-free, so you don’t pay taxes on your earnings when you make a withdrawal in retirement.

2. Flexible Contributions and Tax-Free Withdrawals: You can make contributions to your Roth IRA at any time, and you can withdraw your contributions (not gains) without paying taxes or penalties, conversions that are not aged for 5 years and if you are not 59 1/2 will face a penalty for withdrawals.

3. No Required Minimum Distributions: Unlike other retirement accounts, Roth IRAs do not require you to take a minimum distribution at a certain age. This allows you to keep your money in the Roth IRA for as long as you want (unless you need it for something else).

4. Inheritance Benefits: If you leave your Roth IRA to your beneficiaries, they can continue to use the funds for retirement and don’t have to pay taxes on the earnings.

What should be considered when deciding to convert a traditional IRA to a Roth IRA?

1. Current Tax Rate: The most important factor to consider when deciding whether to convert a traditional IRA to a Roth IRA is your current tax rate. If you expect your tax rate to be higher in the future, it may make sense to convert now and pay taxes on the amount converted at your current rate.

2. Investment Time Horizon: If you are planning to retire soon, converting to a Roth IRA may not be the best option since you may not have enough time to benefit from the tax-free earnings, converted accounts need to be aged for 5 years to not pay taxes or penalties on withdrawals.

3. Investment Objectives: If you are looking to maximize your retirement cash flow, converting to a Roth IRA may be a good idea since you won’t have to pay taxes on your earnings when you withdraw them in retirement.

4. Income Limits: There are income limits for contributing to a Roth IRA, and if you are above the limit, you may not be able to contribute. If you are above the income limit, converting to a Roth IRA may be the only way to take advantage of the tax-free earnings.

What is a back door Roth?

A back door Roth is a way to contribute to a Roth IRA even if your income exceeds the Roth IRA income limits. It involves making a non-deductible contribution to a Traditional IRA and then immediately converting it to a Roth IRA. Since the money in the Traditional IRA was contributed with after-tax dollars, the conversion is not taxable, and the account holder can then enjoy the tax-free growth of a Roth IRA.

What are the disadvantages of converting an IRA to a Roth IRA?

1. Tax Liability(cost): Converting to a Roth IRA will result in a tax liability since taxes must be paid on the amount converted. This can be a significant amount, especially if you are converting a large amount from your traditional IRA.

2. Contribution Limits: The maximum contribution is relatively low, you will need other investment vehicles to save enough for retirement.

3. Loss of Deductions: Any contributions you made to a traditional IRA are no longer tax-deductible, so you will lose out on any tax savings you would have received.

4. Early Withdrawals: If you make a withdrawal from a Roth IRA before you reach age 59 ½, you may be subject to taxes and penalties

What is the process for converting a traditional IRA to a Roth IRA?

1. Choose a Roth IRA: The first step to converting a traditional IRA to a Roth IRA is to choose a Roth IRA provider. You can open a new Roth IRA or transfer your existing traditional IRA to an existing Roth IRA.

2. Open an Account: Once you have chosen a Roth IRA provider, you will need to open an account. You will have to provide your personal information and make an initial deposit.

3. Make the Conversion: Once your account is open, you will need to make the conversion. You will need to fill out the appropriate paperwork and specify the amount you want to convert from your traditional IRA to your Roth IRA.

4. Pay Taxes on the Conversion: Any amount you convert from a traditional IRA to a Roth IRA is subject to taxes. You will need to pay taxes on the amount you convert in the year you make the conversion.

5. Monitor Your Account: Once you have converted your traditional IRA to a Roth IRA, you will need to monitor your account. You will need to make sure that all contributions and withdrawals are in accordance with the rules and regulations of the Roth IRA.

If you are looking for a way to maximize your cash flow in retirement, then converting your traditional IRA to a Roth IRA to produce tax-free income is a no-brainer. The view that tax rates are going up in the future is widely accepted ( all the tax deductions from the 2017 TCJA are set to expire at the end of 2025), so at conversion, you are potentially paying a lower tax rate now and creating tax-free cash flow for retirement. Additionally, the removal of required minimum distributions puts you in control of when you access your savings. So, what stops most from converting? The biggest deterrent for converting an IRA to ROTH IRA is the tax liability that is created from conversion, you will need the cash to pay the IRS in the year of conversion. Invito Energy Partners can help you eliminate or substantially lower the tax liability, allowing you to reap all the benefits of a Roth IRA conversion. Don’t miss out on this amazing opportunity, contact us today to learn more.

If you have any questions, or market information please contact me so we can talk.

Steve Blackwell

CEO & Managing Partner

Invito Energy Partners

sblackwell@invitoep.com | invitoep.com

A great conversation with Steve Blackwell, CEO of Inveto Energy Partners, right after he returned from being on a panel at a family office investors conference. This discussion is fascinating, especially with the banking crisis, inflation, and high energy prices. This podcast is with Stu Turley, CEO, of Sandstone Group, and has been published out on all channels. This conversation has garnered lots of conversations around finances and the current investing market.

00:00 – Intro
01:43 – Knowing Steve Blackwell and how he started Invito Energy Partners
05:01 – Steve Talks about Family Office Event
07:43 – Talks about Steve`s Thought process and what he was able to do in the new structures he is building
12:06 – Talks about what Happened with SVB and Steve’s thoughts about due diligence on the bank
17:45 – Talks about Alternative Investing and Tax Deduction
24:23 – Talks about Oil and Gas Investment
26:40 – Talks about Investing in ENERGY, Why Investing in Oil is better than Natural Gas
32:42 – What’s coming around the corner for Steve Blackwell
33:51 – Where can you find Steve Blackwell
35:04 – Outro

Check out Steve’s E-Book “The Impact of Income Taxes on Personal Wealth Growth” HERE

Please get in touch with Steve with any questions about the alternative investments at https://invitoep.com/.

Or on his LinkedIn HERE: 

Thank you, Steve, for stopping by the podcast. – Stu

Automatic Video Transcription may be edited for grammar. We disavow any errors unless they make us look better or smarter. – Check out the YouTube or podcast for the actual language. (I am from Texas and Oklahoma, so I talk funny).

Stuart Turley [00:00:06] Hello, everybody. Today is a great day. It’s not only a great day, it’s one of my favorite days because I get to talk with one of my good buddies who has actually been a retread. This is his second time on the Energy News Beat Podcast.

Stuart Turley [00:00:22] My name’s Stuart Turley, President, CEO of the Sandstone Group and we’ve got Steve Blackwell. He’s the CEO and co-founder of Invito Energy Corporation. And we’ve got some really pretty cool stuff to cover in the investing markets. Steve, Welcome.

Steve Blackwell [00:00:37] Thank you, Steve. It’s always a pleasure to be invited on. Thank you for asking me to be back. How I feel about being a retread, but I’ll take it. So looking forward to having a discussion.

Stuart Turley [00:00:48] Retreads are fabulous that means that you evidently had a good time on the first one and that that podcast went off really well. And so we’ve got several major issues to cover right now. We’ve got, you know, everybody’s talking about SVB and when you talk about bank concerns, I’m dealing with a lot of folks as well as you are, you’re talking to a lot of folks.

Stuart Turley [00:01:12] You were just a at a presentation at a on a on a panel we want to cover that. We want to cover also what’s going on with the markets and then what we’re seeing as what people are really concerned about in investments for tax deductions and concern about the bank and everything. So we’ve got a lot of things to cover here. Steve, tell us a little bit about why you started Invito Energy Partners and what is Invito?

Steve Blackwell [00:01:42] Yeah, so I started Invito Energy Partners bill in the latter part of 2019. So not exactly the greatest timing right before COVID hit, you know who predicted that? Nobody and they said they did their line. But me and my partner Jared Christensen we had worked together two previous companies, one where I was the president of Petro Max operating, and then I was the CEO of another company called US Energy.

Steve Blackwell [00:02:07] And Jared essentially ran operations for me and both of those companies. Jared’s got a deep background and the petroleum engineer started, as you know, started in kind of the mid-sized public companies unit petroleum work for one of the big guys in Cana Hill Wells all over the country.

Steve Blackwell [00:02:24] But anyways, we’ve known each other a good decade now, built a good relationship, kind of think the same about the business the really coming into 2019. You know when we were considering, you know, maybe starting something on our own, you know the first question you have to ask in any business, particularly in oil gas, which is capital intensive, is where are you going to get capital?

Steve Blackwell [00:02:44] So we kicked around a number of different ideas, kind of looked at the private equity landscape, didn’t really look appealing to us, quite honestly, because the valuation and the exit strategies just weren’t the same that they were in the previous ten years.

Steve Blackwell [00:02:58] And so that really just felt like going to work for somebody and both of us kind of were in that place in our career where it’s like, you know, it’s time to give something your own, you know, give it, give something a shot on your own and run your own show. So and build something that you, you know, feel take ownership and feel good about it the people like to work.

Steve Blackwell [00:03:16] So really, it was a desire to build a company that we joined, worked it out that the people we work with enjoyed working at. And also we kind of looked at the private investment space and based upon our experiences, felt like there was kind of a need in that space to do things and structure deals a little bit differently. So that’s why we started. We started right for go into 2020 was kind of a waste of time. But, you know, last year was really our first year having the funds on the street and raising capital so.

Stuart Turley [00:03:48] You know, Steven, the only thing that good thing that came out of COVID was the podcasting and I don’t have business meetings anymore that’s not on Zoom. And I thoroughly enjoyed that from that aspect of it. So, you know, people got used to it and as opposed to just doing phone calls.

Stuart Turley [00:04:11] And so tell us a little bit about, you know, Steve, I’ve enjoyed getting to see your articles go out there. Your Substack will have that in the show notes as well, too. And being an industry thought leader and understanding the market, you just described some very good different differentiation so I went to Oklahoma State. So, you know, I’m just going to have a little issue there.

Stuart Turley [00:04:37] And so you talk about some differential knowledge of different things and what are some of your thoughts around that family office conference that you went to because you were invited on a panel in order to speak. Tell us about that, because family offices, they’ve got some big concerns right now.

Steve Blackwell [00:05:00] Yeah. I mean, this is the second time I spoke it it’s an organization IDY it’s an interesting name, but this time they had a family office event today about which is part of the South by Southwest. And essentially it’s targeted towards family offices. And, you know, they have multiple different panels so on all on a broad range of topics. One of them obviously being Energy, obviously is not the panel I was invited to to participate in.

Steve Blackwell [00:05:26] So, you know, I think the family offices are always you know, they’re obviously there’s a lot of capital inside the family office that works these days. So they’re obviously always looking for places to place their capital.

Steve Blackwell [00:05:39] You know, interesting, interesting stat as the majority of the capital inside, you know, family offices goes towards alternative assets. You know, they’re not really placing a substantial amount of their capital into stocks or bonds they might have some hedging in that with some of that, especially on the bond side.

Steve Blackwell [00:05:56] But they do a lot of an alternative. Investments is a very broad you know, that’s a very broad, but they do a lot of investments, investments, you know, a hedge fund, private equity. And so, you know, DC just depends on the family office.

Steve Blackwell [00:06:12] So it’s a good it’s a good place to get to meet a lot of different people here, a lot of perspectives, not just on your own space, but kind of how they view, you know, investing in different markets, kind of what their key points are, their key metrics are.

Steve Blackwell [00:06:27] I think the family office space is not the easiest place to break into to raise capital. I can’t say that we actually had success in that, but I’ve learned a lot going into those conferences, and I always like getting a chance to talk about Energy. So and you know, that’s always exciting for me.

Stuart Turley [00:06:43] Oh, you know, it’s kind of fun when I can get to visit with you and we had dinner that one time and I as soon as the word energy and oil and gas is mentioned, you’re like, well, you change and you’re starting that you’re in your zone because you’re a true entrepreneur and you understand taking care of things.

Stuart Turley [00:07:05] I’ve had the pleasure of actually working with folks in different areas and everything from the family offices to private equity. And I’ve seen some really lousy structured deals. Your expertise, you and I have talked about your expertise in looking at different mechanisms or buying or different kinds of funds.

Stuart Turley [00:07:29] And I like yours because it’s structured actually for the investor. Tell us a little bit about your thought process and what you’ve really got down in the new structures that you’ve been building. Yeah, I.

Steve Blackwell [00:07:43] I Mean, honestly, it’s not that complicated, but really the genesis of it and we’re looking at the opportunity to do something, this private investment space, the right space, whatever you want to call it, really comes out of being on the other side of the table, the sense of there’s the capital raising portion of businesses, and then there’s the asset development, asset evaluation, business development side of of oil and gas as well.

Steve Blackwell [00:08:07] So, you know, after 15 years as basically Jared and I are building processes around evaluating different opportunities or different plays that come across your desks, you kind of start to get a good feel for what are some of the key points in terms of structure that are going to give you the opportunity to succeed? So, you know,.

Steve Blackwell [00:08:30] So the very, very short answer to that is what as we put the thesis that we really came up with, I don’t want to keep up with it’s not rocket science. It’s it’s simply when you’re in oil Gas especially, but quite frankly, in any private placement or direct investment deal, in my personal opinion, you know, one of the biggest things any investors should look at, whether it’s oil Gas, whether it’s, you know, Bitcoin, whether it’s, you know, anywhere in the commercial real estate space I don’t care what you’re investing at. you know, you need to look at the structure of the deal, specifically the fee structure upfront.

Steve Blackwell [00:09:04] So essentially of your money that you invest, it’s called a dollar. How much of your dollar is not going into the investment. And so. If you take a dollar and someone takes 20% of that, takes $0.20 of that, you’re already starting significantly. So you’ve got to get a 20% return just to get back to where you started.

Steve Blackwell [00:09:26] So the upfront fees are, in our opinion, very critical and when you run deals through asset evaluation in oil, Gas, the other part of this to prove this out is we’ve run so many deals, right. Models that had significant fees upfront and they just they never work.

Stuart Turley [00:09:45] Right.

Steve Blackwell [00:09:46] They can work if you want to give very, very rosy predictions EURs, which is how much oil or gas you’re going to produce for a while, or if you’re going to assume, you know, high gas prices are high oil prices for the life of the well. And again,  those are not waste that those, in our opinion, are not risk-based models and eventually are not going to perform.

Steve Blackwell [00:10:08] So it doesn’t assure that you’re going to have a proper investment or a good return on your investment. But in oil and gas, you know, it’s one of the ways, in our opinion, that you have the best chance of statistically having a better chance for the client and the investor to get a good return on their investment.

Steve Blackwell [00:10:29] So one is how much fees are upfront, right? From a mathematical performance standpoint, that makes it very difficult if a decent amount of your 10, 15, 20. I mean, we’ve seen deals as high as 35, 40%, believe it or not, upfront being taken out.

Stuart Turley [00:10:44] Right.

Steve Blackwell [00:10:45] I also believe that that’s a big misalignment of incentives in the sense of if I make all my money upfront, regardless of the performance of the asset, how how does that say that? How does that make me aligned as the job does GP?

Steve Blackwell [00:10:56] So again, that could be a commercial real estate deal you know, if you’re in a commercial real estate deal and you’re not aligned with the GP?

Stuart Turley [00:11:04] Right,.

Steve Blackwell [00:11:04] You know, I would I would say you might not. I might want to consider not making that investment. So that’s that was kind of one of our main thesis starting. Invito we just we wholeheartedly believe that that’s how deals ought to be done makes Invito a long term play for us is the way we will be successful and in veto is for the performance of their funds because we share our revenue of the fund. So if the funds do well, we’ll do well.

Stuart Turley [00:11:29] You know, one of the the things that’s going on is, you know, with the the bank failures and everything, you take a look at last year, Occidental Petroleum was the number one investment on the S&P 500. And people are are really looking for energy in order to get to that that somehow gets some kind of hedge against inflation and try to get your money out of a bank because I think that was really the run on SVB was a total eyeopener for folks.

Stuart Turley [00:12:06] As you take a look at, everybody’s got a phone now and everybody can bank from their phone. And I think it was just amazing how much money, 42 billion or so. Where was it? And it was 70. They had 72 billion in assets and they had so much money coming out and then they had all their money invested in bonds or in the other materials and didn’t pay attention to it. So, yeah, you know, do you, as a family office, as an investor, have to now go do due diligence on your bank? I mean, that seems a little stupid, so.

Steve Blackwell [00:12:45] Well, I mean, look, I will tell you that I would say that I had a conversation with our bank after that. And really, just because you don’t think to think about certain things they answer to has become, you know, one of the biggest questions I had and I assumed I knew that it would be anywhere near where Silicon Valley Bank was.

Stuart Turley [00:13:05] Right.

Steve Blackwell [00:13:06] Silicon Valley Bank. I don’t know what the accurate the accurate statistic is, but, you know, whether it was somewhere in the eighties or 90% of their deposits were uninsured. So they were a unique bank, right? I mean, their clients were all the tech companies. You know, their average deposit size was huge, has 90, 95% of their deposits were uninsured. That’s not your typical profile of a bank, right? They were lending into one sector.

Steve Blackwell [00:13:34] So obviously, that was the that was the real question I asked our from our from our banker was this where where does our base stand in uninsured deposits, which is there 38%. So. Right. Well, that’s a significant different number. And of course, you know, in terms of their risk profile, where they don’t, we are our bank doesn’t own any long term maturities. So that’s another question, obviously, because, you know, what’s interesting, Stu, is there’s a lot to look at with Silicon Valley Bank right?

Stuart Turley [00:14:03] Right.

Steve Blackwell [00:14:03] And the other two but there’s a multitude of things to blame and the blames, there’s a lot blame to go around between the regulators, the management and Silicon Valley Bank. I mean, just unbelievable. On the lack.

Stuart Turley [00:14:16] They were of sleep.

Steve Blackwell [00:14:17] I mean, really, it’s really kind of hard to understand The process was there. But you do understand is everything we’re dealing with today, not everything, but almost everything we’re dealing with on an economic front today is that you to it is due to the response to COVID right?

Stuart Turley [00:14:35] Right.

Steve Blackwell [00:14:35] So when you when you increase the M1 money supply by 42% in a year and you kick off six and a half trillion dollars in a new money, deposits at the bank shot up the money going to go somewhere? Right.

Stuart Turley [00:14:51] Right.

Steve Blackwell [00:14:52] The Silicon Valley banks are a perfect example they had more deposits than they could invest into their tech clients. And they didn’t have it. They didn’t have any other place to put it right. So they went out and they bought Treasuries and bought mortgage-backed securities, but they bought duration, long-term mortgage-backed securities. Then they didn’t properly hedge crazy in the face of a rising interest rate environment, which, by the way, how anybody can know that wasn’t the environment you were in.

Stuart Turley [00:15:21] That’s right.

Steve Blackwell [00:15:22] Or stand. But again, you know, you really don’t think about the fact of when all of that money went into the system how it go into banks and banks have to do something with the money If they don’t have commercial loans to lend, to mortgage, you know, into private mortgages to lend to, they go out and they went out. In some cases, they put it to work and bought securities.

Stuart Turley [00:15:45] Right.

Steve Blackwell [00:15:46] I think the majority of the banks out there do a much better job of managing the risk. I mean, Silicon Valley Bank was without a chief risk officer for what, eight months, which I heard was undisclosed, which again, is kind of crazy. But or the fact that the CEO tried to sell stock a couple days before, did sell stock a couple of days before the company went down.

Stuart Turley [00:16:09] It was the previous week, I believe. Yeah.

Steve Blackwell [00:16:11] There’s an accountability there. But, you know, I think that your fear sells is right. Fear gets eyeballs on TV. Very, very fear gets wins votes. And nobody’s going to pay attention to 24/7 news networks or 24 seven business channels if it’s boring if they’re not had any emotions.

Steve Blackwell [00:16:33] And, you know, all he had to do was turn on the TV or go on social media and very good, well-intentioned people, people that I like were posting stuff on LinkedIn or Twitter and just speculating.

Steve Blackwell [00:16:45] And unfortunately it just fosters fear and of course, that is particularly for the banking sector, can be really been a problem because runs on the bank are what sink banks, which is why we end Signature Valley or Silicon Valley. If people start to run to the bank and try and all get their money out, it’s a self-fulfilling prophecy you’re worried you’re not going to get your money out. But everybody running to get their money out is what causes you to lose your money.

Stuart Turley [00:17:13] Right.

Steve Blackwell [00:17:13] So.

Stuart Turley [00:17:14] You know, Steve, this is kind of funny because one of the articles that I had polled was from one was from your Substack, and the other one was I pulled from the Wall Street Journal today and it was very everything you just talked about was in that article. And you had not even looked at that article from The Wall Street Journal. It was pretty cool. I’m sitting here kind of going. All right, Steve, thanks a lot that’s one of my points I was going to bring up. Thanks a lot Steve you just and I’m going to have this article in the show notes you had some really good points in there.

Stuart Turley [00:17:46] Like in in oil and gas investing that’s one of the the big things that are out there in alternative investing is that you got to look for the tax deduction. There’s a couple different ways to do that in getting into alternative investments with a passive income and a tax deduction.

Stuart Turley [00:18:06] Oil and gas is still got that tax deduction in there and taxes are going to go up that’s a huge issue right now for a lot of the investors I’m talking to is because they’re sitting there kind of going, holy smokes, we have 87,000 new IRS agents about to show up on your doorstep. So you know…

Steve Blackwell [00:18:25]  I remember the new Congress is actually tried to put a stop to that but there’s a lot to unpack there that I would say is I mean, look, this would be a this would be my advice to anybody, which is over the last especially 2022, you’re looking at your personal portfolio and you’re either managing yourself or your manager with anadviser.

Steve Blackwell [00:18:49] Alternatives. I like to look better word for me for alternatives out of the market investments. So when you look at your portfolio, I’m speaking for my own personal experience, by the way, when you’re looking at your personal portfolio, if you are 100% in the market or 75% of the market or higher, look, if you have a year like we had last year, everybody fell in love with equities over the last decade or. So because we had a basically a bull market for almost, you know, really since, what, 2009, after the 2008 collapsed and which was a 15 year run of literally free money, along with stimulus packages dumped in there.

Steve Bkackwell [00:19:28] So those days are, you know, the ultra low interest rates are definitely over. I don’t think that there’s I do look, but I’m not saying that we won’t see rates go back down again because the Fed, the Fed’s a different story.

Steve Blackwell [00:19:40] But when you look at your portfolio in terms of managing risk and depending on where you are in your stage of investing your age, right, how close you are to retirement, you know, you balance you could balance risk and balance returns so that you don’t wake up every day watching the market. Look, the S&P went down 20% last year the Nasdaq 34%.

Steve Blackwell[00:20:02] You know how much you have to gain back to get back that 34% if you were the Nasdaq going back like 52%. So even if you’re even if the Nasdaq averages 3013, I think it’s average, maybe 13% over the last decade or so. You know, you’re looking at four years before you’re back to where you were.

Stuart Turley [00:20:20] Right.

Steve Blackwell [00:20:21] What if there’s another, you know, market downturn there, Now, you could have a you know, you could have a year where it goes up 30%. But those those ups and downs are tough to live with. The ups are obviously not you know, I don’t think we’re going to I don’t think you’re going to have another 15 years like you just had 15 years.

Steve Blackwell [00:20:40] So I think everybody should look at either or through their advisor of having a portion of their portfolio out of the market. That’s out of the market that umbrellas, alternatives oil and gas could be a portion of that.

Steve Blackwell [00:20:55] Oil and gas has a different risk profile, you’re not going to take 40% of your portfolio and put it in alternatives. Personally, I’m I’m trying to head towards a 60, 60-40s dead, 6040 stocks bonds is dead, in my opinion.

Stuart Turley [00:21:07] Right.

Steve Blackwell [00:21:07] I’m moving towards a 60% alts, 40% equities.

Stuart Turley [00:21:13] Right.

Steve Blackwell [00:21:13] And then in my own by looking at someone’s portfolio of alternatives, you know, maybe you’re carrying out five, ten or 15% for energy in their right energy deals. Now you can, you can invest in multiple different ways. You can you can buy off key, you can go directly into stocks but you know, direct energy investments have a huge tax benefits associated with it.

Stuart Turley [00:21:36] Right.

Steve Blackwell [00:21:37] There’s no way around that. We’re moving towards higher taxes, unfortunately, because you can’t put $6 trillion into the economy. And the only way to pull that money back out is through taxes and that’s got to come in.

Steve Blackwell [00:21:50] So while a lot of people are trying to do Roth conversions now, right?

Stuart Turley [00:21:53] Right.

Steve Blackwell [00:21:53] You lose direct energy investments to offset that tax bill. But if you can take your IRA, which is going to be taxable in the future, at more than likely a higher tax bracket that today to a Roth, which means it’ll be tax free in the future.

Steve Blackwell [00:22:10] And if you can invest, if you have the ability to offset some of that or all of that with an energy investment strategy, we’ve been working with a lot of advisors last year and this year on that strategy in particular. So but you don’t when you do the Roth conversion, though, it’s, you know, you’re going to get a big tax bill so you have to either pay it, have the ability to pay it, or find a way to offset it. And so.

Steve Blackwell [00:22:33] You know, energy does have that direct energy investments you go invest, you can go invest that oxy or pioneer IRA different that’s invested in the stock market right? And right now, oil price may be good the stock may be down right?

Stuart Turley [00:22:46] Right

Steve Blackwell [00:22:47] Energy last year was fantastic the number one performing sector, 2022, How was that? How was the energy sector in the first quarter of this year? Not Good.Not Good Right. Because oil prices went all the way down to the low 70 seconds. Right. And all this uncertainty. Right. Right. So the recent kind of downtrend in prices is all based upon uncertainty, right? As we head headed a banking crisis, which is in a class to the economy, which will drop the man, you know, coming into this year, it was kind of like China recovery and Russia supply those things. Everybody was watching. And along comes a quasi quasi banking crisis to freak everybody.

Stuart Turley [00:23:29] So, you know, I’m such a energy nut news junkie that I there is right now. In fact, last week, the IAEA, the International Energy Agency, even said they’re short $4 trillion in order to do keep up with just normal decline curves around the world.

Stuart Turley [00:23:51] So, Steve, even if there is huge demand destruction going on because of the markets, the lack of demand and all of those kind of things, I’m a little bit hesitant to put a number out there anymore just because the world is so goofy and changed.

Stuart Turley [00:24:10] But it is you and I have. Talked about as far as looking at deals if you plan on lower numbers and you’re profitable at lower numbers, good management, good numbers. I still see some great things coming around the corner for the American oil and gas.

Stuart Turley [00:24:31] 50% of the oil that’s generated in the U.S. is from private investors, I mean, private companies, I still see as a you know, between our news site and reading so much during the day, I see good things coming around the corner. Do I see $200 oil that they were screaming, you know, a little while ago?NO! Now, do I see $40 oil? NO!, but it’s tough to put a finger on it again.

Steve Blackwell [00:24:59] I mean, look, we’re we’re very bullish on the long term and when I say the long term over the next five years, with ten years to you, but specifically over the next five years, we’re very bullish on oil where we will. I’m not saying that we would do a natural gas, play an investment, but I, I don’t think we would appear at this point. Not that there’s anything wrong with natural gas.

Steve Blackwell [00:25:23] My only issue with natural gas is and when you took a look at the physical market, specifically in the United States and we have so much reserves in this country for natural gas, it’s crazy compared to…

Steve Blackwell[00:25:36] And so and when you look at a chart from an ad, from a portfolio manager standpoint. Right?

Stuart Turley [00:25:42] Right.

Steve Blackwell [00:25:42] And you look at a chart and you can look at natural gas prices over the last decade or 15 years and look at oil prices. And when you you will, you’ll notice that when oil is down, when I say down, what’s called sub 50 sub 40, it doesn’t stay there very long.

Stuart Turley [00:25:58] No.

Steve Blackwell [00:25:59] Natural gas can stay low has that time period will stay low and low, sub $3 for substantial periods. Right?

Stuart Turley [00:26:08] Right.

Steve Blackwell [00:26:09] Natural gas is trading below two today.

Stuart Turley [00:26:13] Right.

Steve Blackwell [00:26:13] Nine, eight months ago, it was about it was at nine bucks so everybody was saying in the tunes of natural gas last year and love of their distributions.

Stuart Turley [00:26:23] And you know, Steve, you know, in all the financial modeling that I’ve been looking at and everything else, I understand why oil is needed for everything. Yeah, you take a look around, everything is made in your office, everything in your home. You I mean, everything is made with oil.

Stuart Turley [00:26:39] And the EMP operators that I work with which would you rather sell from a production standpoint? 80 to $100 oil and look at the volume and the dollar amount and then. And or try to sell natural gas and all of that type of volume, you’re going to have a higher volume and higher profitability in that oil and gas, oil space. Would you say that that’s a fair statement?

Steve Blackwell [00:27:10] Yeah, I mean, it’s a fair statement. I mean, look, again, it all depends on how you’re investing into energy. If you’re invested into public stocks. Fantastic, fantastic. Fantastically well-rounded, well disciplined EMP natural gas companies out there.

Stuart Turley [00:27:26] Right.

Steve Blackwell [00:27:27] Same thing on the oil side and same thing with companies that have a big mixture of both.

Stuart Turley [00:27:31] Right.

Steve Backwell [00:27:31] Which is, you know, and then of course, the majors are fully integrated up and down the whole, you know, whether it’s, you know, downstream, upstream, midstream, that’s a different way of investing in the oil gas asset, Anything that’s tied to the public markets, there’s so much more that goes into it from a return.

Steve Blackwell [00:27:49] But when you’re doing Direct investments, meaning literally your your money is literally going you are drilling the putting money to actually drilling the wells, producing the hydrocarbon and selling it. Our our belief that that’s where we want to be and to oil because look at that point, commodity price is a huge driver of how well your funds are going to perform. There’s plenty of other variables that go into that, metrics that go into the performance. The commodity price is obviously one of one that affects that substantially.

Steve Blackwell [00:28:20] So there are just a lot of bullish, bullish things in place right now or to feel good about oil over the next five years. And when I say feel good about it, what I mean is I don’t see us having any sustained periods, long sustained periods of under $50 oil, certainly not under $40 oil. Right. Because you get the short term, you got it right. We haven’t even begun to fill the SPR. Right? You’ve got.

Stuart Turley [00:28:45] Oh, absolutely.

Steve Blackwell [00:28:47] We’ve had so much under investments, so much capital has been pulled away from the industry. You know, you go back to 2014, right when that at the beginning of the shale revolution, the shale boom, we had almost 1800. I think in North America, we’re about 700 now. A couple during color, we dropped up to 200. Right?

Stuart Turley [00:29:05] Right.

Steve Blackwell [00:29:05] You know, the inventory is an issue in the sense that you look at Pioneer who is widely looked at as having one of. The best positions in the Permian, which is the largest producing basin in the United States. And, you know, by their own admission, their own reports, 50% of their inventory is tier three.

Steve Blackwell [00:29:22] So how much can the United States continue to grow? You know, I think the projections were 600,000 barrels a day in 2020, 394, only 194,000 next year. But I’ve read plenty of articles that at these prices, production is going to drop this year.

Stuart Turley [00:29:39] Right.

Steve Bkackwell [00:29:40] So you’ve got a lot of capital been pulled away all the ESG pressures, you got regulatory pressures. You know, there’s just so many pressures on the supply side to oil and the demand side. Everybody is still projecting growth.

Steve Bkackwell [00:29:58] And so, again, if you look at alternatives right now, obviously electric vehicles will have a downward pressure on the demand side. But, you know, we’re nowhere near that being a big factor yet. But solar and wind, solar and wind are negative for natural gas because solar and wind produce, electricity and natural gas is used in a lot of places to produce electricity.

Steve Bkackwell [00:30:22] So those are those put more pressure on the demand side, on the natural gas side, and then worse supply on the supply side on natural gas. Not only do we have just a ton of reserves and natural gas basins, but then you have all the associated gas that’s produced from the oil wells.

Steve Bkackwell [00:30:38] So I just feel more comfortable from a direct investment started to be in the oil side. And looking forward, I don’t see I just think it’s a great, you know, for the first time in 15 years, I feel very confident about not having crazy some crazy thing happen where we have low prices. Right. You know, absence, absence, another pandemic, the China style, the world, you know, which no one can be. No one. Nobody can account for that. You know, we lost 15 million barrels a day of demand, right, in, what, three months now, which was catastrophic to the oil and gas industry?

Stuart Turley [00:31:16] I don’t think that’s going to happen. I think too many people are realizing that it was not handled correctly.

Steve Blackwell [00:31:21] So, you know, it killed and it killed the oil, gas, energy. We have so many bankruptcies, capital, but CapEx budgets dropped by 50% year over year.

Stuart Turley [00:31:31] Right.

Steve Blackwell [00:31:32] Look at CapEx, CapEx budgets today, typically, historically, 25% of CapEx budgets are used for new discoveries, right? About 10%. Right. And if you look at the amount of new discoveries that are coming online, it’s a fraction of what it used to be.

Steve Blackwell [00:31:50] And again, when you look at the environment as oil, gas companies have to operate in or at least under this administration, it’s not friendly at all. I it opened up the field up in Alaska. Right. Which had all the. You know, all of the angst about it actually improved that. But then you go read some of the details and I think she’s like, but but I don’t know. Well, I can’t remember the number. But, you know, millions of acres are going to be off limits. So it’s like on the one hand, it’s like he’s trying to help somebody. On the other hand, he’s trying to appease the other side. And then in the end, at the end of what, he’s happy happy.

Steve Blackwell [00:32:24] Oh no. So I’ll tell you what, Steve, I hate to do this again, but I think I need to have you back, because while you were talking, I thought about supporting different things that we need to talk about, but we’re just about out of time here. What’s coming around the corner next for Steve? What do you got coming around the corner?

Steve Blackwell [00:32:43] Yeah. So we just, you know, we just lost our 2023 fund last week, so we’re excited. It’s a 25 million direct investment fund and we kind of partner up with we work with a lot of RIAs registered investment advisors and then we work directly with clients as well.

Steve Blackwell [00:32:59] So we’re excited in our second year of having funds to get it out there on the street and a lot of good assets available and you know, we’re excited to get into year two and get to work. So, you know, there’s a lot of, again, alternative assets. Energy has a place,.

Stuart Turley [00:33:17] Right?

Steve Blackwell [00:33:18] Certain portfolios I am not one of those guys that goes out there and tells everybody, you know, direct energy investments have no risk. Everybody should invest into it. It works for everybody. It’s a fit for business.

Steve Blackwell [00:33:31] It has a different risk profile to it, but it’s a great way to manage certain tax liabilities and it’s a great way to generate passive income cash flow. So those two things are pretty intriguing and attractive to a lot of folks. So yeah, we’re excited. That’s what’s going on with us.

Steve Blackwell [00:33:48] That sounds fabulous. I’ll tell you, people can find you on LinkedIn. Steve Blackwell And that’s a that’s how you and I met and when you sit back and take a look also your website is.

Steve Bkackwell [00:34:02] It’s in I-N-V-I-T-O-EP.com

Stuart Turley [00:34:06] Fantastic!!!

Steve Blackwell [00:34:07] Just authored a little an e-book on wealth and taxes and the effect of income taxes on wealth. Little short read, but you can download it off of our website. It’s free and so that will be a living document we’ll continue to add to that a lot.

Steve Bkackwell [00:34:22] But you know, the number one destroyer of wealth is taxes. I tell people that, right? So there’s nothing there’s no laws against no laws that says you should do that. You cannot limit your what you pay in taxes now as long as you stay within the laws. Right. So there’s lots of ways to do that and not exploring those are just giving your money away.

Stuart Turley [00:34:44] Oh, absolutely. Well, Steve, thank you for stopping by the podcast today. I do appreciate it.

Steve Bkackwell [00:34:49] Always, always fun to do appreciate you invite me and I look forward to, I guess, retried number three.

Stuart Turley [00:34:55] Oh, it’s an honor to have you back.

According to Steve Blackwell, CEO and Managing Partner of Invito Energy Partners, the energy industry  faced several challenges in 2022 including labor shortages, increased costs due to supply chain issues, a changing regulatory climate, declining refining capacity, and declining commodity prices in the second half of the year.  Blackwell notes that these issues are primarily a result of the COVID-19 pandemic with the associated shutdowns and supply chain disruptions  and uncertainty brought by ongoing international conflicts and domestic fed policy with interest rates.

The energy industry has been impacted by political tensions between Russia and Ukraine, with Russia using energy as a tool to erode support for Ukraine. Russian energy companies have limited the flow of natural gas to Europe, causing prices to rise and prompting countries to search for alternatives. This has led to increased oil and gas revenues for Russia as countries are willing to pay a premium for more Russian energy.

However, Russia’s reliance on the globalized energy market to support its economy has begun to have negative consequences. The Ukraine war and the West’s aversion to Russian energy imports could lead to the end of the international oil market, with a more regionalized version defined by politics taking its place. In response, the European Union and the Group of Seven nations have begun phasing out Russian oil imports and have approved an oil price cap for Russian imports, which could significantly impact Russia’s energy revenues.

Looking ahead to the first half of 2023, Blackwell expects commodity prices to remain range bound and relatively stable, but with the potential for higher prices as we approach the end of the second quarter as demand concerns subside and the market returns to a focus on supply. He also expects OPEC to continue its prioritization of higher oil prices over market share. He also sees the costs for drilling of wells to stabilize and decrease as we move through 2023.

“The biggest challenges facing the industry recently have been labor shortages, increased costs due primarily to supply chain issues, an ever-changing regulatory climate, refining capacity declines, and recent declines in commodity prices from the highs during the second and third quarters of 2022,” Blackwell explains.

Despite these increasing hurdles, Steve Blackwell remains optimistic about the future of the energy industry. He believes that with the right strategies in place, the industry can meet the challenges of the present and build a more sustainable and prosperous future.

Overall, the energy industry is facing a range of challenges, but there are also opportunities for growth and innovation as the industry adapts to changing market conditions. As Blackwell notes, the key will be to stay informed and stay nimble in order to navigate the shifting landscape and emerge stronger on the other side.

About Steve Blackwell

Steve Blackwell is the CEO and Managing Partner of Invito Energy Partners. With over 14 years of experience in the energy industry and more than 20 years of executive-level experience, Blackwell brings a wealth of knowledge and expertise to his role.

During his tenure as President of Petromax Operating, Blackwell oversaw the deployment of over $100 million in investor capital into three operated fields, where the company leased over 86,000 acres of mineral land and drilled 39 horizontal wells. He also oversaw the divestment of these assets for nearly $900 million, with an average rate of return of 370%.

As Chief Operating Officer of U.S. Energy Development Corporation, Blackwell oversaw the deployment of over $100 million in investor capital, resulting in the drilling of 29 wells in the company’s Eagle Ford shale asset. Under his leadership, the company was able to decrease costs per well by 25%, increase average EURs by 5%, and increase the return on investment. Blackwell holds a B.S. in Business Administration, Finance, and Accounting from Central Michigan University.

Opinions expressed by US Business News contributors are their own.

Today with Steve Blackwell, we cover some interesting shifts in the oil and gas market. The shale revolution changed the global dynamics as a commodity and its price. The ESG investing movement came after that and brought some good and bad things to the market.

The ESG investing movement accomplished two things. Limiting the capital for drilling programs and investors demanding returns in months rather than years. The United States industry listened, evident today with the many returns provided to investors. The world listened, and the activist and fear to invest in drilling programs have left the supply side short for the next decade, even with demand destruction.

Steve is an industry expert and has seen many different types of operations. We had fun and see what may be in store for investors and consumers.

Thanks, Steve, for stopping by the ENB podcast. – Stu

Please reach out to Steve Blackwell on his LinkedIn HERE. And the Invito Energy Partners website is HERE.


This news interview originally appeared on EnergyNewsBeat.com, and was hosted by Stu Turley, CEO, of Sandstone Group.

Investment Risk – Oil and Gas Evaluations 

Understanding proper oil and gas (“O&G”) investment risk analysis is at the core of a successful long-term investment strategy.  Truthfully, this can be complicated and intimidating…and as boring as watching grass grow.  So, what’s an investor to do?   

 Here is a macro look at the evaluation process and its importance in performing accurate risk analysis.  But prior to jumping headfirst into this process, it is essential to understand two things.  First, this assessment process is usually long, capital intensive, and the last analysis piece that includes many technical (engineering and geologic) and financial (accounting and modeling) assessment processes.  Doing these accurately is how oil and gas companies prioritize and allocate funds, projects areas, and ongoing development of these assets.  Second, no other industry has the varied exposure to so many different risk types that exist beyond just a single/simple economic evaluation of the assets only.  Quantifying and understanding these risks are crucial…done right…can save an investor much heartache. 

 Risk Analysis: Capital Intensity 

What makes O&G investments different from other industries is how capital intensive they generally are.  Within the industry, capital intensity can also vary tremendously by asset type like onshore or offshore, exploratory, developmental, drilling, infrastructure, legacy well redevelopment, or processing facilities.  Most have multiple asset types in each investment project.  Because of this, O&G companies often rely on a multifaceted risk analysis to ensure the right projects get funded.   

 According to Deloitte, during the last decade the industry registered net negative free cash flows of $300 billion, impaired more than $450 billion of invested capital, and saw more than 190 bankruptcies.  What gives? 

 Historically, oil and gas companies would diversify investment capital into multiple revenue streams and asset areas to offset market variations…while systematically and methodically developing and hi-grading those assets.  But the US shale revolution and oil prices over $100/bbl, threw caution to the wind with massive capital inflows into the industry, prompting inaccurate and euphoric project evaluations, fueled by inexperienced investors as well as O&G industry professionals.   

 As the industry experienced the incoming and outgoing tides of commodity variations, Warren Buffets infamous saying became a reality…”Only when the tide goes out do you discover who’s been swimming naked.” 

 Risk Analysis: Quantifying Risk Types 

Today, those remaining in the industry are reverting to time tested methods and strategies to evaluating projects and quantifying risk, but with a new ESG twist.  Let us explore these different risk types. 

 Political Risk 

A projects political risk can be impacted by federal, state, and local forces.  Any change in government policies, regulations, taxes, permitting, and restrictions should promote a re-evaluation of economics, timing, and ultimately whether a project is worth doing at all.  O&G companies should demonstrate an understanding and history of identifying these risks and ways of properly planning for them. 

 Environmental Risk 

Environmental risk impacts include worker safety, local ecology, natural resources, and waste management.  This must be factored into a projects risk analysis.  Spills, worker incidents, accidents, property damage, and local water and habitat impacts are the biggest source of financial risk…second to none.  Any prudent O&G assessment should involve a detailed review of these impacts, proper insurance coverages and detailed plans of compliance measures in each jurisdiction like spill response (SPCC plans) and regulatory certification (Tier II & Quad O).  In the new age of ESG investing, methane emissions and flaring plans need to be disclosed and quantified.   

 Technical Risk 

Minimizing technical risks requires project teams to employ a diverse set of skills like Geologists, Engineers, Project Managers, Procurement Specialists, and Business Development.  Each discipline requires a wide range of tools and data used to develop interpretations of existing features like faults and legacy production or create exploratory predictions of new assets using seismic or taking physical cores of the rock.  This information is then used to estimate project costs, materials, and infrastructure necessary to implement and bring online a project’s hydrocarbon production potential.   

 Economic Risk 

Because the required O&G capital investment is so large, economic analysis on returns, capital & operating expenditures, and sensitivity analysis of oil and gas pricing needs to be highly understood and accurately modeled.  This modeling is complex, can be highly subjective, and can yield a wide range of non-unique outputs depending on the experience and background of the modeler.   

 Evaluation Analysis: Modeling Risk 

So, how can you verify your O&G investment is a good deal?  O&G companies use a variety of ways to qualify their data to ensure their estimates are accurate including economic modeling and statistical sensitivity assessments. 

 With over 15 different inputs, economic forecasting and modeling is the foundation and most preferred approach to evaluating risk.  However, each input can have accumulating effects to predicting returns and are subject to how aggressive or conservative a company’s mentality is.  These inputs, over time, can also be escalated, held constant, or varied depending on these outlooks.  Each input is built on real data sets, which they themselves need to be processed, qualified, and risked.  A more aggressive company may treat one input set differently than another…which can lead to wide differences in project outcomes.   

 Running statistical sensitivity analysis takes economic models a step further by creating, quantifying, and testing risk parameters.  This concept is applied to every aspect of the risk process, data, modeling, time value of money, cash flow, and ultimately quantifying the project uncertainties and full implications of each action a company makes. 

 Good investment decisions start with quantifying the risk types, understanding the modeling, and evaluating how aggressive or conservative a company applies and tests its project ideas.  The complexity of O&G risk factors is intimidating but can be overcome by inquiring into each of these different facets of analysis.  Having a team with the technical skill set and experiences to draw upon is essential to a profitable oil and gas investment.   

Your business is your baby.  You’ve sacrificed for years, nurtured, endured sleepless nights and now it’s time to sell your business.  This means income…and income means…well, taxes.   

The tax side of selling a business has many moving parts, and if you get nothing from this article…remember this!  ALWAYS consult a tax or financial advisor.   

Here are four tax-related issues to keep in mind… 

  1. Are sales proceeds taxes as ordinary income or capital gains? 
  2. Is the sale assets or stock? 
  3. All cash deal or payment installments? 
  4. Can sale be treated as tax-free merger? 

 Remember these issues are relevant for federal income taxes…different states have different rules and may collect more or less taxes than the IRS on the same deal. 

How Are Business Sales Taxed? 

The IRS, with few exceptions, treat the business as individual assets, not one big sale.   

Those assets will be put into two buckets 

  1. Long-term capital gains (real or depreciable property) 
  2. Short-term capital gains at ordinary income rates (A/R and inventory) 


Pro Tip #1:  Plan +2 years ahead of selling your business to reduce ordinary income tax 

If you sell an asset that you’ve held for more than 12 months, the proceeds will be treated as long-term capital gains. The maximum tax rate for most taxpayers is 15%, with the maximum rate at 20%. Proceeds treated as ordinary income are taxed at the taxpayer’s individual rate. Currently the top individual federal income tax rate is 37% more than twice as high as the long-term capital gains tax rate. 

Asset Allocation 

Obviously, sellers will want most of their assets treated as long term capital gains.  However, most times, during negotiations, the buyer may want a different allocation, that in turn, can reduce the new owner’s tax bill.   

Pro Tip #2: Negotiate on sales price, to receive a more favorable asset allocation  

It’s a potential conflict, as the buyer often wants as much of the price as possible allocated to costs that can be deducted or assets that depreciate. 

For instance, the IRS says that selling inventory produces ordinary income.  But selling capital assets held for more than a year creates a long-term capital gain. 

Deal Structure 

In addition to asset allocation, the deal’s structure can affect the tax bill. If the seller agrees to take the price in installments, for instance, they can defer paying taxes until the payments are received. 

Pro Tip #3: Buyer competent?  Doing your due diligence can spread out your tax bill 

Buyers may end up paying more when they don’t have to pay everything upfront. And the seller may also be able to charge interest, in addition to saving on taxes.  Installment sales do add more risk, though, because the new owner must run the business well enough to produce profits to make payments. 

Corporate Stock Sales 

Sales of sole proprietorships, partnerships, and LLC’s are commonly treated as sales of separate assets.  However, when a corporation is sold the deal can be presented as a stock sale rather than a sale of assets.  This is important because if the corporation sells its assets, sale proceeds will be taxed twice. 

  1.  When the corporation pays taxes and… 
  2. Again, when its shareholders file individual returns 

In contrast, a stock sale gets taxed once, saving on taxes for the seller. 

Tax-Free Corporate Mergers 

If one corporation is buying another corporation, the deal can be done by exchanging strictly stock. Under the right circumstances, this can mean no taxes at all, as long as no cash is involved. 

The Bottom Line 

No matter the size of your business, consult a financial and tax advisor as taxes can eat into the cash you were hoping to get out of your business.  All this is governed by a complex set of IRS rules, which may not always be straight-forward.    



As major investment firms promote their virtuous investments that maximize societal value, while seemingly scrapping their goal of maximizing shareholder value…one must ask:  Is woke capital truly committed and capable of delivering on its heroic quest, or is it simply pandering to social progressivism for profits and PR? 


We live in a day where the undercurrent of mistrust towards institutions is at an all-time high.  Whether it is Wall Street, the Government, or Hollywood…everyone has an agenda, and pointing fingers seem to be the solution for a problem as vague as the umbrella of solutions offered.  Elevated as the root cause that threatens all of humanity’s prosperity…man created climate change…and the fuel propelling us off this cliff of human apocalypse…fossil fuels?!? 


Poverty & Human Development 

It is hard to argue, since the dawn of humanity, that no other energy source has plucked humanity from abject poverty to the precipice of human flourishing, development, and into enlightenment as fossils fuels have.  It has afforded our society the luxury to focus on values that are non-survival related and have enabled more progressive focus on values of equality, social justice, and environmental stewardship.  But tell that to almost half of the world that lacks such luxuries and would kill to enjoy a fraction of America’s energy abundance, and the 1st world values that come with them.   

Countries like Indonesia are moving away from clean energy projects. Credit: Getty Images


Rising energy consumption is tightly correlated with rising income and living standards, historically lifting humanity into the modern world.  Access to cheaper forms of energy is the necessary steppingstone for proper human development, and not a process that should be skipped with more modern expensive options.  


Humanity has flourished over the past two centuries with the average life expectancy increasing from 30 to 70 years, due to the use of machines (technology) coupled with the harnessing of energy (mainly fossil fuels) with these technologies.  But linking historical human development with environmental risk requires a more targeted approach.  Humans suffer from far more immediate local environmental risks, such as indoor air pollution, water pollution and water-borne illnesses, and malnourishment than more long term global environmental risks, such as climate change, ozone depletion, and ocean acidification. 


Over the decades, investment into business, specifically energy and energy technologies, has been a worthy, sustainable, and profitable endeavor whose local impacts can be certainly verified.  In particular, the vision, commitment, innovation, and sacrifice of the fossil fuel industry and the millions of talented employees, has been the irreplaceable and beneficial engine of progress for America.  Doing far more good than harm.  Thus, it is unjust to poorly treat and vilify an industry of people that do not deserve such ire.  Just imagine where the world would be without fossil fuels! 

Two possible agendas can explain this demonization and woke capital mindset.   First, to deflect the public’s perception of Wall Street greed (power and control) and poor performance, it is much easier to use a popular cover narrative (climate change) and perpetrator (fossil fuels) than to accept responsibility.  And why not, when doing so additionally elevates your status and virtuousness.  Second, distracting an investor from reality is profitable…and words like “sustainability” and “ESG” and phrases like “saving the planet” are powerful images and again…profitable. 


Economy & Investment 

Recently the behemoth investment firm, BlackRock, which manages $7 trillion in assets, committed to a multitude of ESG initiatives including substantially increasing its so-called ESG funds, pushing clients to adhere to the UN’s Sustainable Development Goals, and aligning itself with “Climate Action 100+” aimed at improving business strategy with the goals of the Paris Agreement. ESG investing today is estimated at over $20 trillion in AUM or ¼ of all professionally managed assets globally.   


If BlackRock and its sustainability-allies are true virtuous climate believers, why then has it been expanding its firms’ holdings in serial polluting Chinese investments?  As a result, millions of untold investors, through asset managers and their ESG vehicles are helping fund and strengthen the Chinese Communist Party (CCP), and their atrocious record of human rights violations and increasing polluting policies.  Shifting this “new standard for investing” reeks of hypocrisy, misleading shareholder stewardship, and disingenuous profiteering. 


Trends show energy consumption will continue to rise globally in the 21st century.  Modern economies are becoming less materially intensive and more service and knowledge focused, while economy growth rates exceed slower environmental impact rates.  In part, fueled by the cyclical effect of affordable fuels and technologies that enable reducing environmental impact in the first place.  This decoupling effect of human development from the environmental impacts is predicated on more efficient human activity driven by energy, technology, and demographic trends, like urbanization of the planet…not unproven investment theory based on poor scientific, economic, and societal history. 


How can the woke sophisticates in the financial services world and beyond who knowingly underwrite China, and other implied nefarious companies, claim to be genuine progressive ESG loyalists, let alone proponents of justice of any kind? 


Energy & Natural resources 

The history of harnessing energy through technologies is an intertwined dance between the patient process of human activity, fueled by economic investment, but relative to the increasing ability to use natural resources more efficiently.  Americans should know this better than anyone.  The history of harnessing natural resources in this way has afforded America these current modern energy opportunities.  Again, one cannot simply skip steps on its way to maximizing human activity.  Diversifying investment products should favor those with the most eco/cost efficient solutions, relative to the specific stage in that localized process.  Understanding that applying a general global policy to local ecosystems, does not protect the very natural resources they aim to address.  Ordering targeted solutions for energy sources should favor the benefits to human development first, then focus on efficiency of those waste streams and use of natural resources. 


But to suggest that the idea of sustainability investments is the only conceivable path forward, is to infer that historical ones were not.  Not true.  Moreover, little evidence exists that human population and economic expansion will outpace the capacity to grow food or procure critical material resources in the foreseeable future.  And ironically, all modern so called renewable energy is truly neither renewable nor sustainable.  All require exploiting natural resources and underlying technologies.   


This sleight of hand woke capital is trying to pull off is fundamentally nothing more than an attempt to profit and take control of an energy transition.  But victoriously parading around their own virtue and value is good marketing…even though it may be hard to swallow.  Modern so-called sustainable options are simply not affordable…yet…nor remotely as efficient and helpful as advertised.   



For this purpose, let us not pretend that demonizing an undeserved industry, while wrapping itself in the virtuous robe of climate change, is in of itself noble or accomplishes something that it has not done in the first place.  In the last few decades, humanity has seen exponential progress towards once unfathomable human development.  As a proponent of the oil and gas industry, supporting a diversified, efficient, and agnostic energy policy is the most complete historical and economic investment strategy.  Insofar as it uses natural resources efficiently, reduces poverty and increases modern living standards, and progressively balances capital/energy/labor economically, the virtue of investment and economic stewardship should be judged on what it has done and what it continues to do.  Throwing the baby out with the bath water solely on the perceived merits of perception or progressivism is neither responsible nor woke.  Efficient reduction of monetary and environmental waste has and will continue to propel humanity towards the summit of prosperity.  Only then can the luxury of progressive societal values truly permeate humanity as a whole and transform our planet, our ability to steward, and ourselves.  



As Tax Day approaches, and before the ink dries on your check to Uncle Sam, we take a moment to look back at the history of taxes in America...you know…to make you feel better.  So, get your tea bags or some prohibition-style libations, while we reiterate the age-old saying…. nothing is certain except death and taxes. 

But before we dive in, it is important to note that taxes were not always levied on Americans such as federal income tax, the alternative minimum tax, corporate tax, estate tax, the Federal Insurance Contributions Act (FICA), and so on.  Neither did the founders of America desire and intent to design such an arrangement.   

The early colonists had to deal with the British, which imposed a bevy of taxes on the colonists including a head tax, real estate taxes, and the infamous tea tax that led to the Boston Tea Party.   

After the Revolutionary War, the Congress granted the power to impose taxes on the public. States were responsible to collect and pass those to the government, mostly excise taxes imposed on specific goods like alcohol and tobacco. The government also tried direct taxation—taxing things an individual owned. That was not popular, and the feds went back to collecting excise taxes.  And in 1791, Alexander Hamilton’s proposed excise tax on alcohol was enough to prompt the Whiskey Rebellion in Pennsylvania. 


The Civil War led to the country’s first income tax and the first version of the Office of the Commissioner of Internal Revenue—the earlier version of what we now call the Internal Revenue Service (IRS). This office took over the responsibility of collecting taxes from individual states. Excise taxes were also added to almost every commodity possible—alcohol, tobacco, gunpowder, and tea…but this time…without the party.  Interestingly, income tax rates used to apply to everyone based on income regardless of status—single, married, and heads of households. 

The first estate tax was enacted in 1797 to fund the U.S. Navy. It was repealed but reinstituted over the years, often in response to the need to finance wars. The modern estate tax as we know it was implemented in 1916. 

Other taxes as a corporate income tax were enacted slightly earlier in 1909. 


Wars are Expensive 

In 1913, the States ratified the 16th Amendment, instituting the federal income tax where the actual form and directions were a mere four pages…today the total an intimidating 106 pages.  Income tax rates ranged from 1% on income of $0 to $20,000 up to 7% on income over $500,000. 

However, to finance America’s participation in World War I, Congress passed the 1916 Revenue Act and then the War Revenue Act of 1917.  From 1916 to 1917 the tax rate jumped from 15% to a whooping 67%…then finally settling at 77% in 1918. 

Wars are Expensive!  So, after the war, the federal income tax rates took on the steam of the roaring 1920s dropping to 25% by 1931.  The gift tax came about in 1924.  Sales taxes were first enacted in West Virginia in 1921. Eleven other states followed suit in 1933.  


The Great Depression 

The Great Depression was a worldwide economic downturn that began in 1929 and lasted until about 1939.  It was the longest and most severe downturn experience by the Western world, causing fundamental changes to economic policy, theory, and institutions.  But by 1933, the American recovery was in full swing.  But Congress raised taxes again in 1932 during the Great Depression to 63% on top earners…potentially lengthening this recovery progress.  Federal excise taxes on gasoline were implemented in June 1932 under President Herbert Hoover as part of the Revenue Act of 1932.  FDR signed the Social Security Act in 1935. The government first collected Social Security taxes in January 1937.  Dividend taxes were enacted in 1936 but only lasted through 1939. 


WWII and Beyond 

As mentioned before, war is expensive.  In 1944, the top rate peaked at 94% on income over $200.000.  By the end of the war and through the 1970’s, the top federal income tax rate remained high, never dipping below 70%.  Investment dividend taxes reappeared in 1954 and have persisted ever since.  The alternative minimum tax (AMT), a type of federal income tax, was not enacted until 1978, as a way to ensure everyone paid their fair share. 

It was not until The Economic Recovery Tax Act of 1981 that the highest rate was reduced from 70% to 50% and indexed the brackets for inflation.  The Tax Reform Act of 1986 expanded the tax base and dropped the top rate to 28 percent for tax years beginning in 1988.  The idea was that the broader base contained fewer deductions but brought in the same revenue. Further, lawmakers claimed that they would never have to raise the 28 percent top rate…this promised lasted three years before it was broken.   

By 1991 the top rate jumped to 39.6%.  However, the Economic Growth and Tax Relief and Reconciliation Act of 2001 dropped the highest income tax rate to 35% from 2003 to 2010. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 maintained this rate through 2012. 

The American Taxpayer Relief Act of 2012 increased the highest income tax rate to 39.6%. The Patient Protection and Affordable Care Act added an additional 3.8 percent on to this making the maximum federal income tax rate 43.4%.   

Today, the highest federal tax rate is 40.8%.  In context of this article…what’s the big deal?  Seems like a historically low tax rate.  But the difference between today and the past is the wide range of things that ARE taxed.  Actually, it may be easier to list the things that aren’t taxed…like…uhm…air?  LINK  However you split the baby, understanding America’s history on tax will cause you to cry and lash out in a violent rage or you will find ways to cope and develop strategies to take advantage of the complexity.  Either way, certainty is usually a valuable thing these days…and since death is inevitable…inevitably taxes only get worse when Congress meets. 

Happy Tax Day! 


Invito Energy Partners

“…but in this world, nothing can be said to be certain, except death and taxes”. What Benjamin Franklin was suggesting regarding tax, is as old as civilization itself. Take a long gaze back into history, and inevitability staring back at you is the long imposing face of the tax man. From every war, to every ruler, to the birth of Jesus himself; looking at history through this lens may shape the way we think, and feel, about ourselves and the cultures, as we understand them today.


Historically, tax is power to rule and affect human behavior. Limit that power and the effects on that behavior have massive implications.


Take the window tax, introduced by King William III, in England during the 18th and 19thcenturies. It was designed to impose tax relative to prosperity; the more windows you had, the more prosperous you probably were.

These simple property taxes resulted in changes to the daily lives for millions of Britons. Working conditions, architecture, and physical and/or mental health standards radically changed while folks developed ways to avoid the governments long arm into their pockets.


The American revolution, at its core, was a revolt over the oppressive taxation of the people. “No taxation without representation” was the cry. Every conflict from Iraq to the Roman empire was made possible by various taxes in some form.


The modern world today enjoys some of the highest tax rates in history with the average American paying 35% in taxes (UK 45% and France an astounding 55%). As a result, navigating the U.S. tax code has turned into an Olympic gymnastics event. So, what are we to do? If history is any indication, we will do what humans have always done…conform for “the betterment of society” or contort around and away from the long arm of the tax man.


– Invito Energy Partners


This report was prepared for use by advisors as a source of recommendations and a tool to effectively communicate with clients the many methods available to invest in oil. I have advised oil and gas executives for 28 years and our team has over 100 years of collective experience in energy. I hope you find this report useful in your daily practice.
I have addressed each structure beginning with the more straight forward structure (ETF’s) to the more sophisticated structure of Direct Investing which offers the greatest overall benefits to investors.  ETF’s are a simple and passive way of gaining oil exposure. MLP’s generate good yield and are a moderately hedged way to play oil. Royalties provide excellent tax-advantaged yield, are a more direct play on oil prices which can create good opportunities for capital gains.  Lastly, Direct Investing gives investors  significant tax write-offs against their income, tax advantage cash flow, direct exposure to oil prices and the most upside potential of all the structures. There is no right or wrong way to invest in oil, but there are many circumstances which make one method superior to another depending upon the client’s needs.


Oil ETF’s are not created equal – but they all can have a place in a portfolio depending upon the client’s objective. We focus on 4 basic types of oil ETF’s: Oil Price, Upstream, Downstream and Oil Field Services (OFS).


Oil price ETF’s own paper contracts, not physical oil or shares in energy companies and therefore have no long-term place in a client’s asset allocation and should only be used for short-term trading opportunities. Oil price ETF’s can vary widely from USO, which uses very short-dated futures contracts, to DBO which invests in much longer dated contracts.  The shorter the contract, the higher the volatility and potential for large daily price swings.  Depending upon your goal, each ETF (or a combination of the two) can be useful if used properly and in moderation.
Recommendations & Explanations:  
USO: Even though USO has been maligned by the press for its dramatic 84%+ fall in less than 4 months earlier this year, it did what it was designed to do-which is track West Texas Intermediary (WTI) in a normal WTI price environment.  However, when the markets swiftly dislocated, USO was unable to effectively track WTI physical price movement and traded at a steep discount to physical oil.  Investors need to be aware this can occur with any oil price ETF that invests in short dated futures contracts.  USO is the largest and most liquid oil price ETF, which is important when violent price swings occur, but the size and liquidity of the fund will not protect investors from harsh price movements.  Just be aware of the underlying risks when markets turn ugly.  With that said, the pendulum swings both ways and can be an excellent way to invest in the price movement of oil if you believe in oil’s recovery.
DBO: Flying under the radar is DBO. The underlying objective of DBO does not differ much from that of USO – it is the underlying investments that are very different. DBO invests in longer-dated futures contracts which results in much lower volatility and smaller price swings. While both USO and DBO have fallen precipitously this year, DBO has held up relative to its peer, with a 51% loss versus USO’s 84% decline.
USO and DBO are similar in that they are both ETFs and they both hold WTI futures contracts, but that’s about where it ends. DBO uses an optimization process in selecting which futures contract to own. This process involves a cost-effectiveness calculation on DBO’s part. Before its futures contracts roll over, the fund determines which futures contract has the best economics for the investor. At the end of the day, DBO uses a more proactive and analytical process for determining which contracts they should invest.
USO/DBO:  One strategy to consider employing is a blend of both ETF’s which allows more flexibility in trading and taking profits on big “up” days using USO, while remaining in DBO for longer-term exposure to oil price recovery. A suggested split would be 80/20 in favor of DBO.
BOTTOM LINE:  In normal times, oil price ETF’s will move closely with changes in WTI – and if used properly will provide clients with a tool to track the directional price of WTI.   The question is how much volatility can your client handle? As seen in the following chart, DBO is much less volatile and sensitive to daily price movements than USO, but if you believe in the recovery in oil prices, USO will react much faster.  (See Chart).


There are too many ETF’s to count and very few standouts to mention, however there are a select few standouts that do deserve attention which we have broken into 3 categories below:

  • Upstream (Exploration & Production)
  • Downstream (Refineries) â–Ş Oil Field Services (OFS)

Here, the question comes down to bullishness. Upstream exploration and production (E&P) companies are going to see the greatest risk/reward from any uptick in oil prices, whereas midstream transport companies or downstream refiners will provide a more hedged bet. On the E&P side of the spectrum, energy companies are price takers, depending wholly on the price of oil — and they’re leveraged as well — which means their shares enjoy outsized gains when prices are rising, and steep declines when the opposite happens.  
Recommendations & Explanations:  
PXE: The Invesco Dynamic Energy Exploration & Production ETF is the purest play on E&P companies.  Unlike many ETF’s that claim to be E&P focused, PXE is a invests in mostly upstream companies. It is a smaller ETF that gives investors exposure to 30 US E&P companies.  While many sector funds simply assign weights to each stock based on their relative size (e.g., the largest stocks account for the largest percentages of the fund’s assets), PXE does things a little differently. For one, its underlying index evaluates companies based on various criteria, including value, quality, earnings momentum, and price momentum. It also “tiers” market capitalization groups, ultimately giving mid- and small-cap stocks a chance to shine. Roughly half of PXE’s assets are allocated to small companies, and another 36% are in midsize firms, leaving just 14% to larger corporations. Perfect for investors who prefer a more tactical research driven approach.



Refineries are ugly, dirty and typically boring.  However, they can be a great way to play an oil recovery because they are not as directly tied to oil prices. The oil glut we are reading about eventually needs to be refined and refineries will stay busy.  Refineries are buyers of oil from the producers, so when oil prices drop, they can sometimes get a boost from the lower prices since their cost of raw materials (oil) has dropped.   As with any business, there are other factors that will drive profitability, but the largest driver is the price (cost) of oil.
Recommendations & Explanations:  
CRAK: The VanEck Vectors Oil Refineries ETF tracks the performance of refiners, has a relatively low expense ratio of approx. .59% and is the purest play on refineries available to investors.  Refineries are overlooked because they are not “sexy”, but they can be a great addition to a portfolio and used as a hedge against the volatility in oil prices. Consider using CRAK as part of your overall allocation to oil by allocating 15% -25% of your total energy allocation to refineries to smooth returns. As a bonus, the portfolio kicks off a yield of approximately 2%.

OFS ETF’s (Services)

OFS stocks are highly correlated to oil prices and these companies are at the mercy of the capital budgets of the producers – and for this reason and others, the services sector is tough. Cap-ex budgets were already under pressure in 2019 and now with oil prices where they are now, budgets are getting slashed for 2020 and likely in 2021. Producers cannot control the price of oil, but they certainly can try to control what they pay for services, and right now they don’t want to pay much. It is worthwhile keeping a pulse on OFS ETF’s as they are typically the first sector to turn around as oil prices rebound and producers begin to spend money again. Until then, pricing pressure will be an overhang for service providers and OFS ETF’s.
Recommendations & Explanations:  
OIH: There are approx. 4 services ETF’s – and they all perform almost identically. Their strategies are similar, and expenses are within basis points. With that said, we recommend OIH because it is the largest, most liquid, and slightly outperforms its peers.


Appropriate for investors seeking both yield and total return with less volatility than more direct oil exposure. MLP’ have historically been a safer way to play a recovery in oil prices because they are not a direct investment into oil.  However, since MLP’s are in the business of transporting oil and gas through vast networks of pipelines, they typically get “lumped in” with oil & gas companies and tend to rise in good oil environments and fall in bad.  MLP’s get paid a fee for transporting oil and gas through their pipelines, yet they can still carry direct and indirect risks listed below. With all this said, we do not expect oil prices to remain subdued long enough to create any notable issues for the larger better capitalized MLP’s.

  • Commodity Price Risk: Although the majority of MLP’s are mostly immune to commodity price volatility, they still tend to get “lumped in” to the oil category because they still carry some level of commodity risk. For example: Enterprise Products’ (EPD) revenue is approximately 86% fee based.
  • Tenant Risk: MLP’s are mostly protected from commodity price swings, but their clients are not. Therefore, MLP’s could possibly need to restructure existing contracts, resulting in lower income. Some could even go into bankruptcy.

Recommendations & Explanations:  
BMLP: The Dorsey Wright MLP Select ETF (symbol: BMLP) is different from most MLP ETF’s for several   reasons:

  1. BMLP uses the long-proven Dorsey Wright methodology to actively manage the portfolio and add value in terms of both risk and return. Other MLP ETF’s attempt to “hug” the index and not get involved with active management.
  2. BMLP includes only the top 15 MLP’s they deem to be the best vs. the mammoth Alerian MLP fund (symbol: AMLP) which has 23 or more holdings and passive management.




Clients seeking yield and who desire income that rises (and falls) in sync with commodity prices, Royalties are a great play. Not only do they offer an exceptional yield, 15% of the income passes tax-free to the investor. Think of The Beverly Hillbillies and Jed Clampett.  Jed found oil on his property, but never spent a dime to drill and complete a single well.  Instead, for a perpetual stream of royalty payments he allowed others to spend their money to produce the oil – and he received a royalty check for every ounce of oil produced. There are three ways to invest in royalties:
Recommendations & Explanations:

  • Publicly Trade Royalty Trusts (PRT’s)

While most publicly traded royalty trusts are not worth mentioning because their history of    reserve replacements is poor or the reserves are short lived, there are several that should be considered. It should be noted that Sabine Royalty Trust (symbol: SBR) is the only pure play on    oil and gas royalties because it contains no working interests. Below are 2 recommendations:

  • SBR: Sabine Royalty Trust: Forward Yield 61% (as of 5/20/2020)
  • PBT: Permian Basin Royalty Trust: Forward Yield 30% (as of 5/20/2020)
  • Royalty MLP’s

Royalty MLP’s differ from PRT’s mentioned above because unlike PRT’s they actively manage and constantly aggregate minerals resulting in a constantly growing portfolio. It is for this reason Royalty MLP’s offer the greatest potential during low oil prices as it allows them to buy mineral rights cheaply from sellers. Below are 2 recommendations:

  • KRP: Kimbell Royalty Partners: Forward Yield 81% (as of 5/20/2020) *
  • BSM: Blackstone Minerals: Forward Yield82% (as of 5/20/2020) *
  • VNOM: Viper Energy Partners: Forward Yield 81% (as of 5/20/2020) *
  • Private Placement Royalties

For accredited investors, private royalty funds are a more favorable way to invest in royalties. Private placement funds can yield in the low to mid-teens, with 15% of the income passing tax free to investors. There are a few groups that specialize in royalties, but before investing be certain to do your homework to make sure the group you chose is aligned with the investor and structured with a fair and reasonable fee structure.   If you want suggestions for private royalty funds, please feel free to reach out to me to discuss or send me an email.


Tax write-offs, tax-advantaged cash flow and better upside potential.
Thanks to the Tax Cuts and Jobs Act signed in 2017, the already very favorable tax incentives for direct oil and gas investing are even more beneficial as an investor can write-off the tangible costs of wells through accelerated depreciation.  This new tax incentive allows in many circumstances for 100% of an investment to offset AGI in the year the investment has been made. As an example, this means a properly structured direct investment of $200,000 could save your client between $65,000 – $80,000 in taxes on day one. This is an excellent way to add direct value to your clients.  Direct investment funds can also yield in the low to mid-teens with 15% of the income passing tax-free to investor.
Direct investments are the most favorable way to invest directly in oil and gas wells. Key to direct investing is conducting basic due diligence on the sponsor to answer the following questions:

  • Does the sponsor have technical staff with strong operational backgrounds on their team?
  • Are the sponsor incentives aligned with investor?
  • Is the fund structured with fair and reasonable fee’s?
  • Does the sponsor have “Skin in the Game”?

The qualifications of the sponsor’s staff are critical when conducting due diligence.  Are they petroleum engineers, geologists, or land men with prior upstream operating experience?  Or are most of their backgrounds in sales, marketing, and business development?   Without question, you want to align yourself with sponsors who have strong technical teams and decades of oilfield experience as part of their company rather than a team comprised of sales and marketing.
Misalignment of incentives occurs when the sponsor is making a substantial portion of their promote up front before the well is drilled.  It is critical that you can answer the question:  How is the sponsor making money?  Is it from the production of the well like the investor? Or is it upfront from fees before the well is drilled?  Additionally, many funds have high fees due mainly to the fact that they are paying commissions to sales teams.  You should ask the sponsor if there are upfront commissions being paid.
Lastly, does the sponsor invest their personal money directly alongside the investors?  If the answer is “yes”, you can feel certain their interest in the success of the investment being perfectly aligned with that of the investor.  If the answer is “no”, investors should be very cautious.

Bottom line: The tax benefits associated with direct investing offer a unique incentive for advisors’ clients and are an option that should be given consideration in the overall wealth management of advisor’s clients.

If you would like additional information on any of the methods listed above, please do not hesitate to email, call directly, or schedule a call via my Calendly link provided in my email.  You can also access a Tax Guide on Direct Investing by visiting www.invitoep.com and clicking on the Advisor Access tab and registering for access – or you can email me back directly and request the Tax Guide
*Source: Yahoo! finance



David Swearingen