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
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.