I Was a Struggling Leader Until I Discovered This ONE Key Strategy
This is the description for this episode.
What if your backup plan turned out to be your biggest breakthrough? In this raw and revealing episode
of Executive Connect, Bryan Hancock sits down with Lee Novikoff—founder of Title Petroleum and Title
Group—to uncover how a chance opportunity in oil and gas transformed his life. From almost becoming
a securities lawyer to building a 30-year legacy in the shale revolution, Lee shares insider insights on
drilling strategy, fracking misconceptions, tax benefits, and why U.S. energy independence may be more
fragile than we think. If you’re curious about entrepreneurship, energy markets, or investing in oil, this
episode is a masterclass.

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

00;00;00;00 – 00;00;19;20

One of the three founders of Tidal Petroleum and the sole founder of title group. I graduated from Texas A&M back in 1992 with the focus on Law Securities law. I lived in San Antonio because my fiancee, of course, was from here. She had an uncle that was a retired oil and gas guy. He called me one day and asked me, Why don’t you come over?

00;00;19;20 – 00;00;38;28

We’ll start a little company and we’ll drill a couple of well. Our first well was a vertical well. We bounced around from doing oil wells to natural gas wells because gas prices were high and always low and always high and gas was low as the oil was kept in the poor space of the rock. So you can drill right through the Eagle Ford Shale, and until you frack it, you’re going to get nothing.

00;00;38;29 – 00;00;58;05

You’ve got to break that rock up to let the oil come out of the force base to come to the world with produce. It’s a long process, you know, when you’re looking for new areas. It starts with a cursory search of where other people are drilling. If we see some older production that we think can be re stimulated, we’ll start looking in that area.

00;00;58;06 – 00;01;23;05

Welcome to the Executive Connect podcast. We have Mr. Leigh Nova Cobb from the Tidal Group here today. Leigh, thanks for joining us. You’re welcome. Can you give our viewers a high level of your, you know, how you became you got into the oil and gas business and sort of a brief history of time there? Sure. I let me go way back to when it started.

00;01;23;05 – 00;01;52;00

I’m one of the three founders that’s out of petroleum and the sole founder of tidal Group. You know, I got out of graduated from Texas A&M back in 1992 with the focus on on law securities law investment related. I moved to San Antonio because my fiance, of course, was from here, and the goal was to go to St Mary’s Law School, video Saturn and everything else, and she was still in school.

00;01;52;00 – 00;02;15;15

So I, I got a job to support her because she got out. And then in the meantime, her she had an uncle that was a retired oil and gas guy. He had him and he had a partner that had been in the oil and gas industry through the eighties and into the early nineties, and they had both retired and we got to be really good friends, you know.

00;02;15;15 – 00;02;37;18

And he called me one day and this is a back in yeah, back in 93 I think going into 94 and asked me human is is a partner and a couple of leases that were going to expire and he had this idea of, hey, why don’t you come over, We’ll start a little company and we’ll drill a couple of wells, you know, some shallow stuff.

00;02;37;20 – 00;03;03;16

And of course, I’m 23 years old and my ambition and, you know, my wheels are spinning in and and my thought was, whoa, let’s do this. I don’t know anything about oil yet. You guys do that. I’ll handle that in, though. I’ll open a brokerage house. The tidal group, and, you know, get licensed. Back then, it was it was ENI, it was NASD that was a regulatory body, not FINRA.

00;03;03;18 – 00;03;21;16

So open a you know, a a a broker dealer and haq’s brokers and started manage your money. And, you know, I’ll handle that and you handle this and that in a way we go. So they their whatever they think it was, they’re like, okay, fine, we just want to drill for oil. Well, that was over 30 years ago.

00;03;21;16 – 00;03;49;26

So, you know, in the in the interim, you know, it morphed into quite a bit more than that. Of course, you know, I was the liaison for both companies. I ran the broker dealer solely and the oil company. I was V.P. at the oil company. And I handle all of the, you know, everything between the two. You know, as as things progressed, I ended up taking a bigger and bigger and bigger role in the oil company.

00;03;49;28 – 00;04;17;21

And my one of my two partners, they were both, you know, 20, 22, 23 years, my senior. So one of the partners, he’s passed away now. We are we bought him out. I mean, in fact, we bought him out probably ten, 12, maybe 15 years ago. And then about ten years ago, you know, Pat was ready to retire.

00;04;17;22 – 00;04;45;00

And before he retired, he turned everything to me were, you know, I was I took over the presidential role and I’ve been running it ever since. You know, I bought pad out probably eight, eight years ago, maybe ten. And here we are today. All right. Well, so you kind of come at things from sounds like you wanted to be a securities attorney, but there was a better opportunity that showed up in life and that that’s sort of like your point of view on things.

00;04;45;00 – 00;05;13;15

And you had to learn the oil and gas business from your partners as you went along, ready to lead smarter and invest wiser money. Executive Connect Podcast. We unpack executive strategies for wealth and influence. Hit the subscribe button. Now don’t just watch acts well and it’s not not just from them is from doing it, you know. And I know more about law now than I would have, you know, then if I would have gone to law school.

00;05;13;17 – 00;05;35;07

I feel, you know, we have or I employ on retainer 12, maybe 14 different attorneys. You know, they all have specialties. So when we’re when we’re dealing with the regulatory element, you know, you’ve got to have a securities attorney. You’re dealing with, you know, oil and gas, minerals. You’ve got a a title attorney, a mineral attorney, you’ve got general counsel.

00;05;35;14 – 00;06;03;13

It’s just it’s there’s so many different things. One that specializes in the royal commission filings and then there’s there’s not one size fits all in in any profession you know very similar to you go to a you go to your doctor and if there’s something wrong he’s going to recommend specialist law is exactly the same way. You know, everything you get into, you’re going to have somebody that that’s that’s their focus and that’s where you need to go.

00;06;03;15 – 00;06;35;16

So, you know, I would have greatly restricted my knowledge base if I would have stayed solely just in the securities realm. And, you know, hindsight, I’m I wouldn’t change that. Right. For sure. Well, it sounds like you guys are focusing mainly on the the Eagle Ford Shale at this point. But I know you’ve done projects elsewhere. Can you kind of just walk us through your journey there and how you landed in the Eagle Ford Shale is sort of your focus?

00;06;35;26 – 00;06;58;21

back in one since we started back in 94, you know, our first well was a vertical well going to South Texas. And we’ve been drilling South Texas ever since. In our focus for our clients, El Base was speculation. It was, you know, vertical wells are risky. You know, you might hit one out of five in two or three out of those five were going to end up being profitable.

00;06;58;23 – 00;07;23;29

But they’re very inexpensive. So, you know, one well, if it’s good, can come in and make you three, four or 5 to 1 in the first year. The issue with that is you’ve got a lot of wells that don’t work and you got a lot of dry holes that go along with it. So, you know, we bounced around from doing oil wells to to natural gas wells because gas prices were high and and always low and always higher gas was one.

00;07;24;00 – 00;07;55;24

So we had the flexibility to to to really go into different areas. But from an investment standpoint and a financial portfolio management type standpoint, you know, the goal of these of of a clients account is to work gives to the point where it’ll the funds that it’s generating will afford multiple more investments. So you’ll have somebody come in on the first couple of investments and they’ll take a nice tax write off.

00;07;55;24 – 00;08;22;25

First year income starts, you know, and a lot of the income, 15% of the income was nontaxable. And then with a residual, if they roll it back into another program, you know, it gets written off again and there’s no tax burden. And that would work fine. But on verticals, you know, you get to the point where you’re ready to you’ve made enough income to drill in or the well and then you roll roll, right, and you start all over again.

00;08;22;27 – 00;08;52;00

So and that was what we battled up until 2008 when the shale boom started. I mean, the eagle for shale was was really the, you know, one of the the starts of the the oil shale and, you know, petro hog discovered it or started it and it was you know, the whole revolution started about one one component one is called a frac because you know, we’ve been fracking well since the sixties and seventies.

00;08;52;02 – 00;09;17;00

But it takes you know, there’s only so much power that you can push into down the pipe at the same time. So you’re limited to how much of the formation you can stimulate. It’s a, you know, now or we can easily do 180 foot sections, you know, back in vertical wells. Well, your formations aren’t that thick, so you’re stimulating maybe a 30 or 40 or 50 foot thick formation.

00;09;17;02 – 00;09;54;26

That’s not hard to do. But when you’re drilling these horizontal wells, you might have 10,000 feet. Okay. And in the past, there’s no way you could stimulate stimulate 10,000 feet, you know, so the invention there was this plug where you frack 180 feet, stimulate it, put a plug, do the next 180. We’ll plug in the next one to do a plug, the next one out, you know, So you’ll have, you know, our our current our current prospect that we’re going to start fracking next week is 88 frac stages for wells across 88 frac stages across four wells.

00;09;54;28 – 00;10;18;25

And you know, up until, you know, this technology change, that was impossible. There was, you know, the Eagle Ford was there, but it wasn’t productive. Nobody could figure out how to get any oil out of it. And that changed the entire landscape here in the States. So, yeah, can you our listeners may not be familiar with all the technology and sort of the evolution of that.

00;10;18;25 – 00;10;43;02

I mean, has the the horizontal drilling technology been around for a long time or like what specific pieces of technology made some of what you just talked about possible over the last hour, many years? Are you a high income professional looking for smarter ways to protect your wealth? The Texas Freedom Fund gives you the opportunity to invest in energy assets, leveraging proven fracking technology and prime access to global markets.

00;10;43;09 – 00;11;10;27

With strategic oil and gas investments, you can build real wealth while benefiting from tax advantages under laws dating back to the Reagan era. Take control of your financial future. Visit Texas Freedom Fund DOT Executive Connect Podcast dot com Right Click Right. Yeah, that’s it. You know, we’ve been horizontal drilling has been around for a long time. You know the offshore boom back in the nineties and eighties was all horizontal drilling.

00;11;11;01 – 00;11;36;05

You know, that was, that was very productive. But the difference is that did not need to be stimulated. You know, it was is a big limestone section down, you know, in South Texas and it has cracks in it and oil’s migrated up through the eagle from the eagle for shale into these cracks and you know they will go let’s say the cracks run like this up and down.

00;11;36;08 – 00;11;57;00

Well, instead of drilling vertical wells, trying to hit these, they would come down and they would drill sideways. And several and that’s what made it productive. But it did not need a stimulation. Now, the shale is you know, it’s the oil is kept in the force base of the rock. So you can drill right through the eagle for shale.

00;11;57;06 – 00;12;22;10

And until you frack it, you’re going to get nothing. You’ve got to you’ve got to break that rock up to let the oil come out of the course base to come to the world to produce. So the you know, the ability to frack a long lateral, if you just drill a a vertical well through the eagle for shale, your shale section might be 50 to 60 feet thick.

00;12;22;12 – 00;12;50;20

And you’ve just frack that you’re not going to making money. You’re it’s going to be terrible. But if I turn and I drill 10,000 feet a frack the entire 10,000 foot interval, now we’re talking about some some good recovery rates. Yeah, I know that this is new technology and drilling in the shell formations is is you know, that’s been pretty revolutionary, at least for domestic production in the last however many years.

00;12;50;20 – 00;13;13;17

Can you talk a little bit about the, you know, how this plays into the domestic production here and, you know, America’s energy independence and, you know how much we’re producing relative to other countries now, which I’m true. A lot of people that sound like it know they don’t know about it as well. I mean, right, right now, you know, we are producing more than we’re consuming.

00;12;50;20 – 00;13;13;17
And it is because of shale, because of the Permian, which is which is completed and produced The same way is because the Eagle for the Bakken shale, all of this has come from this technology and this is us producing and extracting oil from our resources up. It’s limited your army, energy independence is going to last about this long, right?

00;13;38;20 – 00;14;11;01

It’s not there forever. It’s you know, we’re drilling the the hardest, most expensive formation to drill, which is shale and to stimulate. Nobody else is doing that. Nobody. We’re scraping the bottom of the barrel. We’ve we were able to scrape it very, very well, very productively at this point. But it’s limited. You know, the eagle for now technology changes and improvements have helped our recovery rates, which have kept our production going.

00;14;11;04 – 00;14;48;27

But most of the core areas are already drill. Most of the core areas in the Permian are already drilled, which is where all of this increased production has come from over the last ten years. So it’s getting harder and harder and harder and more expensive to find. I don’t see this continuing unless, you know, we find a some new undiscovered huge formations somewhere in the United States that nobody knows about or if, you know, the light bulb goes on somewhere and somebody invents some new incredible technology that’s going to increase our recovery rates in these old oil wells.

00;14;48;29 – 00;15;16;05

You know, they have and they have improved over the years from a maybe a 2% recovery in the Eagle Ford when we first started to we might be as high as 6 to 8% now. But, you know, still most of the oil is left in the ground because it’s you know, we can’t get it out. Yeah. So to that point, you know, there’s probably a lot of factors that go in the projects that you look for, you know.

00;15;16;08 – 00;15;36;04

So can you walk us through, you know, how you identify a new drilling location, What’s the anatomy of a deal? And then, you know, minimum property size and how you negotiate the lease and all that goes together. I know a lot of folks are watching this new Land Man series on It’s not HBO, whatever. I think it’s on Amazon or something like that.

00;15;36;04 – 00;16;00;15

Paramount was the town of Paramount. I watched it. Do I agree? It’s extremely or maybe it it’s grossly inaccurate, but it’s it’s very entertaining. I don’t know if there’s a some of the times when he gets on a rant, you know, when he talks about windmills or whatever. Right. That’s great. You know, some of that is accurate. You know, he’s taken his point and things like that.

00;16;00;15 – 00;16;23;26

I really get a kick out of it. But all of the drama of, you know, the plugs blowing up and all this stuff, no, that happens when a man doesn’t have a mile. For instance, here’s here’s the biggest you know, you know, he’s supposedly the land man and, you know, the rig blows of the bond. Jack blows up and he runs the truck and gets five prints and goes over there and fixes.

00;16;23;28 – 00;16;52;14

Well, you know, my my head of land, you know, basically my Tommy from my company is a blond hair polish woman. This is tough. And he is that drives a Porsche. And she lives in Denver, right? It is. It’s not. It’s not it’s it’s not like that because, you know, they’re negotiators. I mean, she doesn’t have anything to do with a well pumping or producing or workovers or anything like that.

00;16;52;16 – 00;17;15;07

You know, she is she’s out there hunting prospects, you know, day in and day out, dealing with landowners, negotiating leases. That’s that’s what she does. You know, you got to go to the engineering side when we’re talking about maintenance of wells and and issues. And, you know, we’ve never had any issues with cartels. But, you know, that pretty entertaining as well.

00;17;15;09 – 00;17;39;28

So that’s some of the differences. And, you know, and not that it’s again, it’s TV. It’s TV and it’s a great it’s a great show. And I do watch the finale last night that I am one certain you know, the the the method of hours were, I guess, you know, the evolution of of a program and in from start to finish, it’s a long process.

00;17;39;28 – 00;18;14;06

You know, when you’re looking for new areas you know it starts with a just a cursory search of where other people are drilling. You know, if you see a lot of activity in one area, we’ll start looking around in that area. You know, if we see some older production that we think can be stimulated, we’ll start looking in that area and when I find an area that might be that might be interesting, you know, the first thing that I use, it all comes down to a spreadsheet.

00;18;14;07 – 00;18;37;25

It’s all fun, Angel. It’s like, okay, what are these also wells producing? What’s it going to cost us to drill out there? What’s the extraction? Right, You know, what’s my bang for my buck? How much? All per foot per calls can I get? Is this going to make us any money? And if if it, you know, I would say eight out of ten that I’ll look at never get past there.

00;18;37;28 – 00;19;11;19

If the ones that do, then we go to the next, you know the next level, which is a cursory search of are the minerals available or the minerals open. And if they are, you know, the geology is working along the same time to look for faults and, you know, sand thickness and things like that. But we’ll start talk to the mineral rights owners and then we’ll see what they want is for, you know, leasing goes and we’ll see if we can’t make, you know, make a deal.

00;19;11;21 – 00;19;41;11

Now, a lot of these these no leases at this point when we’re talking about long horizontal laterals, it’s not just one mineral rights. There’s several. You know, we have had areas where we’ve had to put together 70 different mineral rights on to make one unit to, you know, 2 to 4 drilling prospect. And it takes anywhere from a year to some over three years.

00;19;41;13 – 00;20;06;04

You know, I’ve got some programs I work in where the first leases, you know I took three year leases and I’ve had to extend those leases because I don’t have everybody else, you know, And every every lease, let’s say I’m putting together a 700 acre unit within that 700 acre unit, there might be 15 or 20 different parcels of land that I have to put together to make this unit in.

00;20;06;04 – 00;20;30;00

Every single one of those parcels might have 15 to 20 different mineral rights owners is the, you know, the great grandfather owned it or grandmother owned it, and he or she facilitated the four kids and then some of those kids passed and left it to for other kids. So it’s a lot of work that goes along with, you know, chasing who owns the minerals.

00;20;30;02 – 00;20;55;01

You know, when were they left? Were they documented correctly? Is a lot of legal work to put a microfiche to go and then once once that happens, you know, we create a a security that is, you know, we’re going to drill four wells on this partial is going to take us $50 million to drill this. We’re break that up into shares.

00;20;55;03 – 00;21;26;04

We’ll bring the shares over to the to the brokerage house. And then they get marketed, you know, to our Kleinfeld base. And, you know, we’ve got clients and I think we’re elections in 47, 48 states, and we’ve been managing clients money since, you know, the early nineties. And we’ve got different clients there look for looking for different things and that’s okay So can you can you I don’t think people or maybe some of our listeners are super familiar with working interest versus mineral rights owners versus the lease holders.

00;21;26;06 – 00;21;43;19

They kind of how the pie gets divided up between those folks. Can you maybe walk us through how that normally works or up for? It probably varies a little bit by project, but the general structure is probably largely the same. Yeah, it is. I mean, there’s two things that you have to to to realize in oil and gas, there’s two different types of interest.

00;21;43;20 – 00;22;09;17

You’ve got mineral interests and you’ve got a revenue interest or working interest, I should say working interest in revenue interest. Working interest is the cost of development. It’s what it takes to to to drill the well. Revenue interest is what the oil pays. So if we go lease a a parcel of property and let’s just say it’s for one person, well, they own the minerals, they’re theirs.

00;22;09;19 – 00;22;34;22

So if, if, if we want to extract those, we have to give them a piece of the pie in the eagle for generally it’s about 25%. Go straight to the to the mineral rights owner with zero cost. So he gets a 25% mineral interest ownership overriding royalty on whatever the wells produce. And he doesn’t have to pay a dime to to develop these minerals.

00;22;34;22 – 00;23;10;27

He doesn’t have to pay drilling costs. You you’re not paying it because there he is the owns. They don’t when we come in, we’re paying all the costs, okay, 100% the cost, and we get 75% of the revenue. So that’s that’s the structure. And, you know, the the company will normally take a we’ll offer a 70%, you know, since we’re spending the time to put it together, the risks and all this, we’ll take a a royalty interest as well and we’ll offer 70% to the clientele base.

00;23;11;00 – 00;23;30;23

We get five I mean, we buy working interest just on the same basis as they do as well. We’ll put partners in the rest or go drill it and and what a produces it produces. Right. Okay. They can walk everybody through that. You know, one of the main things that attracted me to this sort of investment was the tax benefits.

00;23;30;23 – 00;23;54;04

So, you know, believe it or not, I grew up in Austin. I’ve been here almost my whole life and I’ve never heard of this, which is, you know, I think people have a picture in their brain about what Texas boys look like and you know what they do and don’t do. But can you just walk us through a little bit of the the I.R.S. codes, you know, the main ones and then, you know, like the lineage?

00;23;54;11 – 00;24;21;16

My understanding is a lot of the stuff got enacted in 86 when they were trying to encourage drilling. We had there’s a there’s a a couple of the to me, there’s two main code. One is the intangible drilling deduction. If it’s it’s if it’s domestic. And what that states is if you’re investing in developing minerals in within the United States, you can take 100% of your intangible drilling calls is a write off the first year.

00;24;21;19 – 00;24;43;21

What that means is, you know, your if I spent $10 million on a drilling venture, intangible drilling cost, I can take that $10 million in writing directly all my books is a loss of that that year. So instead of, you know, paying tax on ten and I’m left with six 6 million, I end up taking that entire ten and investing it.

00;24;43;27 – 00;25;13;06

I’ve got no tax consequences to pay on that on that. The profit that I would have had if I haven’t invested it. So that’s that’s one part is is the money comes back of course it gets taxed, but it doesn’t get taxed at 100% rate. The other part of this is called small producers depletion allowance. You know, back in the eighties, you know, they did some studies when they were trying to increase production here in the US.

00;25;13;08 – 00;25;32;27

And what they discovered is the majority. Now, this isn’t the same now, but back then the majority of the production in the United States was calling from was produced from something called the stripper world. The stripper world is a little well, it produces less than ten barrels a day. You know, the problem with the stripper well is, is you’re you’re barely breaking me.

00;25;33;00 – 00;25;55;16

You know at if you’re if you’re Wells Mega ten barrels a day and you have any problems with it, if it goes down, it’s going to take three or four months just to get back to you. End of the black. So they wanted to encourage these small companies, not Exxon Mobil and Texaco and all this. They want to encourage these small companies to keep all these little oil wells run it.

00;25;55;18 – 00;26;25;04

So what they enacted is a small producers depletion allowance. And what that says is 15% of your gross income from from oil from a well can that’s considered a stripper. Well, is nontaxable. Okay. So you had to be a small producer with a small producer. They defined as is is you know any producer that was producing less than the total production with everything they own over a thousand barrels a day.

00;26;25;06 – 00;26;47;24

Now these Eagle Ford wells alone 2000 rolls that so you know, EOG or Conoco or Texaco or whoever drills one of these is just one of these wells. Not every well, they own just one. Well, it’s going to be overzealous morals, but that’s the case. It doesn’t apply to you. Now, when we put this package together, when you look at the tax code, any working interest owner is considered a producer.

00;26;47;27 – 00;27;09;27

So what that does, it goes back to him is if he owns 1% of this program, then his 1% has to be over that thousand barrels a day threshold for him to be, you know, for him to be excluded from that tax benefit. So all of our clients, when we put this program together, they’re put in as active owners.

00;27;09;28 – 00;27;41;14

You know, they’re indemnified from things going wrong. We’ve got insurance and then all of that. So there’s a lot of protections to for liability with the clients. But from a tax standpoint, it’s active. It comes off of their ordinary income tax the right off those the ABC code and then the depletions the same way. So when it comes back to them, the income comes back to them, they’re able to take a 15% deduction on gross income with no tax consequences.

00;27;41;16 – 00;28;06;28

So, you know, we’ll we’ll have clients that will come in and they’ll invest whatever they’re comfortable with. Let’s say they do, you know, $300,000 the first year. Well, they’ll get to take that 300 most of that 300 is a write off the primary year. So that’s going to put their out of pocket somewhere and one 8180 range for 300,000 investment because they get the tax tax real the next year.

00;28;06;28 – 00;28;37;07

So these three wells produce a half of that. They produce 150,000, well, 15% of that 150,000 they get to put straight into the pockets. So $17,500, whatever that they get to take the zero tax consequences if the rest is rolled in. It’s written off again in the third year. Those four will go for inspiration. Those four wells will produce enough hopefully to drill one more or maybe two more wells, and it’s the same process.

00;28;37;10 – 00;29;02;22

So at some point, if these wells continue to produce and the rate of return is is is what we look for it to be, you know, they’re they’re broken even by their original investment, which we calculate is about 180 just them of the 300 just with a depletion allowance and now they’ve got 15 properties producing four. So that’s the that’s kind of the goal was kind of like push the snowball downhill.

00;29;02;24 – 00;29;22;26

But when it starts to gain speed and then you get to the point where it just continues to roll, you know, we have we have clients now that have been I mean, they’ve been rolling with us for, you know, other 100, 400 programs in a row. And, you know, they’re just sending back the the revenue that is generated by the wells.

00;29;22;26 – 00;29;43;05

They own and it continues to grow. So it takes a while to get there. But that strategy works where when with the older wells, where you’re worried about rails wouldn’t get there, you know the negative to the Eagle Ford is are extremely expensive. The positive to the Eagle Ford is they produce very well. They last a long time.

00;29;43;07 – 00;30;04;29

And risk wise, they’re they’re one of the safest formations that you can draw. Right. Well, let’s talk a little bit about fracking, because I’m not sure that everybody that’s listening really knows what fracking is. And I think that they probably have a lot of environmental thing, you know, bells and whistles that go off in their head because they’ve heard certain things.

00;30;04;29 – 00;30;30;01

So can we talk about a little bit about the lineage of that and then also how it plays in the water tables and, you know, all the concerns that people normally have, everything that they think they know about fracking is wrong. It really wrong. It’s it’s like watching land, man. It’s it’s all fictitious. Most of it is is just meant to to generate a response from people.

00;30;30;03 – 00;30;59;24

The news media likes to do that sometimes all the time. But the way Rocky works is, you know, the Eagle Ford, for instance, you know, we were pumping fresh water, not salt water, not acid, not nuclear or reactive anything down into the formation to just break it open. We’re trying to create Rock City where there’s cracks that or the oil in the product that’s in the formation can flow and come to the wellbore.

00;30;59;27 – 00;31;21;17

You know, when we’re worried about the fresh water table, these wells and again, I’m you know, we’re talking about south Texas here, this this this formation, are we have one of the deepest freshwater tables in the United States, which is the chorizo that goes down deep. This is about 4000 C, So everything below 4000 feet is saltwater. You know, you’re not you’re not drinking it.

00;31;21;17 – 00;31;45;13

It’s not drinkable. So that’s what we have to protect when we drill these wells. You know, we will drill down through the the water table, down past 4000 feet. And this is all regulated where you have to set your surface casing and it will put a nine and 5/8 piece of pie in the hole cemented in down past the fresh water.

00;31;45;15 – 00;32;08;07

So nothing that ever happens and that’s drilled with fresh water in the first place. So now you have your your fresh water table totally isolated from that point. Most areas in the Eagle Ford, you don’t need intermediate. So we’ll drill another hole through the middle of that will go all the way through the lateral to 20,000 feet of where it is going, the horizontal leg.

00;32;08;09 – 00;32;32;18

And then we set a piece of five and a half. I say a one piece, eight 20,000 foot, a set of 5/8 case or a five and a half inch casing and cement that to surface. Now, the Eagle Ford formation is in there. It’s on average, I’d say it’s about 10,000 feet. In South Texas. The fresh water table is at 4000 feet.

00;32;32;21 – 00;33;02;18

Now, when we’re fracking these wells, everything is behind pot. So there’s there’s no way to get into the fresh water table from the wellbore is going to have to be seepage from the formation on top of the eagle for you have a formation called the the Austin Chalk, which is a 700 foot thick, solid limestone shelf. So we’re fracking a 10,000 foot, sometimes 11,000 foot deep, a section of rock.

00;33;02;20 – 00;33;26;18

When we frack this, we’re looking for the frack to extend from the wellbore maybe 150 feet in each direction. Okay. That’s all the power that you’re giving it. That’s as far as it’s going to go. The 150, maybe in summer, you’ll get 200 feet in each direction. Well, a lot of people think that this is going to contaminate the fresh water table.

00;33;26;20 – 00;33;54;25

So when I’m pumping something that, you know, has a certain amount of fluid that’s that we’re looking to go out 150 feet in each direction, It’s impossible for that to permeate, you know, 700 foot of solid limestone and travel, 6000, 7000 foot through all these various rock formations to get to the freshwater is impossible. It can’t happen now.

00;33;54;25 – 00;34;13;29

If we were fracking areas that were within the water table. Okay, I can make an argument there. You know, if if let’s say there was some formation at sitting right on top of the creek, so 3800 feet. And we go in there and we put a big frack on that. I could see that getting into the fresh water type.

00;34;14;01 – 00;34;40;28

But down here, it’s it’s not the case. That’s not what happens in these fracs. We’re fracking with fresh water. So yeah, it’s the you’ll hear a lot about I’ve heard many times about causing earthquakes. I’m sure you’ve heard that in Oklahoma they had this much earthquakes because there’s a bunch of drillers out there that wasn’t even the frack.

00;34;40;28 – 00;35;13;29

So that was water disposal. You know, the state stays in charge of of, you know, where they dispose of not just frack water, but but any water produced from all the gas. They pump it back down into the formations and different wells and, you know, is put back in there based on what the the state ordinance requires. Well, you know, if if the state’s making mistakes and they’re having them put too much water in in areas that are near fault lanes, it could cause some things like that.

00;35;13;29 – 00;35;42;05

But it’s got nothing to do with fracking. Yeah. So, Lee, I think most of these projects you’re talking about are multi well projects, right? So how do you goals, how do you think about how close you put the fracking? I don’t know what you call them, the stages, the wells to each other because you mentioned 150 or 200 feet is about how how far the the fissures from the explosions and things like that are going to happen.

00;35;42;07 – 00;36;00;08

How do you guys think about that in general? And I guess how does the industry think about it? Basically, it depends on the area. You know, some area of warranty, if if it’s if the Eagle Ford is thicker, the sweet spots thicker, you know, they might have spacings from Weld well down to 250 feet. I’ve seen them as tight as 120.

00;36;00;08 – 00;36;34;18

But that was early. Our fracture bigger now so we may have to worry about that. Some areas will warrant 300, three or 50 foot apart, which is pretty tight. Some are 500 foot, some are 750 foot. It just on what you think your frac coverage is going to be, because the last thing that we want to do is rob from Peter to pay Paul like if I can have a if I can drain efficiently 700 acres with four wells, well, I would rather do with four wells than six.

00;36;34;20 – 00;36;57;26

Right. Because six wells are going to cost me another $12 million. So that’s the key. And where the Eagle Ford is really gone and where the rate of return is in the Eagle Ford, you know, we can’t affect oil prices. They are what they are. But the advancement is of it’s been more along the lines of cost management.

00;36;57;29 – 00;37;21;25

You know, if I drill four wells at the same time versus one, it’s it’s much more efficient because I’ve got the same equipment out there. I’ve got one real one pad. You know, the it’s easier on crews, as usual, rental equipment. It definitely saves definitely saves money. It gives me some benefits, too, when I’m racing. And lateral length is the same thing.

00;37;21;27 – 00;37;49;01

You know, for instance, if I have aa5 thousand foot lateral, you know, I’m drilling down 10,000 feet and I’m turning I’m going 5000 feet out, I’ve got to sit. Cause if I drill 10,000 feet out versus 25,000 footers, well, I’ve only got one vertical hole versus two. I’ve got the same amount of exposure to rock and the one 10,000 foot well, as I did in the the two fives, but it probably saved me 30%.

00;37;49;04 – 00;38;10;10

So it’s is more in the future morphing to how efficiently and how well can we control cost which increases our rate return. Okay, so now we got the we got everything fracked. So I think the next stage is we got to have the flow back and, you know, we got to we got to get the wheel out of the ground.

00;38;10;10 – 00;38;31;04

So can we talk a little bit about that and how you monitor production levels and what’s involved in separating the wolf from the gas? And, you know, basically how do we get the oil back up out of the ground at this point? At that point, you just open the spigot. Now, there’s a bunch of equipment, of course, on the on the surface, you know, to handle the pressure and handle the fluid where.

00;38;31;04 – 00;38;55;15

It’s going when you first open a well up, you’re very over pressured because we you know, we just frac the well. We pump, you know, 10,000, £11,000 of pressure in it. So you’re flowing rates are really high now for the first, you know, 30, 45 days they’re going to be hot. So we will have a crew on site 24 seven to monitor the flowback once the well calms down.

00;38;55;15 – 00;39;25;15

And it is more manageable than we have surface probably already installed, but surface facilities get hooked up and calibrated where the you know, the oil and the gas and the water coming out of the wellbore goes into a separator. The separator sends water to the water tanks, all of the old tanks, the gas down gas line. And then we have a a what’s called a gauge or go out every day, you know, check the well, make sure everything’s fine, Measure the tanks.

00;39;25;15 – 00;39;53;29

Let’s just know what the oil tanks, if it did in oil production yesterday, what did water what it didn’t gas. There’s some some areas, if you have multiple wells, you can set up some, you know, electronic metering equipment where you can check on your phone or your computer or whatever. And it’ll tell you what that well is doing on a real time basis.

00;39;54;02 – 00;40;12;17

Most wells don’t need that. You know, if I’m to the point where I’m seeing that I’ve got a flowback crew. So once you get them up and running was, you know, we want somebody to go out there and check it every day just in case there’s a problem or something leak in it or something that doesn’t look right.

00;40;12;20 – 00;40;31;08

If the well goes down, then they call they call back to the engineering at the office and say, Hey, this, you know, the compressor shut down or the you know, the separators fill sand. You know, we’ll send a crew at there. Friction. Okay. So now you got the oil back up to the surface and, you know, how do we get it to market?

00;40;31;13 – 00;40;54;16

You know, what is the what does that process look like? And then, you know, can you just walk us through maybe a timeline of a an overall project, the to market most of the time, the bigger companies will have oil pipelines, the bigger companies in some areas, if they have a lot of production, you know, they they’re just putting oil into the pipeline.

00;40;54;16 – 00;41;19;01

And then the oil goes to the refinery. In the vast majority, they go into tank batteries and then the buyer picks it up and the tank battery sends a truck out, drains it out of the tank, and then takes it to takes it to market, takes it to the refinery. You know, when a buyer picks up oil, it soon as it does, it hits their truck is theirs is their responsibility.

00;41;19;05 – 00;41;42;13

You know, if they crash on the road, we’ve got you know, we’ve got no liability whatsoever. So it’s you know, we take it out of the ground. We put it into our tanks. When it leaves our tanks, it’s so it’s theirs. Fill up 66 is who we sell most of our oil to. Not always, but you know, we can vary that contract if it if it helps us financially.

00;41;42;13 – 00;42;10;24

But they’ve done they’ve done well yeah we let them know how often how many trucks when to do pickups things like that. The end of the month they send us a check on how much oil we’ve sold and it normally takes 45 days to to get paid for instance, you know, production that we sold in December. We’ll get a check on about the 15th of February.

00;42;10;26 – 00;42;30;04

Okay. All right. Yeah. So a normal project, you know, is, you know, from investment stage, from a investors point of view, from investment stage to when they get paid, you know, if they were to invest in one of your projects is this is roughly a what how long of a process. I know it depends on the size of the well and some different things.

00;42;30;06 – 00;42;55;28

What is it just stuck with the normal timeline like, yeah, it’s from the time the the client purchases, you know, you’ve got the, the funding process where we’re placing people in the program. It normally takes a couple of months after that. We’ve got to drill it. Now if it’s if it’s a two well versus a four well versus a seven well program, that’s going to vary the time, of course.

00;42;56;00 – 00;43;26;13

So, you know, let’s figure 14 days, which is a really good clip per well, you know, if if we’ve got four wells out there, you’re looking at two months of drill time. So you’ve got two months of funding, two months of drill time after the well is drilled, we call for the completion phase, which takes another couple weeks and you’re probably looking at close to four months, three weeks, maybe of fracking before we start flowback.

00;43;26;16 – 00;43;49;15

As soon as we start flowback, we’re seeing product or very soon thereafter, that product’s going to be 45 days until until the clients can see it check. So two, three, four, four months. There’s five, about six months. There are most prevalent. Yeah. And that’s, that’s if they’re the first ones in from writing a check to receiving check will be about six months.

00;43;49;15 – 00;44;22;00

Sometimes it’s quicker than that, but generally that starts finish. That’s pretty, pretty solid. Okay. So Leigh, what innovations do you see in the industry? Like what are you excited about over the next? However many years? Technology wise, I’m not really seeing much. I’m not what what we’ve seen out in the field is we’ve got a lot of larger companies picking up the medium sized guys and they’re, they’re more disciplined.

00;44;22;02 – 00;44;43;19

So I see a stable oil price from that. You know, Conoco has got so much in the Eagle Ford now and they’re now going to drill, drill, drill, drill, drill. You know, they’re not that they would rather drill half as much, $78 than overproduce. And it will drop to 60 where they’re barely making a profit. So I see that going on.

00;44;43;21 – 00;45;04;24

As far as technology changing in the field, I don’t I don’t I don’t really foresee a lot. You know, there will be some efficiency improvements here and there. But I don’t I don’t see a lot change in from a frack standpoint or from a drilling standpoint. I don’t you know, we’re seeing the the the drilling rig count continue to drop.

00;45;04;26 – 00;45;29;03

We’re seeing the frac crew count continue to drop. So, you know, we’re not ramping up. I say things are slowing down. You know, we are producing more per well now in a new world than we used to. But again, you know, it’s I don’t see supply increasing in any drastic grade any time in the near future. All right.

00;45;29;03 – 00;45;54;11

Well, you know, I know that a lot of the listeners probably are thinking about green energy and, you know, nuclear energy and alternative forms. They hear a lot about this in the news. I mean, what what do you see, domestic oil production? How do you see that playing into our energy future and like how it plays out, you know, worldwide where oil has a built in inflation factor and so does every other type of energy.

00;45;54;13 – 00;46;19;15

You know, nuclear I agree for electricity is great. When you talk about solar, when you talk about wind, they’re just they’re not efficient enough. They’re they’re not they don’t make enough for the cost to make them viable at this point. You know, if you take away the you know, the artificial incentives from the government, it’s it shouldn’t even be in the conversation, to be honest.

00;46;19;18 – 00;46;40;22

But what will change that is oil prices. You know, when we get to a point where oil supply gets less and less and less, demand keeps going up, demand will keep growing because we keep, you know, increasing the size of the world. We’ve got more people, we’ve got more people driving, we’ve got more businesses. It’s now going to go down.

00;46;40;22 – 00;47;06;13

Demand’s going to go up. Supply is the problem is keeping supply where it’s at, much less expanding and is going to be difficult. So when oil prices get to be, you know, they’re going to inch up to at some point, maybe not in our lifetimes. But, you know, you got $182, $200 a barrel for oil. Well, now a lot of these other forms of energy start to become efficient.

00;47;06;15 – 00;47;33;15

You know, it’s that rate. You’ll see more solar and you’ll see more wind. And hopefully by then they’ll make a more efficient. That’s the only thing that’s going to transition us, to be honest, into a, quote, greener energy is the price. Let’s it yeah because you can go ahead. Yeah. So what’s the one thing you wish more people knew about the oil industry?

00;47;33;17 – 00;48;17;06

Well, what I’ve learned from, you know, dealing with with CEOs in every type of industry out there is what I think I knew about every industry is so far from the truth. So I guess respecting what you don’t know would be would be a wonderful thing if everybody could do because it’s really easy to you see it all as I’m on the on news where you’ve got somebody sitting at a gas pump to a reporter complaining that you know that gasoline this is $2.95 while they’re holding a bottle of water that they paid $4 for.

00;48;17;08 – 00;48;41;29
And, you know, oil is you got here the state taxes it, you know, $0.60 a gallon. You’ve got exploration costs, you’ve got refining costs. You’re trucking all your trucking gas. You’re refining it into gasoline and you’re running that is and all of that. And, you know, it comes to a pump at $2 or $0.09 a gallon is incredible.

00;48;42;02 – 00;49;09;01

I mean, it’s absolutely incredible. But of course, you know, nobody really sees all that. Nobody sees what it takes to put it to where it is in the efficiencies that are in place, place to get there. They think that, greedy oil companies are making all this money and they just want to stick it to the consumer where the vast majority of oil production is coming from private companies.

00;49;09;03 – 00;49;47;12

But and, you know, in sometimes their you know, their rate of returns or their stock price is doing well and their dividends are great, other times it’s the absolute opposite. And it’s just it’s it’s tanking. So once you level it out, it’s you know, it’s pretty normal compared to most other industries. But oil and gas does have you know, most people will say the highest highs and the lows, lows either, you know, you can’t grow fast enough, you can’t sell olive oil because the price is great or it’s the other way and you can’t even make a profit.

00;49;47;15 – 00;50;02;01

So it’s managing chaos is what it is. There you go. Wylie, I’d really like to thank you for coming on today. Absolutely. I enjoyed it. Yeah. Appreciate the time. That’s Executive Connect podcasts. Thank you.

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