It has long been a closed industry to most smaller investors, but energy is now open to more of the crowd thanks to technology, regulation and market conditions, Casey Minshew believes.
Mr. Minshew is the COO at EnergyFunders, a fin-tech platform focused on disrupting how people invest in oil and gas. Started in 2013 with the belief that removing barriers to entry would lead to strong investor demand, EnergyFunders is actively raising money and funding projects.
Recent and historic vents both conspired to leave a void in the energy investment sector, Mr. Minshew explained. Tax regulations passed during the Reagan administration and added to since allow oil and gas investors to deduct 100 per cent of their intangible drilling costs in the year they make the investment while tangible drilling costs can be depreciated over seven years at which time 100 per cent of that cost can be deducted.
As oil prices plummeted after the recession, the number of projects dropped and traditional investor sentiment withered.
This made it the perfect time to disrupt the entire program of how energy projects get funded, Mr. Minshew said.
Because of the security provided by the bevy of tax advantages, many investors’ activities in the space were focused on the write-offs, with (any) profits being a nice bonus. Knowing this, operators and promoters would seek more funding than they actually needed for the project, with the surplus guaranteeing them their profit.
“That is not fair to investors,” Mr. Minshew said. “We looked at equity crowdfunding and asked what if we could come into the industry and disrupt it while bringing in more transparency?”
Founders Philip and Michael Racusin saw an opportunity for accredited investors with smaller sums than the typical $50,000-$100,000 buy-in needed for one project. That sum discouraged the smaller investor, who did not have enough money to properly diversify within the sector.
“If you didn’t have a good amount it was hard to get in the four or five deals needed to get proper diversification,” Mr. Minshew said. “Now if they have $50,000 to invest they can spread that over five different investments covering different markets, areas and geologies.”
Because the energy sector has long been closed to the smaller accredited investor, EnergyFunders prioritizes their education, Mr. Minshew said.
They publish regular blog articles and speak to every investor upon registration to gauge their knowledge level and to answer any questions they have. The post data on app projects and host live webinars where each project is discussed in detail.
EnergyFunders vets proposed deals in several different ways, Mr. Minshew added. In addition to document collection, they have independent engineers assess the project. Background and reference checks are also completed.
“We’re looking at conventional projects,” Mr. Minshew added. “Shallow vertical wells at less than 3,000 feet. We’e not considering horizontal fracking projects.”
The norm is for one deal to be promoted at a time. New ones are offered every six to eight weeks, Mr. Minshew said, while adding roughly 70 per cent of the Houston-based company’s projects are in Texas with the remainder spread across Kentucky, Kansas and Indiana.
Accredited investors considering the energy sector need to be patient, Mr. Minshew advised. Some projects take more than one year of groundwork before they produce a drop. Multiple wells could also be involved.
But their patience could soon be rewarded, Mr. Minshew believes. The incoming Trump administration wants to work toward energy independence. Producers have learned valuable lessons from the price downturn too. More projects are modeled on a $45 per barrel price and some projections have the per barrel price reaching $60 by spring.
Newer technologies are another factor, Mr. Minshew said. They make it profitable to extract oil that was left in the ground when the per barrel price was much higher.
Mr. Minshew points to the lessons of history to back his belief that higher prices are inevitable. After both of the historical recessions from the past 80 years, prices quickly shot back up, along with demand. Rig counts also don’t rise overnight, so supply needs time to catch up with demand, thereby pushing the price higher.
“It’s a cyclical business,” Mr. Minshew added. “We’re catching it at the right cyclical moment where supply and demand are figuring it out.”