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Show Summary
In this conversation, Dylan Silver interviews Rey Treviño, an oil and gas expert, about the intricacies of investing in the oil and gas sector, particularly in Texas. They discuss how individuals can enter this investment space, the structures involved, the underwriting process, market fluctuations, and the tax benefits associated with oil and gas investments. Rey also shares insights on the future of energy, the challenges of permitting, and the importance of understanding the logistics behind oil pricing across different states. The conversation concludes with Rey discussing new projects and ways for listeners to connect with him.
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Investor Fuel Show Transcript:
Rey Trevino (00:00)
In oil and gas you don’t, especially when you’re direct non-op working interests. It is an active tax deduction immediately. The IRS tax code, the US government tax agency recognizes that once an individual has invested directly in an oil and gas well that they took a risk and up to $100,000, they are actually able to write off 100 % of their investment.against their capital gains, W-2 income, any additional income, and then for any investments that are above $100,000, so for our investors that might do $500,000 up to a million dollars, they’ll be able to write off at minimum, due to the IRS tax code, at minimum 70 % in year one
Dylan Silver (02:27)
Hey folks, welcome back to the show. Today’s guest, Rey Trevino, is an oil and gas expert at Pecos. You can find him on LinkedIn, Rey Trevino III, MBA. Rey, thanks for taking the time today.Rey Trevino (02:41)
Dylan, well, thank you so much for having me and just super excited to be here. You and your team have just been doing so much ⁓ providing knowledge to the real estate game accessories for the single family, which that is going to be such a need for the next 50 years. So just continue up all the great work, man. And thank you so much for havingDylan Silver (03:02)
I appreciate that, man. And what’s really interesting about the single family space, particularly in Texas, right, is that you havereally what I would consider to be cost effective homes on the grand scheme of things being built. You some of the national builders, corporate builders, you’re finding homes, you know, outside of the major metros for $240,000 brand spanking new. So there is a little bit of a lower cost to entry. But what I want to dive in with you here today, Rey, if we can get into the weeds a little bit, is the idea of how people get into oil and gas investing, because I’ve spoken with folks, you know, who are doing some
some very high level things in oil and gas, but of course you don’t start there, right? And so I’ve also spoken with folks who’ve literally graduated from single family investing to small multifamily to large multifamily apartment complexes and the like, and then they’ve managed to get into oil and gas. So I’ll ask you Rey, what’s the on ramp? How do people get into oil and gas investing in Texas?
Rey Trevino (04:06)
Yes, ⁓ definitely one way and the best way is to talk to an energy expert. See who they’re working with as far as their oil and gas investments go in their portfolio. Make no doubt about it. Just like in real estate, it’s always great to be boots on the ground. But just like in real estate, we don’t start off all boots on the ground in any investment that we make. And so there is a lot of that ⁓ Hollywood lore about oil and gas. And the only way you can actually invest in oil is becauseyour great grandfather owned mineral rights back in the 1800s and that now you can drill on them today. But that is nothing but farthest from the truth these days. Mineral rights now are being sold left and right. And those are actually here in Texas, the mineral ownership underneath the ground. So in Texas, you’re able to own the minerals under the ground and or the surface above the ground and you can separate the two. And so…
What a lot of people now are doing are finding ways to lease these minerals and then be able to drill and more importantly produce oil on these minerals all across the great state of Texas. And because we live in such a friendly state of drilling here in Texas, anybody can get into it. For even an investment cost of buying your first single family down payment on a home, you can get into oil and gas for the same cost that…
just like real estate will provide you not only active tax benefits immediately, but long-term revenue for the next 20, 30 years.
Dylan Silver (06:25)
Let me ask you a super granular question. This is just because I’m a little ignorant here, Rey. So forgive me for this. You mentioned getting in on the down payment of a home. Of course, people aren’t setting up an oil well for a down payment on a home. So is this some type of fund or syndication which people are pooling their money and investing in oil in that way?Rey Trevino (06:45)
Yes, that’s a great way to look at it. At Pecos we do a lot of direct non-op working interests where our investors actually can legitimately say they own an oil and gas well. And that’s where the act of tax deductions come into play. But that’s exactly right, that basically when you have the working interest, there is only 100 % working interest. And so if a well costs maybe, I don’t know, $1 million, then that means that 10 % of that well would cost…$100,000. And that would be for the drill test and completion of that well. So if you had an investor that wanted to come in for like a 5%, which is kind of the average down payment these days, they’d be able to write a check for $50,000 and be able to then have 5 % of the working interest and 5 % of the expenses that go into that well or wells, depending how the deal is actually structured. And then that would be their fees every month.
on top of their revenue every month. So for another example, we’ll use that 5 % again example, the well makes $100,000 for the month, they earn 5 % of that. So that means they earn $5,000. And then let’s say the expenses for the month total were $10,000. So now they owe 5 % of the 10,000, which would be $500. So that means their net revenue check would be around $4,500 for the month.
Dylan Silver (08:10)
Now,I want to take a little bit of a step back here and ask you, because I’ve seen this and it doesn’t happen often, but I have seen people who are selling like oil wells, I’m using the right terminology here. And I don’t know how to underwrite an oil well. I’m looking at underwriting commercial multifamily and that can be challenging, let alone an oil well. And so one of the things that I think about is, well, if I’m getting these opportunities across my desk, they have to be coming to folks like yourself all the time. What kind of do deal
you know, are people doing to underwrite these deals? And then how do you underwrite a deal like that?
Rey Trevino (08:50)
That’s a great question. And I will say this, as you get more and more involved in your trade, no different than you guys in real estate, you get more and more individuals that are expert savvy in their different positions within the industry. So as we’ve continued to grow and become more and more boots on the ground over the last 20 years, we have access now to better geology. We have access to better geologists. We also have access to the title opinions, the land ban.and we have groups that are always working with us to find these leases and or these wells that may already be producing oil. And then we’ve got to get the engineers involved, whether it’s a petroleum engineer or a reserve engineer to see how much more oil these already existing wells might be able to produce or how much oil will these new wells produce over our next amount of time frame, which then all ties into what is the value of that oil.
Because as we know, as we talk today, the price of oils has fluctuated $5 to $10 over the last week and a half.
Dylan Silver (09:54)
Yeah, I mean, when we talk about the fluctuation, this brings in another area, which if you’re in Texas, you certainly know this, that the seasonal nature of the oil business, I’m not in the oil business, but I’ve seen it firsthand where, know, it seems like depending on, you know, political climate and depending on, you know, where the price of oil is at, can drive…industry for our audience and for myself who may not be familiar with what’s exactly the reason behind this. Why does there seem to be good times and then you could call it lulls in the oil and gas space?
Rey Trevino (11:03)
The easiest way to answer that is actually say that it would be called the uncertainty cost that’s added to the cost of a barrel of oil. Whenever we may or may not have a president that is anti-oil, we know that prices due to Wall Street will go up. If we have a president that’s pro-oil, we’ll see Wall Street back off on that a little bit. If we see a disturbance in the Middle East, the factors will come into play so importantly that then the price may even ⁓ change.right then and there. However, here in the great state of Texas, we produce almost 6 million barrels of oil a day alone. And the United States produces almost 14 million barrels of oil. That means that Texas produces almost half of the United States oil every day. And because of all the oil that we produce as a nation, our energy security is so much more dominant than it was even six and seven years ago. We’re not even drilling as many wells as we were three years ago.
but yet we’re producing more oil than we were three years ago. And that’s because of technology and the efficiency that oil and gas companies are only continuing to do and put behind the drip bit so that not only do we continue to thrive as a nation with our economy, but more importantly, so that our investors and other company shareholders can continue to receive monthly revenue.
Dylan Silver (12:26)
Now…There’s so much, I’d say right now specifically, right now specifically, there’s a lot of talk about the price of oil and certainly in Texas, ⁓ everyone seems to be concerned about where gas prices are going because we remember not so long ago, they were very low. I think my memory, if it’s serving me correctly, it was like 2020 or something like this where they were right around a dollar, maybe even under, and I know that seems hard to even imagine now, but that’s where it was. When we talk about the,
the price, you know, where it hits the consumer’s pockets, right? So when people are pumping their gas and we see, you you got prices in Texas and you got prices in California and you got prices in New Jersey, I’m born in New Jersey, and there seems to be this huge discrepancy between, you know, what the price is in one state versus another.
Do you know if that’s due to like, hey, just logistics of getting ⁓ gas to that location? Or is it, you know, because there may be ⁓ unfavorable, you know, taxing and so forth in that locality.
Rey Trevino (13:31)
Yes, that’s a great question, Dylan. It has to do with logistics, supply chain, ⁓ regulations, and policy that is set in each one of those locations and areas, going all the way down to the community, taxes to local taxes, to state taxes and federal taxes. And make no doubt about it that when you’re in places like New Jersey and California, there are more state tax on that gasoline per gallon than there are in places like Texas and Oklahoma.They only continue to add more and more in places like these states where they’re looking at ways to deter individuals from actually buying oil and gas powered vehicles.
Dylan Silver (14:12)
Yeah, I mean, when we talk specifically about the alternative energy, right, ⁓ one of the things that I’ve noticed is it does seem to be and I don’t want to say entirely, but it does seem to be like there’s almost ⁓ a competition between, you know, electric and oil and gas. But I do think that, you know, you just can’tand I could be off-base in this, you just can’t easily abandon oil and gas. In fact, probably, you may be able to supplement the two. Do you see, is it always gonna be a conflict between the two spaces or is energy as a whole gonna kinda come together at some point in time?
Rey Trevino (15:27)
You know, if we want to see ⁓ green energies actually become something of a significance in the world, they’re going to need more hydrocarbons to produce, which means we’re going to need more oil to make these engines and all this green actually become a thing, whether it’s wind or solar. And one thing I do want to bring up that I’d like to talk about is the fact that you’re in the Dominican Republic. And in the 1950s, the Dominican Republic nationalized natural gas.Now I’m not for nationalizing anything, Free market’s the way to go. However, when they nationalized natural gas in the Dominican Republic, they required all homes to be heated with natural gas and all stoves to be used with natural gas. And then you look at the neighbor on the same island of Haiti that has used up all their luscious green rainforests to provide heat and cooking material.
and it is a ruin of place. And look at the difference on one island on what natural gas has done to provide a strong ecosystem and economy in a country side by side.
Dylan Silver (16:39)
What’s the, forgive me again because I’m so new to this process, but when folks are…extracting natural gas, ⁓ what types of obstacles and opposition do they come against? Is this as extensive as an oil well? And also too, is this going to be dependent on the climate and the state that it’s in, or is permitting for natural gas, say, maybe easier to acquire than permitting for an ⁓ oil well?
Rey Trevino (17:14)
Most of the time, whenever we’re looking at permitting, whether it’s an oil or natural gas well, I know for us at Pecos, we go ahead and just do a permit for both just in case we have both oil and natural gas that we can produce from that well. And during this administration right now, as you know, with on the real estate side, they’re really pro-oil and pro-real estate, and they’re trying to do their best to remove any red tape that they can to slow down permitting right now. And that’s something that’s been very exciting for us at Pecos to…continue to permit and drill and most importantly, produce oil during this time.
Dylan Silver (17:49)
This is really out of left field. if this is one you want to pass on, that’s okay. But I know that there’s 100 % bonus depreciation happening for real estate portfolios, right? Especially, know, ground up construction and this type of thing. Does something like similar to this exist in oil and gas? So they’re like sizable tax deductions through the big beautiful bill that oil and gas is taking advantage of right now?Rey Trevino (18:14)
Yes, Dylan, there is. And I want to go back to the real estate and I’m not an expert in real estate, but in order to get that 100 % in real estate, have to spend X amount of hours that year in real estate to get that. Is that correct?Dylan Silver (18:31)
I believe so, I believe so.Rey Trevino (18:32)
In oil and gas you don’t, especially when you’re direct non-op working interests. It is an active tax deduction immediately. The IRS tax code, the US government tax agency recognizes that once an individual has invested directly in an oil and gas well that they took a risk and up to $100,000, they are actually able to write off 100 % of their investment.against their capital gains, W-2 income, any additional income, and then for any investments that are above $100,000, so for our investors that might do $500,000 up to a million dollars, they’ll be able to write off at minimum, due to the IRS tax code, at minimum 70 % in year one off their capital gains or W-2 income just for investing in oil and gas wells. And what the IRS recognizes is that on general,
70 % of an oil and gas investment is the risk. The other 30 % is the guarantee that you’re gonna produce oil.
Dylan Silver (19:38)
Very interesting conversation. One of the things that strikes me is that for folks who are thinking, well, I can’t get into oil and gas. We just talked about a number of different ways where folks who may otherwise be thinking.I gotta stay out of this, can really get in and one of those ways is going through folks like yourself over there at Pecos. Speaking of which, we are coming up on time here, Rey. Any new projects that you’re working on and then also what’s the best way for folks to get in contact with you?
Rey Trevino (20:09)
Yeah, so we’re excited that we have a new project. We are a family office. That’s one thing I don’t think we really touched on today, that we’ve been in the oil and gas space for over 20 years. My father’s been in it now for over 40. We’re a family office and our side of the portfolio that we work on is oil and gas and energy. We’re excited that we will be partnering up with another long-standing family here in Texas to drill several wells. We’d love to tell individuals about that.They can definitely go to LinkedIn to reach out and or pecosoperating.com. We also have a great podcast ourselves called The Crude Truth, where I bring on other industry experts and just talk about all the great things that we’re doing in oil and gas. And I always just invite anybody to ask any questions. So please reach out any way possible.
Dylan Silver (20:59)
Rey, thank you so much for coming on the podcast today. Thanks for taking the time.Rey Trevino (21:03)
Thank you, Dylan.
