If you’ve ever been to Texas, you’ve probably seen a lot of oil wells. That’s because Texas has some of the most oil-rich land in America—and has produced some of the wealthiest Americans in history.
And it’s not just the oil itself: Many surrounding industries have built incredible careers and gave Texans prosperous lives.
In this episode, Texas energy veteran Lee Nivikoff stops by to share the ins and outs of working with oil and gas fields in Texas.
Not sure if you want to get involved? Listen now!
Show highlights include:
- Why the media gets fracking wrong (and how fracking really works) ([12:43])
- Why Texas is the best place in America to get into the energy industry ([15:44])
- How the economic climate impacts the oil market (and why prices might go up soon) ([19:10])
- The counter-intuitive way a higher oil price can foster innovation and research. ([21:14])
TRANSCRIPT:
Do you want a wealthy retirement without worrying about money. Welcome to retire in Texas, where you will discover how to enjoy your faith, your family, and your freedom in the state of Texas. And now here’s your host financial advisor, author, and all around good Texan, Darryl Lyons.
([00:29]): Hey, can you just bear with us on this show? We had a little audio issue, but I think the show overall was so good that I wanted to deliver it to you anyway. So I hope you enjoy it. Hey, is Darryl Lyons. So I am the show’s father here at, uh, retired in Texas. And I’ve been doing this, um, I guess this is probably over 20 episodes now and I’ve, uh, I’ve had a blast doing it. I’m so glad that you’re here listening. Um, I wanna make sure that, you know, that this show is sponsored by PAX financial group. And I also wanna make sure you know that I’ve got some disclosures to give you. And the disclosure is this, this information is general in nature only, and, uh, it’s not intended to provide specific investment tax or legal data devices visit tax financial group.com for more information. So, um, I’m, uh, excited. This is an interesting show because this is gonna be educational. If you’re curious about the interview markets, then you’ve got the right guy on the show and, and somebody that, um, worked with for, and, um, they’re, uh, they’re here in San Antonio actually, I guess, technically speaking their insureds, maybe Selmo what do you think?
([01:38]): You’re the shirt? Civil area. Yeah, shirts. So we’ve got Lee. He’s the, uh, would your official title be CEO, president, founder of title petroleum? Yes, I, the above all the above that. Okay. What, one of the founders? One of the founders, there were three of us. Okay. Okay. Good. Well, I didn’t know that. So are the other people still involved? No. Uh, one is, um, a long time ago, uh, deceased and my older partner. Uh, he’s been out of the business for about probably eight years, eight to 10 years, I’d say, okay, well, I’m glad you’re here cuz the energy markets are cur and I wanna make sure that you and I figure there’s probably not many people that can give insight the way you can relative to what’s going on in the energy markets, in the space that a lot of people curious about. So this isn’t gonna be an important show for people who either have energy investments or put stuff in their car to make it go. If you have a car and you need to put stuff in and make it go that you’re probably interested in what we have to say. So title petroleum has been around for a little while here. Tell the audience about what you guys do. We’re a full service oil and gas exploration and operations firm. We do leasing and mostly in south Texas. Uh, we’re looking for some west Texas, uh, leasing as well. Uh, we’ll deal with land owners, put leases together, put drilling programs together, drill the Wells complete ’em operate. ’em produce ’em from a to Z the same thing as EOG or shell or Chevron marathon. Any of those guys were just a little smaller. Okay. So if I could kind of summarize you find somebody that might, uh, let’s say somebody inherited some land down in, uh, Kennedy and corn city area and uh, you know, got this land and they, they let’s say they inherit the mineral rights.
([03:24]): They know, you know why grandma didn’t wanna drill here, but I do. Would they call you up? No, it really goes the other way around. Uh, we find the areas that we’re interested in drilling everybody that has land in mineral rights once their property drilled. But it really works from the other way we were, if we’re chasing a trend, a formation, we’ll either have some Wells nearby that are successful or we’ll see some successful production and we’ll have an idea on where that trend flows through. And then we start looking in those areas for open acreage acreage. It hasn’t been leased. Once we find those that acreage, then we’ll call the, the, uh, landowners or the mineral rights owners and negotiate leasing. And in south Texas, it gets a little complicated because there’s so many areas where, you know, the surface rights and the minerals were split, you know, decades ago. So, you know, you might have a 500 acre piece of property that has one surface owner, but it has 63 different mineral owners. And then it fragments off going back, you know, into the twenties. So, uh, it gets very complicated. We’ve had some leases we’ve unitized that have had, you know, three to 400 different mineral rights owners. And so that I want to come back to that, that we’ll get into kind of the land man stuff. Before I jump into that direction. How do you get into this business? Well, back in, I graduated from Texas a M in 1992. I moved to San Antonio to do two things. Uh, I was engaged and my wife was from San Antonio. I’d never been to San Antonio before I met her. Where were you from Fort worth originally. Okay. So after graduated, I moved down here, uh, got married and my goal was to go to, or my intent was to go to law school at St.
([05:10]): Mary’s, uh, I’d done the LSAT and you know, it was, uh, you know, that was my next step. She still had a couple years of school. So I, I backed off and, and decided to work until I got her outta school. And, you know, I did that for, you know, a year, year and a half. I got, uh, to be real good friends with her it’s I guess it’s her half uncle. And he was about 23 years older than me. And we got to be pretty good friends. He was a retired oil, gas guy, you know, he’d had a company him and one of us in a, in a partner and they drilled, you know, several Wells and then they just kind of slowed down and retired. And, uh, they had a couple of leases that weren’t were about to expire. And he called me one day out of the blue and said, Hey, you wanna get in the oil business? I knew nothing about oil and gas. Yes. I was knocking on his door before the, you know, he could hang up his phone. Uh, and from that point forward, you know, we just started, their intent was a, a small three man type operation. Well, I’m, you know, 23 years old and I’m ready to take the world by the horn. So my initial, uh, or my, you know, thought and plan was, you know, wanted to be insecurities and it was my focus. So let me start a brokerage house and I’ll handle the financial end and the funding end of it, I’ll get licensed with, it was NASD back then, you know, just like Merrill lyncher Charles squad, everybody else. And I opened the brokerage house back in 1994. And from that point until now, you know, kind of integrated me into coordinating the financial firm with the oil and gas firm.
([06:43]): And, you know, it’s been 30 years now and you know, I’m running it all now. So the idea for the, the collision between, and, uh, this kind of nerdy for some people, but the collision between the securities infrastructure now, which was in ASD and now it’s FINRA. Yes. So the idea is to be able to have a way to distribute the products and services through FINRA channel, is that right? Yes. You know, to anytime you’re managing funds, or I guess you call it selling brokering, any type of investments, you’ve gotta be licensed. I menus, there’s really nothing you can do these days. You service, service oriented without being licensed. And definitely, you know, investments is one of those. And so what this allows us to do is instead of, you know, normally the only way into an energy market is, or energy investment is through, uh, stock exchange, find a piece of an, of an oil company. Well, I mean, with that, the overhead is tremendous. You know, I can, I see some of the best companies with the best property and the best Wells in the world. And they still don’t seem to turn a profit. What we’re able to do is, you know, put, uh, one particular program, it’s kinda like creating a company with this one particular program and we’ll break it up into, into shares, just like a, a similar to an IPO. And then our clients will buy shares in that. And they’re directly tied to the production of that. Well, you know, and from a, an income standpoint, it can be a very good thing if the Well’s good, there’s, you know, the only overhead they have to pay or that the well has to pay is its own overhead on the bad side of that is that the Well’s not productive, then there’s no fallback.
([08:29]): That makes sense. It’s what they always say, boomer bust. But I wanna get into that a little bit because that’s a misnomer. I think it’s bust. And I think what I had originally thought before I met you, and I learned a little bit, want, continue to go down this path of understanding what you do and how you do two things that I need to unpack one, wanna make sure that people know that we’re, you know, we’re not connected, uh, in terms of, uh, professional relationships. So this is no solicitation of police products and services, but it’s got a very interesting platform. And second, I want know Lee, your family today. I know you, it’s a grind to be in your business. You do anything outside of China. Yeah. I mean the, you know, cars, I do like it’s a hobby of mine. I, I love to, um, I guess I’ve got an engineering mindset, even though I’m not a petroleum engineer, that’s kind of how I, my brain works, uh, is from an early age, I always had cars that seemed to break down.
So I had to learn to fix them if I wanted to get where I needed to go. So they came along with it and you know, my entire family, I grew up in the furniture industry in an office furniture company up in Fort worth. And you know, my dad, my uncles, my cousins, they all worked there. I was kind of the black sheep that wanted to move to San Antonio and do my own thing. But you know, the creative building part was still kind of, uh, instilled in me. And when I’m up here, I don’t have a wood shop. I bought an old, an old Bronco. I’m living in an depart, a duplex, you know, when I’m 22 years old, I bought, uh, my new wife, an old Bronco because she’d always wanted one and I just started working on it and I started restoring it and right there in the, in the duplex parking lot.
([10:14]): And it’s kind of where I started and I’ve been doing it ever since. You know, it’s interesting because you know, a lot of, I think guys know oil, gas business, they may be golfers. It’s a, you chose, uh, restore GARS yeah, I get it. Now you guys do something called fracking mm-hmm <affirmative> so tell me what that tell the audience said, okay, well, what fracking is, it’s not explosions. It’s, it’s none of that. All it is is a hydraulic procedure where we’re forcing water down a well or into a certain formation. And this is fresh Caro drinking work to essentially crack the rock open. The main formation that, that we explore is Eagle for chill. And it’s just like a big piece of limestone. Now, not necessarily limestone, it’s more like a, say a piece of flagstone, you know, that’s right outside on your pool deck.
You know, there, it’s kind of thin it’s brittle, but it has layers in it. Uh, so when we drill through that, we drill through to horizontally. So you’re exposed to six, 7,000 feet of it. And the oil is actually trapped within the poor space of the rock. Most conventional formations or sand formations, you just drill one hole like a straw. And, you know, and then the oil, you know, just kind of migrates in and you’re draining a big round of, you know, pool type area. Shale is different since it’s in the poor space of the rock, you’ve gotta crack the rock open to let it flow out. And that’s what the frog does. So when we do a rack, you know, on the surface, there’s fresh water. And then there’s some friction reducers and things like that. But the vast majority of what we’re using to hydraulically fracture is just water.
([11:49]): It’s just fresh water. We pump it down the hole anywhere from 8,000 to 10,000 pounds of pressure. So pressure’s not real high, it’s nothing drastic. Uh, and what it does is you’ll see it start to crack the rock open. Once the Rock’s cracked open, then we pump more water down with sand mixed with it. And what happens is the sand goes into the new cracks that we’ve created. And then when we, you know, when we let the well flow and the water comes back, the sand stays in place and props up those fractures as little cracks. And that gives a space for the oil to flow out of the rock and into the well work makes sense. Listen again, but I, it makes a kind of sense while you very well, is it cause earthquakes? No. Yeah, that’s a, I’ve learned from, uh, listening to the media, explain oil and gas that I don’t think I’ve ever heard him say anything correctly, which whatever have a client in my office, it’s in a different business. I asked them the same types of questions and, and it’s kind of, uh, it, it kind of runs along those lines for every industry that we’ve talked about. But no, it doesn’t. I mean, you heard a lot of talk about, uh, earthquakes up in Oklahoma, cause for the oil and gas companies from fracking, it had nothing to do with racking. When most Wells, especially, you know, shallow oils or vertical Wells, not necessarily these horizontals in Eagles where they don’t do much water, a lot of oil and gas formations do a lot of water. And when you’re producing from an interval that’s below sea level, the formation water that comes back is brackish water. I mean, it’s salt water, it’s seawater, and it needs to be disposed of, but what they do is they put it back down into formations that are below the sea level.
([13:30]): So, you know, they pull out the oil with the water in it. They separate the oil from the water. Then they put the water back down in, into the formations. Now the formations that they pump the water into are dictated by the governing body. So the state of Oklahoma, they’re a geologist figures out which water from where, where, um, these companies are supposed to pump it and how much they’re supposed to pump. And generally oil and gas companies don’t have anything to do with water disposal. You know, there’s water disposal companies that run these injection Wells. So, you know, for instance on our Wells, uh, when we have water on site, you know, we call it trunk, trunk comes out, picks it up. As soon as it leaves our location, it’s out of our hands, you know, the disposal companies have it. And then they go and dispose of it in the way that they’re told to do that to do so. And they made some mistakes up there, you know, the regulating body up there, hadn’t putting too much water into the wrong formations and that did cost some of those, you know, those shifts and, and the earthquakes that they saw, uh, since then, I’m sure that they fixed that, uh, changed it because you don’t hear about that. Yeah. I don’t hear about it. And if there are, uh, tremors or earthquakes, is there key relationship to the Acking at all? Or is it not any, has ever been drawn together? You know, because the amount of pressure that we’re using to frack is not that high. It’s not, you know, I think a car Washe is 4,000 pounds and we’re fracking with between eight and 10,000 pounds max and our formations here are, you know, 10 to 12,000 feet below the surface. You know, none of those fall fractures come all the way to the surface.
([15:08]): So I haven’t heard of any seismic activity or, or any earthquakes calls from definitely any fracking in south Texas, but I’ve definitely seen it tied to the water jet. So you mentioned a little bit about jail and I’m very familiar with the Eagle ship income. That’s predominantly where you’re at right now, this in ECAR city. I know it expands beyond that. I think one, the kinda at epicenter there is those two communities. Are there any other Shas that guys look at or you stay pretty much there? South Texas, we stay in south Texas. There is, there’s quite a few other shale plays in the United States. Um, there’s some up north, some good, a lot of those contain natural gas and not as much oil, the oil shell, the best oil shell in, in the us is here in the Eagle fruit. And that’s our stomping grounds.
You know, all of our contractors have are down here. You know, it’s people we’ve been doing business with for 30 years, you know, our landowners, you know, engineering firms down here that we’ve been using forever. So we’ve got a lot of ends with a lot of people and a lot of contractors that really make it more efficient for us to do it here other than elsewhere. Now there’s some play in, there’s a play in west Texas, the Permian that we’ll do some drilling in it too, but primarily for the last 12 to 15 years, it has been specifically right here in south Texas in Eagleford. Okay. Texas is special about the inter in the energy space. I mean, why can’t, I mean, there’s gotta be some, some oil and natural gas in other things. Why does Texas have the ability and willingness to get it?
([16:39]): Well, we have really good rock here in Texas. We do. So we do have better oil formations than most other states do. Alaska probably has more than Texas. They do. There’s no doubt that they have more than Texas, but we do have the richest. And, and some of it comes from, we’ve got a lot of, a lot of shoreline from the Gulf of Mexico and, you know, way back when, you know, the formations that are down, you know, below the earth were at the top of the earth. And that’s when all the sediment forms and in the oil forms. Now there’s probably a lot more oil and gas production in the Northern states. It’s just gonna be much, much, much deeper. The big benefit that Texas has is infrastructures here. You know, we’ve got gas pipelines all over the state. We’ve got oil pipelines, we’ve got refineries, we’ve got shipping port right there in Houston. So it’s very, very easy for us to get oil to market. We don’t have a lot of snow. We don’t have a lot of problems. You know, a lot of the Northern Shas now they can only explore it about three to four months a year, uh, just because of snow. So it, that makes sense. Yeah. It makes it perfect environment to certain degree. Its, its now what is the thread of the environmental protect agency and some of the people that are very emphatic about the climate change to, to what is the threat, what you guys do from them, a little lizard on the property, you know, what does this look like lately? Yeah. The, the lizard on the property is you hear about a lot of that. And on government lands, you know, in Texas, the fact that Texas is the vast majority of Texas, I think it’s 96% of Texas is privately owned.
([18:16]): It really eliminates a lot of that. So the federal government doesn’t have control over private lands and we can pretty much do what we wanna do. You know, within reason, I mean there’s regulatory bodies for, for how we produce, how we drill, how we protect the fresh water and all that. But you know, it’s, it’s not like the stroke of a pen. They can say, okay, no more permits on these lands because they’re private lands. They’re not, you know, they’re not BLM lands. They’re not governed by the feds. That makes sense. So what do you see as the future of oil and natural gas? We talk about oil. Do we talk about Brent or WTI? WTI? I is the us that’s us oil. Brent is everywhere else. So what do you see this, the future of the prices, body demand and balances, things like that, where you like look at your crystal ball and tell us where it’s going. Well, it’s, it’s gonna increase. Uh, prices are gonna increase. Supply is gonna decrease because once you burn a barrel of oil, it’s gone and you don’t have it anymore. And we’re burning millions and millions of barrels a day and those have to be replaced. And the problem is it’s getting harder and harder and harder to find it. You know, you hear all the time, I hear the us has plenty of oil. We have 99 years of oil. So yeah, we should be energy independent. Well, that’s such a, a false claim and it doesn’t mean anything unless you know what the price is because the ability to extract it is directly related to the price of the product. For instance, if oil is $30 a barrel, there’s only a handful of formations that are actually profitable to extract the oil from. If oil is $200 a barrel then, okay, we’ve got a lot of oil because you know, we can afford to go get it.
([19:57]): You know, if it, if it takes us $2 to get a dollar oil, then the oil might well not exist because nobody’s gonna go extract it when they lose money to do so. A lot of people say safety dollar, the sweet spot is that right? It depends on the formation. It depends on the area and it depends on how good the Wells are. It’s all in efficiency battle. And especially in the shale, you know, the Shell’s still in its infancy, but the Eagleford was discovered back in I think 2009. So it’s very, very, very, uh, and the products that we have now and the tools that we have now and techniques we’re using now didn’t exist three to four years ago, much less, you know, 15 years ago. So it’s evolving and it’s making it where the production that we get is more substantial and it’s more cost effective. You know, when we first started drilling the Eagleford channel, I think our recovery rate was about 4%, which means we’re leaving 96% of the oil still in the ground. We’ve seen that increase where now with modern techniques in the Eagleford, we’re probably probably at a 12, maybe even a 14% recovery rate. And I do expect that to increase as well, just like it has over the last, you know, 10, 15 years, but it’s gonna take R and D and it’s gonna take investment and it’s gonna take a higher oil price to make that happen. I might the technology fascinating. I mean, I think people understate the technology advancements and energy and quality gas just the other day. I heard a couple AIE kids figuring out a way Toure the burnt natural gas to fund their crypto mining. I mean, mm-hmm, <affirmative>, we’re doing that stuff.
([21:33]): Yeah. So, but bad by, yeah. We’ve got a, a crypto, a trailer on one of our Wells and it’s kind of, it serves as twofold. There’s uh, you know, we’ve got a couple Wells that some sites that don’t have natural gas lines saying we have vent gas, you know, it either comes outta the well or comes off the tank batters and you just flare it. Well, instead of laring, we, you know, run it and it runs a generator and it generator runs the computers and the computers, mine for crypto. It’s a new thing that we just started. And, uh, I don’t think have any numbers on how efficient it is yet, but uh, we’re gonna let it run about a year and see what it does and see if it makes sense. But you know, I’d rather do that with a gas and just flare it. That’s exciting. Okay. So since you mentioned laring list, let’s get, get rid of this from a disciplinary hurt the environment. No, I mean, it’s, it’s, you know, one of the cleanest burning fuels is natural gas and we’re burning it, you know, so as simple as it gets, you know, if we’re just, we can’t just vent it to the atmosphere, they won’t let us do that. You, you do have to burn it. Then the vast majority of gas we produce, we sell, especially with gas prices today are actually, you know, the highest they’ve been in a long time. So if we capture everything we can, but you know, sometimes if you have compressor goes down, something like that, you know, the safety valves will kick gas to vent and you know, it ignites and it burns it, you know, it keeps things from getting out of control at the same time.
([22:59]): Uh, and then you’ll have fumes and vapors and stuff that come off of the tank batteries. And that’s just basically oil fumes, which is the same thing. It’ll go to vent and get burned. Now, if the tank batteries are big enough and we have several sites where, you know, there’s enough that we can actually recapture when the, the venting comes off of the tanks and we’ll take in, we’ll compress it and we’ll send it down the gas line as well. But you’re always gonna have some type of venting on Wells. Yeah. That makes sense. In the last people venting relative to the whole operations from, you know, the climate piece wanted to cover a little bit about that, wanting to cover reasonable war profile. We talked a little bit about that. The thread of the EPA talked a little bit about how fail works. The other thing I think that I think is really cool about your industry is you tend not just you, but the industry in general tends to hire a lot of second chance people and it pays them well, do you see that as a theme that will continue? Yeah, you do. Especially now, you know, with the labor issue that we have now is not just in, in restaurants and other industries, it’s definitely in oil and gas as well. You know, and one of the things that the oil gas industry is the service industry has always struggle with is the yoyo effect. It’s, you know, prices are either too high or prices are too low. And in general, an oil company, an exploration and production company like us, we don’t have drilling rigs. We don’t have work over rigs. That’s the service side. It’s a totally different industry. You know, if you look at, uh, EOG and marathon and Murphy and these, these large, large public companies, they’re the exact same way. They don’t have their own drone RS. They contract that out for companies that that’s what they do for a living is they have drone rigs and they run drones.
([24:38]): But the issues with these are when the prices old prices are high and everybody wants to drill, it’s profitable to drill. Well, then they’re short of people. They’re shorter products. So they hire more people. They train more people, they get more drilling rigs. Then all of a sudden when the price goes down and you know, us oil and gas operators say, Nope, we’re good. You know, we’re gonna wait this out. We’re gonna, we’re gonna slower drilling schedule down. Well, then they have to start parking these rigs and all of these employees that they have, and they’ve trained are out of a job and they go off into other industries and when it fires back up again and they wanna pull the rig back out of the field and put it to work, there’s no proofs. So they have to hire new people. They have to train new people. It’s just a, it’s a vicious cycle. It really is because this, you know, and even over this last COVID issue, you know, we went from about 1600 drilling rigs here in the United States to down below 400. We had the least amount of drilling rigs running since they were keeping records going all the way back into the forties. And even now we’re not even halfway back to the amount of rigs exploring for oil that we had pre COVID. And our demand’s already back to where it was. It’s gonna take us at least a year or two to get those crews and those rigs back in the fields and exploring. So maybe just don’t start all of a sudden, I mean you, so I know a lot of politicians scream and go watch Maureen. And I know it takes, it takes a long time. Yeah. It takes, it takes, you know, if, for instance, when I heard so many times, they just need to open the spigot.
([26:10]): You just need to open the spigot. Well, there’s the, there’s, noificant, you’ve gotta drill and create this picket. And you know, that’s about a year long process to do so it’s not easy. And, and it happens. I’ve seen so many in my time, in the old business, the last 30 years, you know, three or four big swings in prices, you know, where they’re, where they’re high and then they go too low and then, you know, they come too high again and they go too low again. And, and it’s the same thing. When you look at a commodity in the basic supply demand scenario, oil and gas has a lack. It just is it’s, you know, the economics never remembers that. Cause you know, let’s say COVID friend when COVID hit and all of a sudden demand really went down because you know, people weren’t driving people weren’t flying, you know, and so demand was down. And so the price started falling. Normally when the price falls supply is gonna fall. Well, the issue with the only gas is your supply. You know, the well, a year ago that they drilled for is not online yet, but it’s coming. Okay. So you’ve got a long train here of about a year’s worth of projects that have already been done that are coming to market and they start dropping price and dropping price and dropping price. And they see, and they go look, supply keeps increasing this, keep dropping price. And then by the time the price gets, you know, really low. And then that Cabo catches up with the price and then supply starts to drop, well, then the price starts to nudge back up again, but guess what? You got a full train with nothing in it. That’s headed your way. So if all of a sudden, everybody turned on the spigot at the, say the spigot at the same time and said, let’s drill the most we can possibly drill.
([27:46]): You’re still gonna have eight months before you see any of that. That makes sense. Yeah. I learned a lot of that. So I’m glad you, uh, that on how that really, really makes sense to the economics. Well, this has been good Lee. I’ve had good dialogue, quality, lot content. I think that Ranier learn some more stuff, but this has been good. So I really appreciate it. But I have to ask you the most important question and that’s, uh, what’s your favorite salsa? That’s easy, uh, restaurant salsa or a grocery store salsa. You what I’m gonna ask for both let’s the restaurant got, got I Lata. I thought you were gonna say is it’s my favorites. My favorite restaurant salsa store HEB. I would say Julios. There you go. That’s Julios it’s in the refrigerated section. It’s the good stuff. And for those that are listening outside of San Antonio, and you’re looking for good back restaurant LA God is LA God is right there at the top. It is partly, I really appreciate you coming on board. Uh, thank you again. And this was very educational to our audience. So I appreciate those that are listening. Visit PAX finance group.com. You can also, uh, text if you want 7 48 68, and put in taxes and blue back around with you and help you in personal finances. That’s uh, text 7 48 68. Thank you very much. Thanks. Appreciate it. Enjoy it.
([29:00]): This is the podcast factory dot.
Listen on:
