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In the Hidden Money podcast, you'll learn how you can legally use the tax code to your financial advantage. There’s wealth inside the tax code. Taxes aren’t the enemy.
Most people hate taxes (and pay more than they should). But when you view taxes only as an evil expense, you miss out on legal ways to grow your wealth. Unlock the secrets to saving tax and building wealth with the Hidden Money Podcast! 🎧💰 Hosted by Mike Pine and Kevin Schneider.
Kevin Schneider: You should not let
your tax tail wag your business or
your financial planning or your life.
Yeah, you can go spend money and
get tax deductions all the time, but
here's where the secret sauce is.
This is why we say there's hidden money
within the tax law, the tax code, because
if you can reduce your taxes while at
the same time growing your portfolio,
growing your net worth, getting the
IRS to help subsidize the growth of
your portfolio, that's where it's at.
Welcome to this episode of
the Hidden Money Podcast.
Thanks for joining us.
I know I teased y'all last episode,
but I'm glad you're here because
we got some exciting stuff, soâ¦
But before that, let's
quick housekeeping stuff.
It is September.
Mike Pine: Mm.
Kevin Schneider: corps, partnerships,
y'all are due this week.
If you're hearing this, it's probably too
late to file on time, but don't forget
to file your S corps and partnerships.
If you're on extension, that
is here, September 15th,
that is your final day, so-
And partnerships and S corps, they're
not like your personal return.
You know, on your personal return-
Mike Pine: your personal return, you know,
if you overpaid your taxes, which too many
Kevin Schneider: You don't get penalized
And you don't file
Mike Pine: on time after the extension,
you don't get penalties 'cause
for an individual, penalties are
based on how much back tax you owe.
Kevin Schneider: Mm-hmm Partnerships
Mike Pine: and S corps,
Kevin Schneider: it's based on how many
shareholders or partners you got, and it's
like, it's, I think it's 175 per partner,
per shareholder, per month, and it's
Mike Pine: it's, I think,
it's 175 per partner, per
shareholder, per month, and it's
Kevin Schneider: hard to get out.
And we can get them out.
We can get you out of those
penalties, but- Sometimes.
Mike Pine: Not
Kevin Schneider: no reason to
be in those situations anyway.
So
Mike Pine: So
Kevin Schneider: on this- Don't
procrastinate ⦠yeah, don't
procrastinate, but if you're hearing
this, you're probably already one of them.
So sorry.
Um- I think I need to get my file.
No, shut up.
I filed it.
I filed it.
Did you?
Yeah.
You filed it first.
What about me?
Mike Pine: I know.
Kevin Schneider: My, my PC?
Oh, I don't know.
We'll have to check.
So
Mike Pine: out whenâ¦
So if you are a procrastinator, I,
I, I see it, but we're gonna get it
Kevin Schneider: if you are a
procrastinator, I, I, I see it,
but we're gonna get it done.
He's a procrastinator.
That's why he's got me.
Mike Pine: I'm a procrastinator.
That's why he's got
Kevin Schneider: so what we
wanna talk about today is
another exciting investment.
It's something that Mike and I believe
in so passionately just because we
personally put our money in this.
We, uh, recommend as many clients
into it as possible 'cause we
see, one, the tax benefits, two,
the ROI, the diversification.
We're gonna get o- ⦠into all that.
But before we get into the actual deal,
we just want to actually set the stage
of what oil and gas taxation is, 'cause
Mike Pine: just want to actually set
Kevin Schneider: that's the secret here.
Before that, can I just go
back to one thing from before?
Um-
Mike Pine: when, when I started in
this career and I started hearing
normal small business or high net worth
individual, um, tax planning, they'd
say, "Buy a new truck or buy some more
equipment before the end of the year.
Quick, get it done.
Kevin Schneider: I thought was 309
deductions before bonus depreciation.
Mike Pine: 139 This was before
bonus depreciation, obviously.
Uh, you probably started your
career after bonus depreciation came
Kevin Schneider: your career after bonus-
Mike Pine: No.
Kevin Schneider: No ⦠came out.
N- oh, yeah, probably.
Yeah.
Now bonus- It would've been-
Mike Pine: when
Kevin Schneider: came out in what, '09?
⦠2002.
Yeah.
Yeah, I was in college when bonus
depreciation first came out.
Yeah.
Um-
Mike Pine: it wasn't for me, but
I'm not going to go into that.
Kevin Schneider: don't
need to know your age.
That's good Anyway, here's the point.
You should not let your tax
tail wag your business or your
financial planning or your life dog.
Yeah, you can go spend money and
get tax deductions all the time, but
here's where the secret sauce is.
This is why we say there's hidden
hidden money
within the tax law, the tax code,
because if you can reduce your
taxes while at the same time
growing
your portfolio, growing
your net worth, getting
the IRS to help subsidize
the growth of your portfolio,
that's
where it's at.
That's what Kevin and I
are super excited about.
Sometimes we just gotta reduce taxes.
Mike Pine: Sometimes
Kevin Schneider: Sometimes
we find tax credits.
But this is a way of growing your
financial freedom much faster
over the power of time, power of
compounding, um, and letting the
IRS subsidize these investments.
Mm-hmm.
And that's why last week we talked
about a great charitable deal,
and it's good, good tax strategy.
It's, it's- Mm.
It does a good thing.
Um, there's lots of good things, but- It's
no cash ⦠it's one time you get a 60,
70% ROI one time, and then, yeah, you can
invest that, but where you gonna invest
it?
Mm-hmm.
So oil and gas is very, very cool
because, one, we live in Texas,
so oil and gas is just veryâ¦
It's always on the top of mind,
um, in, in just where we live.
Now, when we talk about oil and gas,
we're gonna talk about first the tax
law, because I want to actually cite, and
I don't do this regularly, but I mean,
Mike Pine: you,
Kevin Schneider: you threw out tax code.
You threw out 179.
So let me throw out some tax code.
469c3.
That's my party.
You made me so proud.
You are so sexy when you do that.
Mike Pine: my part.
You make me so proud, and you are so sexy
Kevin Schneider: If youâ¦
Mike Pine: It's weird.
Kevin Schneider: Yeah.
Mike Pine: If
Kevin Schneider: justâ¦
So I want you all to know,
just Google 469c3 IRC.
If you Google that, I want you to
see that I'm not making this up.
Kevin, you're citing-
Mike Pine: it, you got to cite it
the right way and in the right order.
It's IRC 469- C.
Kevin Schneider: IRC
Mike Pine: Okay.
Yeah,
Kevin Schneider: 469 sub- Okay, whatever.
So in 469c3, what it's stating,
469 just governs passive activity.
So let's go back to Tax 101.
Most of our clients have this active
problem, and that is bucket one.
Bucket one is active.
That is your- It's not a problem.
It's an active
opportunity ⦠op- okay, sure.
W-2, trader business
income, that is active.
Passive is the second category.
Passive is gonna be where real
estate goes to, where businesses
you invest in, but you don't manage.
That's where passive income goes.
Then the third category is portfolio.
Portfolio is your interest, dividends,
cap gains, things like that.
So when we are looking at a client's
tax situation, we gotta first diagnose
where their problem is, right?
Because if you have a w- high
W-2 or a high trader business
income, that's an active problem.
You can't passively go scoop up a
bunch of rentals or passively go get
a bunch of deductions on a business
you don't manage and expect passive
losses to offset active income.
They don't bridge that way.
Can I
Mike Pine: share a personal story
that kind of helps bring this
lesson, beautiful lesson that you're
teaching, um, home to reality?
Kevin Schneider: a personal story
that kinda helps bring this lesson,
beautiful lesson that you're
teaching, um, home to reality?
Su- if you, if you so desire.
So I did a lot of day trading in the '90s.
Mike Pine: when I was in college.
Ooh, I gave that away.
Kevin Schneider: And I did pretty
good at it because I was in and out
of the market each and every day.
When I got my first
internship in 2000 with
Mike Pine: PricewaterhouseCoopers,
Kevin Schneider: they had
me working 120 hours a week.
I decided, okay, look,
I know what I'm doing.
I made money
Mike Pine: in,
Kevin Schneider: in day trading.
I'm just gonna pick these few tech stocks
and leave it in there and not think about
it because I gotta work 120 hours a week.
I gotta get this new career to start.
And, uh, do you know when
the dot com bubble burst?
Mike Pine: I
Kevin Schneider: know.
I was probably in college or high school.
Mike Pine: college or high school.
Yeah,
Kevin Schneider: I hear you were a college
Mike Pine: at
Kevin Schneider: kid.
I'm sorry.
I was working very hard.
No, I was not.
Mike Pine: I was in college.
Kevin Schneider: You were in college?
No.
Tell us your college story.
Check out our In the
Money Unleashed episode.
You were in
Mike Pine: Unleashed episodes and hear
Kevin Schneider: college.
But I would have been in high school.
I was well-behaved in high school.
Oh.
Very much so.
Okay.
I think.
Mike Pine: I think.
Kevin Schneider: All right.
Yeah.
Mike Pine: yeah.
Comparatively.
Kevin Schneider: All right.
Anyways,
Mike Pine: tangent.
Kevin Schneider: Come on.
Stay with me.
I lost $110,000-
Mike Pine: in the stock market my
first job, my first real professional
job as a CP- or working in, uh,
the CPA field as a tax professional
Kevin Schneider: Because
Mike Pine: I
Kevin Schneider: I didn't know
that there, there was a dot-com
bubble burst, even though I was
in the middle of Silicon Valley.
'Cause, you know, you work at a
normal traditional CPA firm or,
like, a big cool CPA firm, like
the biggest BWC, um, you don't--
Mike Pine: In
Kevin Schneider: tax
season, you don't get to
Mike Pine: s-
Kevin Schneider: see TV.
You don't get to see outside.
You're stuck in your cube
for 120 hours a week.
So I get this call from my broker
up in Montana, and he's like, um,
Mike Pine: you know how
Kevin Schneider: "You know how you
made all that money over the last four
years day trading and using margin?"
Mike Pine: That was the
other big mistake I made.
Kevin Schneider: Um, he
had, this is a margin call
Mike Pine: call."
Like, what, what,
Kevin Schneider: What's that?
Why are you calling me?
What?
We're gonna sell all your stock and eat it
Mike Pine: you need to send
us a check for f- $20,000."
Like, "What?"
"Actually,
Kevin Schneider: already
sold your stock and now
Mike Pine: and now you owe us $20,000."
I was like,
Kevin Schneider: I just worked
my butt off for the last two
months and I got 20 grand.
But you said I gotta give it to you?
And they're like, "Yeah."
Mike Pine: but you saying
I gotta give it to you?"
And they're like, "Yeah."
I'm like, "Okay.
Well, I'm making good money."
The internship paid really well.
Kevin Schneider: I'm
Mike Pine: at
Kevin Schneider: like, "Okay.
Well, I'm making good money."
The internship paid really well.
Um, at least I can use that
100 grand I kinda lost.
I can offset my, my,
my new W- job, my W-2.
Mm-hmm.
Sure, why not?
Yeah, you can.
Mm.
Turns out I was able to take out
that $110,000 loss I experienced and-
Portfolio loss ⦠and even madeâ¦
It's a portfolio loss, and I
can only take 3,000 of it and
offset the W-2.
Mike Pine: and I can only take
3,000 of it, and I'll set the W-2.
Kevin Schneider: That was my
first experience in first passive.
Mike Pine: season.
Kevin Schneider: Yep, and that's,
that's the problem when you run into
is people just say, "Oh, I'll sell
some stock at a loss," and it's notâ¦
Those buckets are very important 'cause
they all communicate differently.
So when we're talking oil and gas, if
you go to 469(c)(3), it just states even
though you're a passive investor in this
deal, if you're a general partner, and
we'll get into what that entails, if
you're a general partner in a working
interest oil and gas operation, theyâ¦
IRS actually deems that investment
not passive, but it's active.
And what considers active typically in tax
is material involvement, your management,
your time, your energy, your risk.
That determines if you're
active in a trade or business or
active in an investment or not.
Well, you get to be 100% passive in
oil and gas, but the IRS is gonna
allow because it benefits and spurs
our economy to be domestic, um, oil, to
Mike Pine: to
Kevin Schneider: have domestic
oil and gas production.
They're actually gonna allow losses.
Yeah, that's about it.
Yeah.
That's what you were trying to get at.
Thank you.
They're gonna actually allow losses
in this industry, even though you're
passive, to be considered active.
So
Mike Pine: that
Kevin Schneider: that is
the power of oil and gas.
And so it's tax advantageous on
the front side, which I want you
to get into IDCs here in a second,
get a little technical, 'cause it's
tech- this is a technical deal.
But it's also tax advantageous on
the back end as you receive ROI.
So let's say an investor has, you
know, um, a $40,000 tax liability.
And they're like, "You know, I could pay
40 grand to the government, or I can maybe
potentially invest into oil and gas."
What does that look like, and how do
they get that first year deduction, um,
typically in oil- That's a great question
typically in oil and gas?
Mike Pine: Well, that's a
Kevin Schneider: That's a good question.
But Kevin, if you are going to
Mike Pine: cite
Kevin Schneider: IRC code and
then summarize what the code says,
at least summarize it correctly.
Mike Pine: summarize
Kevin Schneider: I go wrong?
That says
nothing about
Mike Pine: where
Kevin Schneider: in
Mike Pine: I go wrong?
That says nothing aboutâ¦
Well,
Kevin Schneider: REITS
it says working interest.
In IRC, it just says
not a general partner.
Uh, it does say working interest in
Mike Pine: in the IRC, sorry,
Kevin Schneider: IRC, sorry.
It does.
But it doesn't say general partner.
It says you have ⦠You cannot
have any kind of liability shield.
It
Mike Pine: It has
Kevin Schneider: has to be at risk.
C-
continue.
Mike Pine: Okay.
Oh, am I wrong?
Kevin Schneider: I'm gonna find out.
Mike Pine: out.
Okay,
Kevin Schneider: I'm gonna Google this.
I'm not wrong
Mike Pine: wrong, I hope.
Um,
Kevin Schneider: you'll
find out if I'm wrong.
But what it-- the point is, is
you have to assume some risk.
And the reason this
Mike Pine: this
Kevin Schneider: incentive is there
is it is risky investing in oil
Mike Pine: gas.
Kevin Schneider: and gas.
There's a lot of wildcatters out
there that go and drill holes
Mike Pine: 10,000 feet
Kevin Schneider: 10,000
feet deep, 15,000 feet deep.
Mike Pine: deep,
Kevin Schneider: Costs millions,
and they don't hit much oil,
or they don't hit enough oil
Mike Pine: to pay
Kevin Schneider: to pay for
the millions they just drilled.
Mike Pine: Dry hole
Kevin Schneider: it, you're right.
Mike Pine: you're
Kevin Schneider: here's ver-
Mike Pine: though
Kevin Schneider: It's the tax
code ⦠here's what it says: "The term
passive activities shall not include
any working interest in any oil and
gas property which the taxpayer holds
directly or through an entity which
does not limit the liability of the
taxpayer with respect to such interest."
So you're right.
It's- I am ⦠but that is what
a general partner interest is.
That's one way- But
yes ⦠to invest in oil
Mike Pine: Silently.
But yes
Kevin Schneider: I hate it when
you're right, but I love it, too
Mike Pine: Uh,
Kevin Schneider: I mean,
you should be used to
Mike Pine: by now,
Kevin Schneider: it by now.
Shut up.
Whatever.
Except for you, unlike my wife,
that you're really always right.
Mike Pine: At least I can say
that to you, unlike my wife, when
she's the one who's always right.
Um, I hate that, but it
happens every day for me.
I
Kevin Schneider: Oh, no.
So the reason that this is in there
truly comes down to it, it started in
the '70s when we had the gas crisis,
um, when OPEC nailed down the gas.
Um, and look, we're
having a gas crisis now.
Mike Pine: now.
Kevin Schneider: The Strait
of Hormuz is closed, um,
Mike Pine: at least at
Kevin Schneider: at the time of
this recording, and gas hasn't
gone up, and we're not having
long lines at gas stations.
Why?
'Cause this incentive made our
country a lot less energy dependent
on craziness in the Middle East.
Mm-hmm.
Um, we're still not 100%
Mike Pine: there
Kevin Schneider: we
offshored a lot of our-
We export.
We export, and we offshore
Mike Pine: and we offshored a
Kevin Schneider: a heck of a
lot of our crude oil processing.
It's just been refineries.
Mike Pine: Um,
Kevin Schneider: but
Mike Pine: we're fixing that,
I think, with more incentives.
Kevin Schneider: Whole nother subject.
Mike Pine: Sorry
Kevin Schneider: Sorry
for the tangent, guys.
So what does it look like?
Let's say I owe $40,000 in tax.
I met with my tax planner.
It's October, November, heck, even
December, early December, hopefully.
Um, they're like, "Man, you're
gonna owe 40,000 more in tax."
And I look and I'm like, man, I, I,
I worked so hard to save, and I was
able to save a, a decent amount of
money this year, but I worked hard
for it, and now I gotta send 40,000 to
Mike Pine: gotta
Kevin Schneider: the IRS?
I want that money put to work for me.
So if I own oil and gas well, then
I put $100,000 in oil and gas well.
In a GP interest-
Yes.
Thank you ⦠I've given that to you.
Thank you
Mike Pine: Um, I just got him on a
technicality, but it's fun to do.
Kevin Schneider: GP
interest that's qualified.
It's not through an LLC.
You gotta be careful and work
with the right tax strategist.
We,
Mike Pine: Weâ¦
Kevin Schneider: I had a, you know,
Mike Pine: aâ¦
Yeah,
Kevin Schneider: sorry, long-
I know where you're going.
Keep going
you invest it
Mike Pine: I had some clients that came
up and like, "Hey, here's oil and gas.
I, I heard you.
We, we talked
Kevin Schneider: No
matter, we're gonna invest.
Look at this prospectus, and
Mike Pine: it was an
Kevin Schneider: it was an LLC Yeah.
And we come-
Mike Pine: a limited liability company.
Guess what?
He had liability protection.
He couldn'tâ¦
It wouldn't work.
But the sponsor was telling him it would
work, so be very careful out there.
So I invest 100,000.
Kevin Schneider: Um, the tax laws around
oil and gas are beneficial and incentive
Mike Pine: people to put the
money in and, and try to find
hydrocarbons for our country.
And most people end up losing it.
We'll talk about that in a minute.
Kevin Schneider: But more, the majority of
Mike Pine: people that invest
in oil and gas lose money.
Did you know that?
Kevin Schneider: people
Mike Pine: Oh,
Kevin Schneider: who invest
in oil and gas lose money.
Did you know that?
Yeah.
Oh, yeah.
But
Mike Pine: But we'll, we'll
get to that in a second.
Now,
Kevin Schneider: the IRS says we,
we have these other incentives.
They're like, "I know it's going to take
you eight months to drill these wells.
Um, it might even take you two years
to fully get this production field up.
But as long as you follow the rules
and have it all contracted out by
March 15th of the year or March 1st,
Mike Pine: it
Kevin Schneider: just depends,
sometimes even later, all based
on the facts and circumstances,
Mike Pine: "we're
Kevin Schneider: going to let you deduct
Mike Pine: something called
Kevin Schneider:
intangible drilling costs.
Even if you invest in December and
didn't spend that money until later,
we'll give it to you this year."
And general rule of thumb, on average,
it costs-- If you're drilling a hundred
thousand dollar well, um, you're going
to spend twenty grand on equipment, um,
taxes, other things, maybe twenty-five
grand, but seventy-five grand goes to what
is defined as intangible drilling costs.
They're costs that you spend, the labor,
Mike Pine: the,
Kevin Schneider: the rent,
other stuff to drill that bore-
Mike Pine: into
Kevin Schneider: that hole or that, that
well, that hole into the ground to get
Mike Pine: out,
Kevin Schneider: hydrocarbons out.
Mike Pine: and
Kevin Schneider: say, "You can deduct
that this year, and that deduction,
Mike Pine: um,
Kevin Schneider: percent allowable
against your active income this year."
Mike Pine: year.
Kevin Schneider: So I do that, and
if it's just a standard typical tax,
Mike Pine: re-
Kevin Schneider: uh, oil and gas
indication, I'm going to get seventy-five
percent reduction, which is going to save
meee, depending on what state I live in,
Mike Pine: depending on
what state I live in,
Kevin Schneider: maybe twenty-five,
thirty, thirty-two, thirty-three
Mike Pine: thirty-three
Kevin Schneider: thousand dollars in tax.
So what I'm really doing is get a
hundred thousand dollar investment for
seventy thousand, or in some cases,
which we'll get to in a minute, you find
an oil and gas fund that, that maybe
gets you ninety, ninety-five percent.
Mike Pine: Some of them clo-closer to
Kevin Schneider: hundred- We got close
to a hundred last year on this deal.
We did.
We got ninety-ni- I think
ninety-eight and a half percent-
Yeah ⦠deduction with your IBCs
Mike Pine: plus bonus
Kevin Schneider: plus bonus depreciation.
Mike Pine: Can
Kevin Schneider: And can
Mike Pine: I
Kevin Schneider: can I interject
real quick just because I want
y'all to think about, like, when
y'all buy stock in the stock market.
Let's say you bought a hundred
thousand dollars of shares of Apple.
Mike Pine: Mm.
You go
Kevin Schneider: to the New York Stock
Exchange, you exchange your hundred grand,
and you in turn receive shares of Apple.
You do not get a tax
deduction for your investment.
Mike Pine: for your
Kevin Schneider: That is your
basis in the stock, right?
So you recognize your cost in the stock
market when you sell the Apple stock.
If it went up in value, you
take your sales price minus
your basis, that's your gain.
In oil and gas, you deduct
your upfront investment.
So imagine being able to deduct a
hundred thousand dollars of Apple
stock against your W-2 every year
investing into something like that.
That's the power of this, and that's
the difference between stock and oil.
Mike Pine: Mm.
Kevin Schneider: Um-
One of the differences, but yeah.
Big
difference.
Huge difference.
Huge
difference.
So you don't only get a deduction
to reduce your tax, you get an-
Mike Pine: investment.
Now,
Kevin Schneider: Not all
investments are created equal.
Six out of 10, the last stat I saw,
six out of 10 retail investments
in oil and gas don't pay back
Mike Pine: the investors
Two out of
Kevin Schneider: Two
out of 10 barely just-
Mike Pine: make payback
Kevin Schneider: The other two out of
10 actually give you a positive ROI.
Mike Pine: give you a positive ROI.
Kevin Schneider: That's why it's scary.
It's
risky.
That's why it's risky.
Now,
Mike Pine: do you de-risk it?
Can it be de-risked, Kevin?
Oh,
Kevin Schneider: how do you de-risk it?
Can it be de-risked?
Oh, yeah.
And if you think about the risk that's
involved in this, this is why the
incentives in the tax code exist.
Because if there weren't tax incentives,
how many people would invest into
oil and gas operations in America?
Mike Pine: Hmm.
Kevin Schneider: Probably not many.
Mike Pine: No.
Kevin Schneider: Because there's
tax benefits, that kind of juices
up that ri- it takes down your risk
tolerance 'cause the government's like,
"Hey, we're gonna partner with you,
reducing your risk by giving youâ¦
We're gonna, we're gonna invest
with you by tax benefit- Yeah
Mike Pine: Yeah
Kevin Schneider: and mitigate,
and mitigating your taxes."
So that, that's one way
to mitigate your taxes is
Mike Pine: real
Kevin Schneider: your risk.
Mike Pine: Like, investment numbers as
if we were investment professionals.
Um,
Kevin Schneider: So that $100,000
investment that just reduced my taxes
by $30,000, as long as it's a true
real fund and there's no fraud going
on and it's actually being utilized
to, to drill oil and gas well,
Mike Pine: that's not
Kevin Schneider: a risk.
That's guaranteed.
So you get a 30% ROI on your investment-
First year ⦠immediately
from courtesy of
Mike Pine: of the
Kevin Schneider: white and blue.
That's right.
Mike Pine: The
Kevin Schneider: That's right.
And so that's, that's why there's
incentives in the tax code
is 'cause this is a riskyâ¦
If you ever go back to like, I don't know
if you ever took finance class in college,
but tracking a beta on stocks, like
Mike Pine: yes
Kevin Schneider: this beta
would probably be like a two.
Where the S&P is a, a one beta,
this beta would be like a two.
It'd be like twice as risky
as the S&P, maybe a 2.5.
I don't know.
I wouldâ¦
It would be an interesting exercise.
Mike Pine: I don't remember
Kevin Schneider: I don't remember.
Yeah, beta judges risk.
Mike Pine: Oh.
Kevin Schneider: Um, so another way
to de-risk this though, is there's
going to have to be some sort of, as we
Mike Pine: stated
Kevin Schneider: stated in the regs,
that you cannot limit your liability.
So a way that we can get around
that without limiting the tax
deduction is providing insurance.
And insurance in this industry
is impossible if you're gonna
be an individual investor.
If you go to your insurance broker
and just say, "Hey, I'm gonna
invest in oil and gas as a GP.
I need a,
Mike Pine: it,
Kevin Schneider: I need some
insurance to cover this investment."
It's not impossible
Mike Pine: not impossible, but we've had
clients look for it and not, and, and
Kevin Schneider: And agents
aren't gonna touch it.
They're not.
Now our fund, we have insurance that
covers our GP liability, which just
means in the event that there is a
lawsuit, a wrongful death on site,
a whatever risks there could be, uh,
environmental risks that come up, those
risks are gonna pass down to us as GPs.
We are general partners, so we have
to have our investment at risk and
our personal liability at risk.
This insurance would kick in to
protect us, and it does not diminish
469(c)(3) of limiting liability.
We're insuring us, and so in- investors
in our fund actually get the benefit
of having the risk, getting the tax
deduction, but we're hedging our risk with
insurance, which hurts our ROI, which I
want you to talk to a little bit, 'cause
there's two options here, and it depends
on where you're at on the risk spectrum.
But option one, "Hey, invest, invest
with us on these oil and gas deals.
We'll cover your risk, giving you as
much passed down benefit as possible,
but your ROI is gonna be clipped a
percentage because of the fees of
the insurance and things like that."
Yeah, I mean, the insurance is expensive.
It's super expensive in this industry.
I wasâ¦
When you brought it to me, I was
like, "No, we're not doing this."
I was like, "It's like
20, 30 grand premium."
But it-
Mike Pine: a
Kevin Schneider: Got to make it
a partner owner or investor- Yes
Mike Pine: What was the vote count?
I think there was two or
three who didn't wanna
Kevin Schneider: Yeah.
Um, but there's good reason for that too.
Mike Pine: You
Kevin Schneider: attention on finance
Mike Pine: class.
I mean, I, I did
Kevin Schneider: Good enough
to get through college.
Mm-hmm.
Um, I like to think
Mike Pine: the tax.
Kevin Schneider: so
Mike Pine: Well, moving on.
I love tax now, though.
Kevin Schneider: Good Okay.
So you have that risk.
You can mitigate, you're
not eliminating it
Mike Pine: it, by the way,
'cause all insurance come with a
Kevin Schneider: УгÑ
Mike Pine: itâ¦
The
Kevin Schneider: insurance companies to us
Mike Pine: to be around
if you're sued later.
most people-- Why is it so
Kevin Schneider: Expensive because
no one needs, no one asks for it.
Mike Pine: asks for it,
Kevin Schneider: So there's not
a real market out there for it.
Mike Pine: for it,
Kevin Schneider: And an insurance
company that doesn't have a market
Mike Pine: doesn't
Kevin Schneider: have people that know it,
doesn't have actuaries that have risked it
Mike Pine: it and,
Kevin Schneider: and, and done the,
Mike Pine: the, dis--
Kevin Schneider: the tabulations of
Mike Pine: how
Kevin Schneider: much they
should charge these premiums.
So they, they charge a lot more.
Why is that if this is risk?
Now, here's where Kevin's finance
led him saying he shouldn't get
insurance, and, and he was right.
I am
Mike Pine: an
Kevin Schneider: an over-insured dude.
I worry about things.
Mike Pine: things.
Kevin Schneider: I got bags of silver
Mike Pine: just in
Kevin Schneider: just in case
we have a zombie apocalypse.
You got silver, guns, shelters- Yeah
solar.
If I, if there is an apocalypse,
I know where I'm going.
I, I'd know for sure.
I'm
Mike Pine: I'm
Kevin Schneider: coming to your house.
Mike Pine: I'm aâ¦
You better bring some silver
Kevin Schneider: Graham Hey,
Mike Pine: or
Kevin Schneider: I'll guard the,
I'll guard the doors with you
Mike Pine: you.
I've never seen you shoot.
We'll have to go out shooting
Kevin Schneider: Just give me a
shotgun, that'll be fine Okay.
Um, so back toâ¦
I, a couple years ago,
under a previous minister
There were some states that filed a,
a lawsuit against-- They got together
Mike Pine: and filed a lawsuit
against all the big oil companies,
the Exxons, the Mobils, uh, BPs.
And the
Kevin Schneider: lawsuit stated,
"We are filing this multi-billion or
trillion dollar," I can't remember.
It's some
Mike Pine: crazy amount
Kevin Schneider: of lawsuit,
"because you guys emitted carbon
dioxide into the atmosphere
Mike Pine: for the
Kevin Schneider: past 60 years,
and you profited off of it, and
Mike Pine: and you
Kevin Schneider: knewâ¦"
Carbon dioxide.
Ooh, my
Mike Pine: better
Kevin Schneider: tongue went weird.
Mike Pine: out.
You,
Kevin Schneider: You knew carbon dioxide
was killing people, um, and causing
global warming and ruining the world."
Don't get me started on that.
Um, preventing the next ice age maybe.
But, "You knew that, so, um, you gotta
pay us billions and trillions of dollars."
And you'd think it would get to a
court and a judge would say, "Come on.
We're all emitting carbon dioxide.
They didn't know."
This isn't like the,
what do they call them?
The five dwarfs or seven
dwarfs with the nicotine-
Mike Pine: deal
Kevin Schneider: in Congress.
The,
Mike Pine: the--
Kevin Schneider: they didn't know.
You would think a judge would say that, or
a judge would say, and an administration
would say, or a Congress would say, "Hey.
Okay, we see there's a problem
with this tort liability here.
Our country needs to
be energy independent.
Yes, we should invest in alternative
energy, but we need oil and gas to
survive unless you want everyone,
um, living without electricity again.
Mike Pine: So
Kevin Schneider: no, you
can't have this lawsuit."
We saw the opposite.
And it was a different time,
different administration, but
It actually made it through the courts.
Um, and it looked like
it could go somewhere.
And laws change.
So here's what I was worried about when we
decided to get into oil and gas covenants.
Mike Pine: gas, Kevin.
Kevin Schneider: We invest, put this
money in, make this money, nothing
happens, statute of limitations passes.
Twenty years later, the world
changes again, politics change,
Mike Pine: and
Kevin Schneider: there's another big
class action lawsuit against anyone
and everyone who helped pollute
the world with carbon dioxide while
providing energy for the world.
Mike Pine: world.
Kevin Schneider: Um, and we're gonna
change the statute of limitations.
We're not supposed to be able to
do that, but we've seen it done
recently before in some states.
Mike Pine: Um,
Kevin Schneider: and they say,
"We're gonna open the statute
of limitations for this.
We're changing the law, now
let's go sue everyone for money."
That worried
Mike Pine: me,
Kevin Schneider: me, just
like the zombie apocalypse.
Mike Pine: does.
Kevin Schneider: Now,
when I told other oil
Mike Pine: gas people about this worry,
Kevin Schneider: and gas people
about this worry, they're
like, "It's never happened."
So we went and we hired
a couple attorneys, two
different ones, to go research.
Has any general partner invested in
a syndication that truly was passive,
hands-off, had reasonable reliance on
the management of the company and the
business, has any of them actually
been sued successfully and, and won
Mike Pine: or lost, where
Kevin Schneider: the lawsuit person won?
They
Mike Pine: won?
Kevin Schneider: couldn't find anything.
So that's why the industry doesn't do it.
Mm-hmm.
Mike Pine: worry, so
that's why we offer it.
Kevin Schneider: So that is option one.
So option two is we'll link you
directly up with the operator.
Mike Pine: At
Kevin Schneider: the end of the day,
we would love for you to invest with
us, but if you're not too worried
about the zombie apocalypse, we're
just gonna shake, handshake deal,
bring you together with this operator,
let you vet it, let you go with it.
And man, it's gonna
provide you tax benefits.
That's what Mike and I are after.
It- we want you to invest,
get tax benefits, whether it's
with us or another operator.
But we've, we've worked with the operator
we're working with for many years.
They are really standup guys.
They are men of their word.
They o- they are just really good
down to earth operators that we trust.
In the oil and gas industry, when
I first got into it, was veryâ¦
not slimy, but I mean, the first
operators we did business with were
not, uh, men of integrity, I would say.
Um, and so
Mike Pine: Mm.
Mm
Kevin Schneider: when we found
them, and we've already invested
with them personally and in our
fund in prior- the past two years.
You're talking about the first people.
Mike Pine: people.
No.
Where it turned out they were fraudulent.
No.
Kevin Schneider: But- Where it
turned out they were fraudulent.
No.
But these people-
Learned a lesson ⦠yes.
Most expensive tuition I've ever paid.
Yeah.
Uh, these operators are cash flowing.
They're ROI-ing.
Gas prices went up.
Our distributions went up.
Everything makes sense.
We'veâ¦
You actually went boots on the
ground, went to the fields.
The, the owner actually
walked the fields with you.
Um, and they would do that
for any of our investors.
He's like, "Man, if you, any of your
investors want to come out and just walk
the land that you partially are gonna
own, you're gonna be a partial general
partner owner of this operating lease.
That's your land.
That's your equipment out there."
He'll take you and show you and walk
it and educate you on your investment.
So it's just a really cool opportunity.
Let's get back to the law though
Mike Pine: we start talking
about our cool opportunity.
Kevin Schneider: Um, so how long do we
have to have this general partner risk?
Mike Pine: That's the cool part.
the Internal Revenue Code, it just says,
Kevin Schneider: Says as long as
you don't have any risk while the
expenditures are made, then, um, or as
long as you don't have any liability
protection, as the opposite of what I
Mike Pine: just
Kevin Schneider: just said.
Yeah.
As long as
Mike Pine: as
Kevin Schneider: you don't have any
liability protection once the, when
Mike Pine: expenditures are made,
then you get to take the deduction.
It
Kevin Schneider: expenditures are
made, then you get to take a deduction.
It doesn't state nor require
that you have to maintain your
general partnership interest.
And a good operator and a good fund,
after those expenses have been paid,
usually in the first year, usually
even in, in the first eight months
of that year, they flip you from a
general partner to a limited partner.
So you don't have any
liability for the oil field
Mike Pine: for anything that
Kevin Schneider: happened-
After ⦠after you became
Mike Pine: limited partner.
Yeah.
Kevin Schneider: a limited partner.
Yeah.
It de-risk you in year two.
So that's- 'Cause we don't needâ¦
Hopefully, 'cause the thought
is in year one, we're gonna have
a bunch of expenditures, we're
gonna have a bunch of losses.
I want GP interest at that point 'cause
I wanna deduct those expenditures against
my W-2, against my trader business.
Year two, we're still gonna have likely
some more intangible drilling costs
remaining, but hopefully we actually
are drilling and striking oil to where
there's distributions and there's income.
So my K-1 issued in year two is not
gonna have this big loss tied to it.
So now I'm not overly
concerned about GP interest.
Make me an LP.
Take my risk off the table.
I got my tax benefit, now de-risk me in
year two, and we still get insurance.
But,
Mike Pine: do.
Kevin Schneider: yeah.
Mike Pine: Um,
Kevin Schneider: and we,
Mike Pine: You
Kevin Schneider: know, normally
Mike Pine: when
Kevin Schneider: buy insurance.
If you don't buy what's called a
tail after your event that you wanted
insured happens, it only covers you
while you're still paying premiums.
We worked out a deal with our insurer
that they're automatically providing the
tail each and every year, as long as we
continue to use them on the next fund.
So, so for us right now, we got a
good deal where it's a one-time,
one-year expense to that fund,
Mike Pine: and
Kevin Schneider: the new fund gets to pick
up the majority of the expense next year.
Mike Pine: year.
Kevin Schneider: Um, so
really in ROI pro formas, it's
Mike Pine: formas, it's
Kevin Schneider: only
Mike Pine: seven
Kevin Schneider: first year
versus 8% in the first year.
Mike Pine: versus eight
percent in the first year.
Kevin Schneider: Um-
With insurance, so- It's
still a percentage
though, but it's a risk.
That's the
Mike Pine: the
Kevin Schneider: classic
risk reward example, right?
You're de-risking, but you
know your reward's gonna be a
little bit less 'cause you're
Mike Pine: be a little
bit less 'cause you're
Kevin Schneider: having
to pay the de-risk.
Mm-hmm.
Risk versus reward.
Mm-hmm.
Um,
Mike Pine: I
Kevin Schneider: like there's so
much to talk about more about it,
but we've already gone in half
an hour.
So let's sum up the deal in, like,
two minutes of our offering, and then
I would recommend if this interests
you, oil and gas investing, we want
to talk to you personally anyway.
You can just go to revotaxpayer.com
and click Schedule a Consultation.
Talk with our team, talk with us.
After viewing this episode, if this
still interests you, we'll give you
a quick two minute high level, but
we can give you a lot more details
if you're interested in this.
Mike Pine: in this.
Kevin Schneider: Yeah.
So before I-
Mike Pine: get into our two minutesâ¦
Sorry, I'm gonna go a
little long in this episode.
Never has that
Kevin Schneider: No.
Mike Pine: before in
Kevin Schneider: You go on tangents?
Never
No,
Mike Pine: of our deal and why we're
Kevin Schneider: not a tangent.
This is an important key aspect- Okay
⦠of our deal and why we're doing it
Mike Pine: versus letting other people
do it like we always used to and
just referring our clients to them.
Kevin Schneider: Um, another big risk,
Mike Pine: the
Kevin Schneider: biggest real
risk of investing in oil and gas
that is empirically, um, proven
is you lose all your money.
Mike Pine: Um,
Kevin Schneider: my dad made some oil and
gas investments, and he was a successful
investor and retiring successfully.
But he made some oil and gas investments,
um, and he lost on every single one.
And when we started getting oil and gas,
and I was like, "Man, you know what, Mike?
The people who know oil and gas, the, the
oil barons, they make money all the time.
Mike Pine: People
Kevin Schneider: you and
me, we don't make money most
Mike Pine: of the time
Kevin Schneider: of the
time in oil and gas."
And he's right.
Again, six out of ten retail oil
and gas investments lose money.
Only two out of ten make money.
The other two-
Mike Pine: you'll
Kevin Schneider: paid back,
but you lose the time value.
Mike Pine: money.
Kevin Schneider: So we started-- We,
we were sending clients and referring
clients four or five years ago to other
oil and gas operators and funds because we
believed in the tax benefit, and we saw,
Mike Pine: We have
Kevin Schneider: a lot of clients
making a lot of money in oil and gas.
Mike Pine: gas.
Kevin Schneider: Mm-hmm.
Um,
Mike Pine: but we,
Kevin Schneider: we didn't
know the oil and gas market.
We didn't know the people.
We didn't know what their philosophy was.
Mike Pine: was.
Kevin Schneider: So we got
into this three years ago.
Mike Pine: This
Kevin Schneider: is our third year
Mike Pine: of r-
Kevin Schneider: running a fund of funds.
We got in three years ago with the
idea of, look, we want in on this
action, but we wanna de-risk it.
We don't have enough money 'cause
most oil and gas operations require
half a million minimum or two
hundred and fifty thousand minimum.
We don't have enough money to,
to, to put in a bunch of them,
Mike Pine: So let's
Kevin Schneider: pool together
with our clients and create a fund
of funds and at least diversify.
I remember diversification
from finance class.
There you go.
And that works.
Yeah.
Um, and we've invested, we vetted.
Mike Pine: vetted.
Kevin Schneider: I learned
all about oil and gas.
I was very blessed to have a, a,
an executive-level C-suite guy
who had spent many, many years
with the big oil companies.
He was the father of one of our clients.
Um, he took me under his wing and,
and walked all the fields with
me, showed me what to look for.
And we ultimately ended up picking up
four syndicators that we invested in.
Um, and the diversification worked.
Three of those funds are paying back
very well, especially now thanks
to the Strait of Hormuz and Iran.
Um, they're paying back well.
One of them-
Did not
Mike Pine: Did not
Kevin Schneider: has not paid much at all.
It went up a little last month,
but it's still- It might pay
back- It's still trailing
in twenty years,
but we didn't want
payback in twenty years.
We wanted payback now
Mike Pine: a payback in five, four.
Um,
Kevin Schneider: so that diversification.
But overall, we're making well over pro
forma in the fund because the other threes
are, are performing incredibly well.
Next year, we decided to stick with those
Mike Pine: same
Kevin Schneider: three of the four
because they'd proven, we knew them.
Kevin and I were really busy
learning the new tax law.
Mm-hmm.
We didn't have time to go vet
new oil and gas operators.
We invested with them, diversified, and
some are paying them better than others.
But we realized and learned more and
more about this, what the methodology was
Mike Pine: and how
Kevin Schneider: it worked in
the real world of each of the
operators that we invested.
Mike Pine: in.
Kevin Schneider: The
methodology is very different.
We have one fund that is just drilling
on Marcellus Shale in Pennsylvania,
deep, huge, twenty million dollar
wells, fifteen million dollar wells,
and only paying out natural gas.
Gas prices went up big time,
or oil went up big time.
Natural gas kind of stayed
the same up in their market.
Um, we didn't see huge increase.
We saw small increase.
We had another one that had this great
idea, and it's still a great idea,
and they do well, where they piggyback
on what's called forced pooling.
Another episode, we'll talk about it.
Forced pooling, but piggyback
on the Exxons, the BPs, the U.S.
Energy Partners, piggyback and force
those guys to let them invest in, in
a actual well, in a working entity.
Mike Pine: Um,
Kevin Schneider: and that's
turned out to be really well.
But then we had the,
Mike Pine: we had the,
Kevin Schneider: our fourth one
that we picked originally that
I've come to love and believe isâ¦
Now please, you got to do
your own due dili-diligence.
Past results don't guarantee
future performance.
Outcomes.
All that stuff.
Um,
Mike Pine: and this
Kevin Schneider: is an opinion,
but I'm invested in it, and
now I'm going all in on it
Mike Pine: this year.
Kevin Schneider: They have this very
different philosophy, and this is
the deal that we're talking about.
Mike Pine: about.
Kevin Schneider: They go invest,
um, by buying existing leases
that are already producing oil.
So no dry hole risk.
Mike Pine: Mmm,
Kevin Schneider: No dry hole risk.
Mm-hmm.
Um,
there's still risk, but no dry hole risk.
They know there's oil.
They're buying them all here in the
Texas area right now, and their geologist
Mike Pine: has been
Kevin Schneider: in the business for,
like, 30 years, and a lot of these
wells were drilled 20 years ago.
You know who drilled them?
You know who the geologist
was that found that oil?
Him.
Mike Pine: Yes.
Kevin Schneider: Um, and he says,
"Look, I know where we drilled.
I know where we didn't."
Or in a lot of cases, "Look, we drilled
down to 900 feet because that was
where the most oil was, but we alsoâ¦
I remember, and I saw the logs."
These logs are justâ¦
They're-- He taught me how
to read them, by the way.
But these logs, he had logs from
35 years ago that showed wells that
we were going out and buying that
year, um, or that our fund was, or
they were buying through our fund.
And he said, "Look,
Mike Pine: there was
Kevin Schneider: oil at 140 feet.
There was oil at 320 feet.
There was oil here, but we,
we, we wanted the cheapest oil.
We drilled it."
That's all they've ever drilled.
They call those levels.
It's like a layer cake of oil.
They call those levels
Mike Pine: uh,
Kevin Schneider: pay zones, and the
ones that haven't been used, 'cause
Mike Pine: well is
Kevin Schneider: well's a straight
pipe going straight down to
the 900 feet in this example.
It didn't collect any of the
oil from those different levels.
Mike Pine: So
Kevin Schneider: what they do, they
call it behind the pipe pay, and they
go, they buy these leases that they
know about, and they go perforate the
wells, the existing wells on most cases.
They
Mike Pine: m-
Kevin Schneider: make holes in
them at those different pay zones.
And suddenly, a well that is 25 years
old, it's at the end of its life,
it's already gotten most of the oil
Mike Pine: of the 900 feet, they perforate
Kevin Schneider: of the 900 feet,
they perforate it, and they're
getting a ton of oil out of it,
and they buy it at a good price
Mike Pine: 'cause they're
buying it based on
Kevin Schneider: because
Mike Pine: it's producing
Kevin Schneider: they're buying it
based on what it's producing today.
But it's still producing
today, so you're guaranteed
Mike Pine: no dr-
Kevin Schneider: no dry hole costs.
Um, but is it gonna pay well?
Is-- It takes some
of their development.
These aren't home runs.
These are-- This, this is what we equated,
Mike Pine: to-
Kevin Schneider: to
the baseball analogies.
Like, some oil operators out there, you
can hit home runs, grand slams, right?
The risk goes up.
Mike Pine: Mm-hmm.
Kevin Schneider: These are more like
singles, doubles, consistent pay with the
same tax bene- even better tax benefits.
That's why we're leaning into
this operation more so this
year is historically where
we've gotten 75% deduction.
In this deal for 2026,
we're aiming for, like, 90,
Mike Pine: 95
Kevin Schneider: 95 if not more, uh,
deduction on your investment this
year with that double consistency
distribution, um, and return.
Mike Pine: could save youâ¦
reduce your income by 90,000 or 95,000.
Kevin Schneider: Yeah, saving you more.
Sa-- Yeah, so
Mike Pine: yeah.
So- I gotta do the math
on that, but keep going
Kevin Schneider: So that,
no, that's basically it.
I think we need to vet this deal with
each of our clients because there's
other limitations when it gets down
to it and when we're looking at each
individual tax situation to make sure
how much should you invest, what's your
other portfolio look like, and we always
say bring in your financial advisor.
You know, we don't want your
bi- we don't want a major part
of your portfolio being oil.
Mike Pine: Mm.
Kevin Schneider: Uh, it's just too risky.
Now, is it a piece of my portfolio?
Absolutely.
Right.
Because right now oil prices, gas prices
are up, so we're eating really well right
now on oil and gas, but some of my other
stocks and mutual funds may be down.
Mike Pine: Actually, th-
Kevin Schneider: everything's kind of
up right now for me, but it's kind ofâ¦
oil-
Mike Pine: Mine's
Kevin Schneider: up
more ⦠is not as vi- Shut up.
Mike Pine: 'Cause I didn't
Kevin Schneider: But I didn't do
it through a financial advisor.
Yeah, okay.
But that's part of the diversification
is having that oil in there.
And so we would love to
talk to you more about it.
Um, Mike gets super passionate about it,
so he might wanna take the ball more.
Mike Pine: here.
Yeah, I, Iâ¦
'cause there's a lot of other cool things.
Kevin Schneider: cool things.
I know we're long, so
Mike Pine: let's do a normal
close, but we're gonna add on
Kevin Schneider: let's do a normal
close, but we're gonna add on
Appendix A to this in case you wanna
hear more about this specific deal.
'Cause that's not the only thing that
de-risks the, the behind-the-pipe pay.
There's other things.
So do you wanna, like, land the plane like
Mike Pine: land the plane like
Kevin Schneider: we normally would?
And then I'll start Appendix A.
Sure.
So thank you for joining us on this
oil and gas-heavy episode here.
It's a tremendous investment, a
tremendous opportunity with the
government partnering with you.
Is it the right move for you?
I don't know.
That's why I need to talk to you,
and Mike needs to talk to you.
We'll kind of advise you further and then
bring in your other, um, bring in your
other teammates, such as your financial
advisor, attorney, making sure you
holistically understand this industry.
So never invest into something you're
not familiar with or understand.
Mike Pine: And
Kevin Schneider: And never invest
Mike Pine: invest in oil and gas
if it's gonna completely ruin
your life or ruin your, your
Kevin Schneider: Yes.
This should it's not play money
but consider it play money.
You know, it's like if I were to lose
this, hey, I get some tax benefits, but
at the same time we're not gonna beâ¦
There's no dry hole.
So there's always gonna be some
return doesn't matter how fast.
There's an exit on it.
We didn't even get to the
exit of packaging and exiting.
Mike Pine: A or B or C.
Yeah.
So we'll, we'll
Kevin Schneider: you guys later.
We are Yeah.
So we'll, we'll see you next week.
Stick around for more of Mike's, uh,
add on here, his appendix, so to speak.
So thank you for joining us.
Please like, comment, and
subscribe, and we'll see you next
week on the Hidden Money Podcast.
So here comes Appendix A.
By the way, the math I ran, if we get
Mike Pine: ninety-five
Kevin Schneider: write-off and you're
in the top federal tax bracket, you put
in $100,000, you know what it saves you?
Over $35,000
Mike Pine: in
Kevin Schneider: in federal tax only.
Mm-hmm.
Put yourself in a high tax
state, maybe it saves you
$45,000.
But it's in Texas.
The K-1's gonna be source in Texas.
Mike Pine: ta-
Kevin Schneider: Some
states allow you to take it,
Mike Pine: Some
Kevin Schneider: states don't.
Which states?
A lot of states.
For real?
Oil
Mike Pine: gas friendly
Kevin Schneider: and
Mike Pine: you're paying tax in
Kevin Schneider: gas friendly
states if you're paying taxes.
Okay.
Um- So California- I mean-
New York, yeah.
Mike Pine: No, New York, California,
Kevin Schneider: New York No, no.
All right.
Um,
but some, some of
Mike Pine: of
Kevin Schneider: it.
So again, your facts and ci-
Mike Pine: make sure you talk with
an actual tax strategist that knows
them and knows your state tax.
Um,
Kevin Schneider: so we talked
about behind the pipe thing, and
that's, that's just one of the
Mike Pine: cool
Kevin Schneider: things they're doing.
And not every pipe has
Mike Pine: behind
Kevin Schneider: behind the pipe thing.
Well, this geologist, Barry, he knows.
He says, "Hey, Cotton, this, this lease is
up for sale 'cause the family wants out of
the oil and gas, and they've got plenty.
The, the, the, the descendants of the
people who originally bought it are out
of-- You know, they don't care about oil
Mike Pine: gas.
They just
Kevin Schneider: and gas.
Mike Pine: out.
Kevin Schneider: They just wanna
Mike Pine: When we drilled those
Kevin Schneider: cash out.
Mike Pine: holes, look at these
Kevin Schneider: They're selling this.
When we drill those initial
holes, look at these other logs."
Mike Pine: they took that
indicates there's a lot more oil
there that they haven't got yet.
That's not wildcatting.
It's a little more
Kevin Schneider: It's not wildcating.
Mike Pine: pipe
Kevin Schneider: It's a little more
risky than buying pipe A, but it works.
Um, and so what they'll do is they'll
go buy a field, let's say, uh,
an oil lease in, just an example.
Let's say they buy it and currently
it's producing 100 barrels
Mike Pine: a day of oil.
Kevin Schneider: It's pretty
small, and this probably has like
thirty or fifty oil wells on it.
Mike Pine: it.
Kevin Schneider: Um, so they're pumping
just like a, a barrel, two barrels a day.
But you add them all up, it's producing,
it's paying cash, and it's guaranteed.
The way they charge their prices
is to get seven or eight percent in
the first year annualized, right?
So twelve months, seven or eight percent
based on the current production, with
oil and gas being-- West Texas crude
being at sixty-five dollars a barrel.
Um, you look at
Mike Pine: the,
Kevin Schneider: the, the average w-
Test- West Texas crude has been for the
last ten years, and it's above that.
Mm-hmm.
Um, and I think that's a pretty
conservative way that they do pro forma.
Now, that's one other way.
Another way is when they're drilling these
new holes, um, they're producing ore.
Doing perforations.
They get a lot of water,
groundwater that comes up
Mike Pine: with oil.
Kevin Schneider: with oil.
It turns out oil is mixed-- They say oil
and water don't mix.
Like oil and water.
Yeah.
They say it don't mix.
But when you see it come out
of the ground, it's mixed.
Well, it's, it's marble, I guess.
Um, and so they separate it.
Some of them have a lot of water, and
they gotta do something with that water,
or they have to pay to get it disposed.
What they do is they pump them
back down in the older wells, and
when they push that water down-
Guess what comes up
let me tell you this.
This oil--
Mike Pine: When
Kevin Schneider: you put water and
oil together, which floats on the top?
Oil.
Mike Pine: Yeah.
Kevin Schneider: Yeah.
Yes.
So you paid attention in science.
I did.
Yeah.
So now this well that they thought they'd
done, they'd, they'd taken all the oil
out, they bring the oil out of the top.
Um, sometimes they frack it
and bring more oil in that way.
Mm-hmm.
Additionally, theyâ¦
All right, now I'm getting
to more of Appendixes.
But the point is, is we
like how these guys operate.
It's not a grand slam.
It's not even home run hits.
They're looking for base hit
after base hit after base hit.
Mike Pine: But
Kevin Schneider: the cool thing.
They buy
Mike Pine: a
Kevin Schneider: a field that's
producing a hundred barrels a day.
If they can get that to produce
three hundred, four hundred barrels
a day, in three, four years,
Mike Pine: maybe
Kevin Schneider: seven, but when the
time's right and the production's
right, they wrap them all together
and sell them to private equity,
to another oil and gas fund,
Mike Pine: to
Kevin Schneider: syndicators.
And they're not selling for the
same price they paid for them.
They're selling for more
because it's producing-
Producing four to five hundred
barrels, not a hundred.
So not only do you get eight to
twelve percent, most likely minimum.
Now, we'll talk about one
more example in Appendix B
Mike Pine: our, our first experience with
them, which even endeared me more to them.
Kevin Schneider: But 8
to 12% a year in cash
Mike Pine: on cash,
Kevin Schneider: and then sometime
between year four, five, six,
Mike Pine: def--
Kevin Schneider: almost
Mike Pine: definitively by,
by seven, around and sell
Kevin Schneider: no, suddenly
you get one and a half, two and
a half X your original investment
back Mm-hmm Now that's speculative
Mike Pine: but you're still getting
eight to twelve percent a year.
So we like that.
Kevin Schneider: That's Appendix A.
Appendix B, I'm gonna tell you about our
experience with this specific operator
Mike Pine: the first
time we invested in them.
Kevin Schneider: They raised
about 12 million bucks.
We put
Mike Pine: in,
Kevin Schneider: I think, close to
seven, eight hundred thousand from
our fund of funds in with them.
They had this eight to twelve percent.
Well, it turns out when they first
bought it, a couple things changed.
One, those wells,
Mike Pine: the actual
Kevin Schneider: holes in
the ground, weren't as stable
as they originally thought.
Um, they had not been maintained well.
Mike Pine: well.
Kevin Schneider: So they had a choice.
Do we take them offline and fix them?
Or do we just go and do our preparations?
Well, they're looking for long-term value.
Normal com-- syndication or normal
operator is feeling the need,
I gotta provide my pro forma.
Um, if I don't, I won't be able to
raise this much more money next year.
That's how they normally operate, and
that's what we've seen in the field.
These guys are like, "Look, for the
long-term guidance on our investors,
let's take them all offline."
Not all of them, but take a bunch
of them offline and fix those wells
Mike Pine: wells
Kevin Schneider: and then
go along with our, our plan.
And they did, and we only got sixâ¦
I
Mike Pine: I
Kevin Schneider: think it was under six.
I think it was closer to
five percent that first year.
And we thought eight
percent was the minimum.
And the price of oil didn't go down
Mike Pine: below sixty-five on average.
Kevin Schneider: So I'm like, "What's up?"
And we had some hard talks with them
Mike Pine: them
Kevin Schneider: and they take us
out, they show us what's going on.
Um, they explain, "Look, I'm protectingâ¦
I got money in this.
You have your money in this.
You have your clients
that put money in this.
Um, I'm protecting y'all's money.
You gotta trust me.
I've been doing these for years."
Now, that same field is way above the 8%,
Mike Pine: percent.
Kevin Schneider: most
of that's because of the
Mike Pine: because of the
Kevin Schneider: oil price,
but they're way above it.
That took character.
That took risk on their part-
Mike Pine: It
Kevin Schneider: hurt their
reputation for a year, 'cause
we were like, "I don't know if
Mike Pine: if I'm gonna
invest in you again."
Kevin Schneider: I'm gonna
invest in you again."
Um, 'cause
the other one- Yeah.
The other ones were killing it.
Yeah.
Yeah.
So, um, but that's justâ¦
So and, and here's the other thing.
They raised that 12 million bucks to go
into these leases, and they had planned
on spending it all within a year.
Thankfully, they contracted
to spend it all, so we got
Mike Pine: the
Kevin Schneider: the ADC deduction.
But when something like that
happens, there's allowances with
Mike Pine: in the
Kevin Schneider: tax jokes,
put everything on pause.
And instead of, even though
he runs the oil and gas
Mike Pine: drillings,
Kevin Schneider: he- he's got his
economy of scale, so he's not dependent
on other drillers to come out most of
the time, um, which is a big problem.
That's why our first one still is not
Mike Pine: paid
Kevin Schneider: paid back well.
Mm-hmm.
Um, because he's relying
on outside people.
He has his own.
Mike Pine: He also
Kevin Schneider: makes money
when he drills the wells.
So if he was self-serving, he
would've just kept drilling.
Who cares?
I'm making my money.
Yeah.
No, he stopped.
He held off, got those fixed, redid some
more logs because they were surprised by
what they had found in this, and pivoted.
And now, baby, the wells they drilled
eight months later are paying us
Mike Pine: really good.
Yeah.
Kevin Schneider: Yeah.
So again, you can't
guarantee the future with
Mike Pine: this.
Kevin Schneider: this.
It's taken the risk.
You gotta have smart
inve-- smart operators.
So one
Mike Pine: my dad told
Kevin Schneider: me- That's what you
gotta have ⦠20 years ago, I'm like,
Mike Pine: don't
Kevin Schneider: "I wanna
invest in oil and gas."
When he told us five-
Mike Pine: years ago, "People lose-- Uh,
normal people lose money," he's right.
The people who knew what
they're doing make the money.
You and I aren't people that know
what we're doing, but we've learned
enough to figure out who does,
Kevin Schneider: УгÑ
Mike Pine: we're de-risking it.
We're not eliminating the
risk, but I feel a lot more
comfortable investing it this year.
Yeah.
Kevin Schneider: Yeah, yeah
Mike Pine: I'm increasing my
diversification allocation
this year into it.
So that's, that's where we're at.
That's appendix B, C, D, and E.
Um, if
Kevin Schneider: If you liked what you
heard, if there's anyone still listening
now, um, please like and subscribe.
Help get the word out.
Help us grow.
Help the logarithms do their thing.
Um, you're supposed to say
smash that like button.
Smash it.
I, Iâ¦
Smash it, that's what they do on all
the Space Odyssey episodes I watch.
Um, but yeah, we'd love to talk
to you about this opportunity.
Um, check us out, Rev-
Mike Pine: or revoinvestor.com
where we are-- Um, we should have an
updated site all about this offering.
Thank you for listening to this episode.
Revo Taxpayer Advocacy LLC is not licensed
or registered as a CPA firm with the
Texas State Board of Public Accountancy.
I'm a CPA, Kevin's a CPA.
We have a lot of CPAs on staff that are
licensed and held to the same standards.
However, when we decided to be
revolutionary and change our name to Revo
Taxpayer Advocacy, the state board would
not allow that and let us remain licensed.
They say we have to have one
of our names in the firm for
us to be licensed as a firm.
And guess what?
It's not us that's important.
It's revolutionizing the way you feel
about taxes and saving you money.
We are advocates for you, so we were
willing to drop our firm license even
though we're still individually licensed.