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"I had an old customer talk to me and said that he was starting to acquire oil and gas wells and develop them. And would I be interested in talking about it. And it's like, “Is that a thing?” Because he was talking about it like flipping houses. I was like, “Really?” He said, “Yeah, that's a thing.” We partnered up. We got a couple of investors around a handful of wells and got our first assets going. And then after that, we made another acquisition for a lot more wells with a couple of family offices and a handful of high-net-worth investors. We've been in I guess we're going on four years now and it's been a really interesting learning curve for me. And one of the big things that I've learned about oil and gas is how closely it is analogous to multifamily.”
The goal of this podcast is to guide and empower you on your journey toward financial independence.
Glenn (00:01.081)
Today my guest is Gary Covert. Welcome Gary.
Gary (00:04.83)
Thank you Glenn, good to be here.
Glenn (00:07.609)
So Gary, if you could just tell us a little bit about yourself.
Gary (00:10.974)
Yeah, I have kind of an eclectic background. I guess you could call me a recovering sales guy. So I started my career selling the high purity metals that go into semiconductors. So my clients were like Intel and TSMC and companies like that, Texas Instruments and whatnot. Did that for a number of years for a Japanese company.
I thought Japan was going to take over the world economically. So I studied Japanese language diligently. That was my major. And then got a good global education at a university called Thunderbird and then had a very global and satisfying career. And then segued from that into consulting. So I'll work with the CEOs and their senior leadership teams to help them develop teams and be more effective.
all that sort of stuff. And so that's one of my three companies that we have as a family. We're a very entrepreneurial family. So the consulting business, my wife is a travel agent. So she's got a luxury travel agency here in Arizona. And then the oil and gas development, which I'm happy to share with you. But yeah, that's a little bit of me to get us started off.
Glenn (01:28.633)
So what kind of, when you're talking to CEOs, what would be the ideal customer that you would be talking to? Like what kind of size of a CEO? Because I know everybody can be a CEO. So what kind of customer would that be?
Gary (01:43.486)
Yeah. Yeah. Great question. I've worked with some very large companies that you would know, you know, national retail chains and national fortune 500 companies. What I really love working with are mid -size companies. And I guess even the kind of industries that I like are going to be in oil and gas manufacturing.
and construction. Those are typically very challenging but very real asset driven. You can see what you're making kind of businesses and see what the outcomes are. So I really enjoy those and they've got a lot of talent issues. So they're pretty interesting to work with.
Glenn (02:34.169)
So I know it could be different for every company, but what would be like, you know, you step in, the company's already established some success to be where they're at. And they're saying, hey, Gary, help us with this. Like, where does it start from there? Like, where do you go in?
Gary (02:51.326)
Yeah, absolutely. The big ones are the people issues. They're going to be, I don't have enough people, I don't have the right people, or those people may not find the work meaningful or know how they can contribute. So it usually falls into one of those three things. And I help them think about three different systems. One is a job success system, making sure that people really enjoy their work, not just, you know...
signed up and you know feel okay with it but they really enjoy it and there's some statistics around that 75 if a person enjoys 75 percent or more of their job they're going to be three times more likely to be successful at it. That's an astounding number but it's very common sensical and then the other part is just making sure that they've got respected leaders at every level that's one of the key reasons people do not want to stay with an organization and it's why you have a lot of disengagement issues and productivity issues.
And then last one is meaningful work. You got to make sure that people are connected to the mission and understand how they can contribute. So keep score, know what everybody's most important number is. Usually that's profit up at the top line. But if you're in a warehouse or in an oil field, you're going to have your own most important number. Oil field would be barrels per day at a certain cost. And in the manufacturing side could be, you know, number of boxes packed and ready to go.
with shipments on time. So, yeah.
Glenn (04:22.137)
So how do you go, like, because when you say that people, like, because I was pretty much, when I left my W2, I was middle management. And I would say that, I don't know if I was, I look back and I feel like I was, it was somewhat of a company culture, but I feel like I was somewhat of a dictator manager.
Gary (04:32.702)
Yeah.
Glenn (04:49.177)
Because I felt like everything was measured. Everything was in CRM. You have to go back. You talk to the people. But I feel like there was a part, I look back and I, that's kind of one of the reasons why I left personally. It wasn't because of my direct boss. It was just because I just felt like my, I just felt like my soul was being robbed from me because I had to like micromanage people with the systems that we had in place.
Gary (04:49.246)
Okay.
Gary (04:53.694)
Yeah.
Glenn (05:18.073)
How do you think you would get around that?
Gary (05:18.59)
Yeah. Well, the aspect that you're talking about is probably related to enforcing. You can think about all, there's all sorts of different traits that somebody can measure that if you add them up can count towards how much enjoyment they have. And maybe you just didn't really enjoy being that much in the weeds on details. And if that tips over and that's a major part of your job.
Glenn (05:43.993)
Yeah.
Gary (05:46.91)
and that's the responsibility of the job, then that's not going to be a good fit for you. I had kind of a similar way you tell that story. It kind of came back to a role I had. And I went from a Japanese company to an American company. The Japanese company are, they're all about effort. Hey, did you try hard? American companies, or at least the one I was in, the culture was very different. It's like profit down to a 10th of a percentage. And so I'd be in these meetings and they say, they look at me as a product manager and say, Gary, so why does the,
why you have variability in the profit on your product line. It was like to the 10th of a percent. That was not me to get into that much of the details. But that's what the role required, but that was just not for me.
Glenn (06:32.985)
Yeah, definitely. And then we were talking about that today. I have a friend that has a roofing company and he's talking about a CEO and what kind of person he was to be in that position. And it's almost like you have to be...
you know, know all the jobs, but not be the, you know, not the master, you know, not the, he doesn't know exactly, couldn't go into each job, but he could manage all the jobs, you know, just kind of how he was talking about it, but yeah.
Gary (07:05.662)
Yeah, that certainly helps. Some of the most successful CEOs I've seen in companies either came up through a certain function or, I think I was at a talk a couple of years back, it was a North American CEO, Adidas, and he worked on the back of the shipping and receiving dock. That's where he started, just learned.
everything and just moves his way up. That's a great way to get started in a business.
Glenn (07:37.689)
Cool. So, and now the way I know you is through our mastermind group. We have, and you're into oil and gas, which I have next to no knowledge of. I might've watched a few movies, but that's about as much as I know. So I guess if you could just explain that industry.
Gary (07:48.254)
Yes.
Gary (07:52.99)
Yeah.
Gary (07:58.43)
Yeah, let me tell you what, how I got there also, and I'll be brief. So that started with the consulting. So I was working with one of the largest independent oil and gas producers in the Permian basin. And I was so excited. They said, Gary, we want you to come in and coach our leaders, work with our teams. So excited. I'm going to be going to the Dallas. They said, no, no, we'd like for you to go meet the field team in Midland, Texas, which is.
where their operations were. And I thought that that was kind of a demotion. It's like, I thought I was working with upper management. Like, no, we really need you with the field. And I was like, okay, you know, it was a good size contract. And I said, okay, I need to get to Midland. And it was such a blessing because for five years, about five years, yeah, I was able to work with leaders, foremen, superintendents, pumpers, lease operators.
Glenn (08:31.481)
Yeah.
Gary (08:55.582)
right on the field, ride along with them in their trucks, see how they operated the business. And I guess just like that CEO from Adidas, be able to see things from the ground. And there's no substitute for that. I learned so much, made so many great connections and fell in love with the whole new industry. I love semiconductor, I love manufacturing. But when I got into oil and gas, I could see it's really just like manufacturing, but it's a huge, the factory's footprint.
could be 30 miles wide by 50 miles tall. It's big, but the same kind of principles apply. So that's how I got into that and then made those connections. And then just, I had an old customer talk to me and said that he was starting to acquire oil and gas wells and develop them. And what I'd be interested in talking about it. And it's like, is that a thing?
Because he was talking about it like flipping houses. I was like, really? He said, yeah, that's a thing. He was like, okay. So we started talking and he started explaining to me what he was up to. And yeah, we partnered up. We got a couple of investors around a handful of Wells and got our first assets going. And then after that, we made another acquisition for a lot more Wells with a couple of family offices and a handful of high net worth investors.
And then we made our third acquisition was from a our first first acquisition from a public company. So they were selling off some of their assets and we were able to acquire them. Same kind of structure. So, yeah, so we're we're fairly new to it. We've been in I guess we're going on four years now and it's been a really interesting learning curve for me.
because I know how the business works, but it's different when you're running it. Hypothetically, it's like, hey, this big exploration and production company and EMP versus these are your own wells, these are your own investors you now need to talk to about it. Yeah, so that's how I got into it. And one of the big things that I've learned about oil and gas is how closely it is
Gary (11:18.878)
analogous to multifamily. So, and maybe this is just how I understand it because all my friends out here in Phoenix, Arizona, it's all real estate, right? So, and some flavor of real estate is multifamily or RV parks or mobile home parks or storage, but it's all real estate. So the analogs that I've got to use are those, but it is very similar. Oil and gas is very similar.
One is the you're dealing with a real asset. So there's a real commodity coming out of the ground every month you can and Those commodities will be oil and gas Oil, you know liquid oil natural gas and what they call natural gas liquids So oil you probably understand natural gas you understand natural gas liquids. I didn't know But they are very valuable
And that's where your butane, propane, and other condensates can come from. And so you've got a regular cashflow. So that's one way that they're similar. The other is that they're scalable. So number of doors on a multifamily indicates roughly how much revenue you're going to get. The other with oil and gas is number of wells. So you start to look at wells and that sort of thing.
And there's different types of wells, which we can get into if you want to. And then you got to have a good property manager. Property manager in a sense for oil and gas, they call them an operator there in Texas are licensed and bonded with the Texas railroad commission. So that's the state body that governs all oil and gas production in the state. And
That's probably a good point to make here because I get this question a lot about private land versus federal land. Some people will say, well, isn't oil and gas constrained because of federal leases? They read something on paper. Yeah, that's true. But a lot of the production and 100 % of it in Texas is on private land. Maybe 99 .9%.
Gary (13:44.734)
This is from somebody who's not an oil man. So I take that with a grain of salt. But most of it's on private land and that's how that gets done. So it's minimal impact, but a good, strong, practical regulator in the state of Texas. And that's where we'd like to keep all of our production.
I'll pause there if you have any questions. I'll just keep rambling on.
Glenn (14:08.505)
Okay, so this is.
Yeah, there will be lots of questions and I've, I'm sorry, can you hear echoing?
Gary (14:16.894)
Sorry, can you hear me? Not on my side, are you?
Glenn (14:20.794)
Okay. Just a little bit. Okay. No, no, no, just mine. But, so yeah. So my question would be, it's going to be a lot of questions of that, literally somebody that knows very little. And I, the only time I've lost my best, stock trades and my worst stock trades have been in oil and liquid natural gas. So I know a little bit.
Gary (14:23.326)
Is my voice echoing or?
Glenn (14:48.729)
to get myself into trouble is really what it comes down to. But I've never actually looked at it as like an alternative asset. And that was one of the reasons why I wanted to get you on just because I've actually heard lots of like your art ads and stuff on it. And so when you say Wells, like when you're buying a field, does it, is it like, are you buying it in acres or are you buying it on the rights to the, the, the oil or how does that work?
Gary (15:17.79)
Yeah, yeah, there's a couple ways to do it. One is you can buy the land. You can also buy a lease. So this is where you want to understand that how oil and gas is different than almost any other asset class is how they divide revenue. So you have the landowner always has the the royalty rights.
So royalty rights are pretty rich and are typically like, let's just call them 25%. They will vary. But basically without them doing anything, they just grant you the right to go drill on their land. You pay them 25%. Now you could do everything. Like I'm gonna buy the land, I'm gonna drill and so on and so forth. But because these are capital intensive,
arrangements that's typically the way they've done them. And that's what's been it when they separate rights that allows people to specialize and do what they do best and apply capital in the way that they're most comfortable with. So typically what happens is there is a landowner and these can go back hundreds of years, maybe a ranch, somebody had cattle on it back in the late 1800s or something like that.
Glenn (16:41.401)
Like the Beverly Hillbillies.
Gary (16:43.216)
Yeah, but I think they were from my home state of Tennessee. So I'm not sure. Yeah, yeah. Exactly, exactly. The cement pond and everything. But they, so typically what you will be buying these days will be a lease. So that gives you the right to either drill or produce on that land. And there's all sorts of different ways you can do it, but.
Glenn (16:47.289)
Yeah, shot a hole through the ground and then they became rich and they moved to California.
Gary (17:13.118)
Two big ones are you are going to do a new drill and go after oil in place that you think is there, or you are going to, and there's a lot of this going on, buy an existing well that you can re -stimulate or you feel like you're going to be a better operator of it. So there's that way as well.
So.
Glenn (17:44.345)
So that would be kind of like what you're doing. What you're looking to do is you buy one that's already established, but then just become a better operator.
Gary (17:50.878)
That's what we've done to date and we're certainly open to doing more. And because we're an operator, we have some flexibility, not to confuse you, but there's operating interest and non -operating interests. But let me kind of back up a little bit. So I explained the royalty interest that's basically associated with the landowner, but the people that are actually going to drill and produce, then they get the rest.
But even that can get split up. So maybe you just want other money partners in there. So you're going to say, well, for that other 75%, I'm going to put in most, I'm going to do most of the work myself. So I'll be the operating interest, but you don't want to do anything. You don't have an operating company. and we'll give you a non -operating position. And what a lot of people are buying into these days are non -operating positions and that's fine.
We are in those. We've got a portfolio that includes, because you can only operate in an area that you know well and can get your trucks to and your people to. So we operate, actually operate the wells within the Permian Basin. So that's the Midland Odessa area, Delaware Basin as well. But then we've got a couple wells in Oklahoma. We're not going to drive out to Oklahoma, but there's a good, dedicated operator out there. They send us the reports. They send us the checks.
we own that interest. So that also brings back to what are some of the opportunities these days. So there's certainly land that you can get and wildcat it, you know, if there hasn't been anybody there or you can do what they say, infill, maybe this area hasn't been drilled yet, but the...
the area right next to it has been. So you're just kind of infilling kind of like, again, I'm going to use multifamily examples. So you're in an area that has had a lot of building before, but you still got some, some lots that are open. You can still do infill and build out because the population has increased and your certainty of getting your return there is pretty dialed in, right? Because you know, it's your comparable rents are, you know, what the traffic's going to be, you know,
Glenn (20:08.089)
Yeah.
Gary (20:12.99)
That's a pretty sure play. So there's wildcatting. No one's ever done it before. There's infill that you can go after. And then you can buy existing wells. And you say, well, why would somebody sell an existing well? Why wouldn't they just keep it in cash for it? Well, for the same reasons that people sell their real estate. They might want that cash for something else. They've got a better opportunity.
So here's one thing that I learned that probably not a lot of people understand is that a lot of, just to make it very simple, there are kind of old style, shallower vertical wells that might go down thousands of feet. And then there are much bigger, what they call horizontal wells that might go down a mile and then go left or right about three miles.
These things are massive and they follow the, the, the seam of the, the, you know, the geologic strata and can bust up all, all that rock and frack it and be able to produce a lot of, oil and gas from those. So there's vertical and horizontal. The horizontal ones can cost tens of millions of dollars for in capital to.
Glenn (21:23.961)
Mm -hmm.
Gary (21:41.374)
to drill and produce. There's a lot of, but they're very valuable because they produce thousands of barrels per day once you tap them. And then you have these old vertical wells that might produce a hundred barrels a day. So there's people that, and companies that have a portfolio of kind of these smaller wells and then they might have lease options or other things that can go on for the horizontal wells. So.
There's a lot of horse trading going on, you know, between the shallower wells and maybe for work workforce optimization, they want to make sure that their units are contiguous, you know, for workforce optimization or for to be able to get drilling rights. Cause now you're going three miles left or right. That's a lot of acreage, right?
Glenn (22:13.337)
Mm -hmm.
Glenn (22:35.705)
So you have to own that one. Do you have to own the land that it's going under?
Gary (22:42.366)
You got to pay the royalty. So you have to have an arrangement with the surface owner. Yeah, they're very strict about that. So, yep.
Glenn (22:46.361)
Mm.
Glenn (22:55.993)
And then how do they actually, I mean, this is probably way further, but how do they actually measure which direction, if it's all oil, like how do they know where it's going to and what land it's under?
Gary (23:10.238)
Yeah, the area, especially in the Permian Basin, Delaware Basin, is very well characterized. They've been producing oil and doing studies there since the 30s. So they know a lot, historically, and then their data is getting better and better with the kinds of ways that they can collect data.
Glenn (23:25.049)
Hmm.
Gary (23:38.27)
You can kind of think of all these layers as a cake that kind of gets squished. Maybe you had it in the trunk of your car and slid to one side, so it gets kind of mushed. So it's still a layer, but it might have a little wrinkle in it. You just got to make sure you know where the wrinkles are and you can follow the optimal path to stay in the zone, what they call the pay zones.
Glenn (23:42.073)
Yes.
Glenn (24:06.169)
So if you were to get something like this under contract, what's the due diligence time that goes into it?
Gary (24:13.598)
yeah, it could be several months, but it really depends. You can get a leg up if you have experience in the area. My business partner, he's always talking about analogs. He's saying, well, this acreage is analogous to this other acreage that I used to work. And what he means is I know that area very well.
Glenn (24:21.305)
Yeah.
Gary (24:41.886)
I know where the strata is, I know how it drains, I know what kind of maintenance you need to do to keep things, keep the oil and gas flowing, so on and so forth. So you can shorten it up if you have experience, and that's why you kind of want somebody local who's actually worked in that area, because when I was first starting to get into this area, I talked to...
an experienced producer and he says, Gary, it's kind of like death by a thousand cuts, which you don't know can really trip you up. And there's little things like the electricity that runs the pumps. If electricity is down, your pumps aren't going right. Or if you have a weather event and if you're trucking your oil instead of a pump, have it through a pipeline, which a lot of it is still.
picked up by a truck every week or so. That'll trip you up too. And then there's a lot of plumbing going on. You got a string of pipe that's going a mile down, a lot can go wrong. So you need a good experienced operator.
Glenn (25:46.969)
Yeah.
Glenn (25:53.177)
So when you say that, I guess if we call it comparing it to real estate, if it's like a, like we'll call it a value add, what like on say like your last deal that you closed, what would the, what was the things that you saw that you were like, we can make this better when we're, when we buy, when we move in our operations, it's going to be better. And like, what, what is that thing that makes you better than the previous person that was operating the well?
Gary (26:20.382)
Yeah, it's really attention. So the people that are the companies we bought assets from, they're good producers, but you will always pay attention to those properties that are making you the most money. So let's say you have a fixed amount of capital and you have a fixed amount of people that you can or engineering talent you want to spend. You know, let's just say back to what I was talking about, they have a portfolio of
Glenn (26:27.097)
Yeah.
Gary (26:48.222)
hundred of those great big wells, those horizontal wells I was talking about, or a thousand of those little wells. A thousand of those little wells, even if you optimize those, are not going to move the needle compared to getting two or three or 20 more optimized or online of those great big wells, right? So it's not that they're bad operators, they're good operators, but sometimes they'll put their best people on the other projects and sometimes they'll just not
continued to spin capital on it. They know that the oil is in place, but they've got a faster route getting it somewhere else. So it's just by being a good, good operator. So it's like an example, back to the multifamily example, you're picking up a multifamily or like your RV park or something. And you notice, you know, if we just make sure that we, you know, keep everything clean and organized and
Pick up the phone when people call and collect rent checks when they're due and are being attentive. You know, then we can make sure that our lots are full, our apartments are full, so on and so forth. So that's the same thing. One of the key things that you want to do is, and this might spur another question from you, is flatten the decline curve. So basically what that means is that you are
Glenn (27:52.217)
Yeah.
Gary (28:17.566)
losing your reserves less quickly. So that probably wasn't very clear, but basically let's just say, because once you start to develop oil and gas, you are reducing the amount that's in the reserve, the reservoir, right? So any well will decline over time, its production rate will.
decline over time. So you're always having to kind of tweak things to kind of make sure it's not declining too fast. So you can utilize different kinds of operating techniques to do that. But good operators, maybe your decline is at 7%, whereas the previous operator had it at 10 or 12. That makes a big difference.
Glenn (29:07.001)
So what you're saying is these wells, are they producing new oil while you're pumping it? So you're saying like 7%. That means are you letting oil fill back into the spot or is that what you're saying by the?
Gary (29:07.838)
City.
Gary (29:25.822)
No, it's just let's just say your your thousand barrel per day well will have a drop off in production. Right. So you can make more money if you can flatten that that flatten out that curve. So instead of decreasing by 20 percent, if you could get it to only decrease by seven percent.
Glenn (29:41.113)
Yeah.
Gary (29:55.198)
you're stabilizing it. So basically you're making, instead of taking, having a big spike and then a long tail, you can flatten it out. So everything underneath that production curve is going to be money. So the more space you have underneath your production curve, that's more money. Does that make sense?
Glenn (30:01.977)
Yeah.
Glenn (30:12.377)
Yeah, kind of. But what I would say, okay, so let's just talk about this as if I am an investor and I'm coming in and what is the...
Gary (30:14.718)
Yeah.
Gary (30:20.67)
Yeah.
Glenn (30:27.033)
beginning result and what's the end result? Like what's the exit for like when you're buying these wells, is it just for cash flow or are you trying to show that these things will operate better and you can sell them for a better cap rate? How does that work?
Gary (30:42.302)
All those are available. The other thing would be to return capital from appreciation.
for your RV park. So if you have maybe 100 units total available, but you've only got 90 of them filled at any given point in time, then your NOI is less and the amount you can borrow from the bank is less, right? I'm guessing. That's the way it would work for an apartment. But if you were able to get occupancy up to 100%, then your NOI goes up and then you can borrow more.
Glenn (31:11.833)
Mm hmm. Yeah.
Gary (31:22.814)
Same thing with oil and gas. People will lend you based on your production because that prove what they call, prove up the reserves. So there's one thing to say, hey, there's a whole bunch of oil down there. There's a whole nother thing. You get more points if you start to produce it and you can prove it. It's like, okay, there really is, you know, a hundred or a thousand barrels per day steady out of this.
then they're more certain about your reserves. Once your reserves go up, then you can borrow against those reserves. There are banks out there that make loans, energy loans against reserves. So that can be also another exit. You can just keep them in cashflow, like you just said. You can refinance through increased reserve value and be able to get your investors their money back that way or...
continue to reinvest or you could sell it.
Glenn (32:22.329)
And then with also the other thing would be if oil prices went up, then you'd be in the money as well. So if you're betting on oil prices going up, then you're gonna be in even a better position. It's kind of like the market as in like waiting on appreciation, correct?
Gary (32:30.494)
Yeah.
Gary (32:36.478)
Yes.
Gary (32:40.318)
Yes. Yeah. Yeah. And then there's one thing I should probably note that is very different than real estate is the volatility of the commodity itself. So you've got price of oil will go up and down. And then you said you were in the NGL stocks.
Glenn (33:02.745)
I thought it was NG, yeah, LNG, liquid, yeah, natural gas, yeah.
Gary (33:06.398)
Natural gas. I'm sorry. Sorry. Yeah, just you're in natural gas stocks. Yeah, I had a friend I was talking to and he said that he was a natural gas trader for a while. So he made a ton of money, but it was so stressful. And it's like, it's the it's a very, it's very volatile. It's very natural gases.
Glenn (33:26.777)
The dividends paid very well. It was paying me a 20 % dividend when I bought it. It was pretty wild. And I knew somebody that actually owned, his family was in Canada and they actually merged with other liquid natural gas companies. And he was telling me that the company still, what happens is this is the thing about like what you're doing, which I think is really cool, is that when, what I think the market overcorrects all the time.
Gary (33:32.702)
Great.
Gary (33:56.67)
Mm -hmm.
Glenn (33:56.985)
whether it's one way or the other. And I think that that's the one thing about, you know, when it dives, it always overcorrects. And that's what I, when I bought this liquid natural gas, the stock was like $18 and overnight it was at $5. So then it turned into the dividend was still $1. So I bought it for $5 and the dividend was $1. So, and it's kept the dividend the whole time. So you just think you're like, I'm getting
paid 20 % on this while I wait. So I held on until like 11 or $12 and it ended up going to $30, but I sold it $12 because I wanted to buy a condo or something like that. But anyways, and that's the same thing that happened when this was before, I guess COVID, but then
Gary (34:34.238)
Yep.
Gary (34:42.398)
Right?
Thanks for watching!
Glenn (34:53.977)
When it went to negative numbers, I was thinking to myself, this would be the perfect time to buy into gas.
Gary (34:54.846)
Thank you.
Gary (34:59.294)
Yeah, and everybody else is thinking the same thing. Everybody that knew about oil and gas was thinking it's like what's for sale? You know, see who's stressed. Yeah, there's one other thing I'll just mention is when you are in a deal and you do care about the cash flow, it's not just a dividend. You do want to do something called hedging. So most everybody will have some kind of hedging.
program in place. You typically don't hedge 100 % of your production, but you'll want to hedge a significant percentage. And if you have any loans on it, the bank for sure will want to make sure you have a hedge in place so that at least you can pay back your note.
Glenn (35:47.705)
And that would be like a royalty. You're selling the royalties of the gas. Is that what the hedge would be?
Gary (35:53.726)
No, it's basically a combination of puts and calls. And then you basically make a collar of the Christ band. So let's just say, I didn't look at oil today. It's called low 80s, right? But maybe you can go and get a band, whereas it goes from like 70 to 90.
Glenn (35:58.425)
Gary (36:20.574)
So if the price drops below 70, somebody writes you a check. If the price goes above 90, you write somebody else a check.
Glenn (36:30.297)
Yikes. That's no fun.
Gary (36:31.422)
Yeah. Well, you don't, but you're still making money. You're just capping. You're you're blunting the downside and blunting the upside.
Glenn (36:37.465)
Yeah.
Glenn (36:42.937)
And you're not able to do just the downside, right? Or it's too expensive, is that what it turns into?
Gary (36:47.358)
Yeah, so typically to do what I just described, they call that a costless collar. So basically, if you can work with a hedging company, you can put that in place without spending money. But if you just want a very one -sided play, you're going to have to pay for it. Kind of like a rate cap on a floating interest loan, right?
Glenn (37:08.409)
Yeah.
Cool. And I think I read that you have a podcast.
Gary (37:15.198)
I do. Yeah, it's called Leading Prosperity. So we focus on leadership and also wealth development. So, yeah.
Glenn (37:25.081)
Awesome. I was reading about it before the podcast and I thought, and I, and I know a lot of stuff you post is more on leadership. And obviously with leadership becomes a hopefully later will become money that you can invest. And I, I've learned that a lot recently and I, I've, I've always been into management because I was like kind of like in a management role, but I've learned so much more since being an entrepreneur, you find out that
Gary (37:40.382)
Exactly, exactly.
Gary (37:49.63)
Yeah.
Glenn (37:55.129)
you have to put the right people in the right places. If you don't do it, you're gonna be doing it yourself. And it's not, that's not how you grow. You know, you put smarter people than you in that position. And that's been my experience.
Gary (38:05.086)
Yeah, that's how you multiply time for sure. And then my other lesson from that and being an entrepreneur and the wife also with her business is just how, and maybe this resonates with you, is just how exposed we are as entrepreneurs. We have to have assets that can produce just in the event that, you know, our business goes down or have a
big consulting contract that goes away or maybe we get injured or we just don't want to do it anymore. So that's one of my big motivations and understanding the oil and gas space. And now from that starting to understand the real estate space so that we can get to that financial independence, which I know is really important to you. And you mentioned that on, on your website and things like that. So, yeah.
Glenn (39:01.433)
Yeah, I'm almost to the point where I'm glad we're talking about oil and gas because there's only so much real estate that I can talk about. But with business and management, I think it's like unlimited amount of information that you can learn and there's always room to grow with, you know, mobile home parks or apartments. It's like you're buying a piece of land and it can only produce this much revenue, you know, but with something that you're doing.
Gary (39:09.022)
Hahaha!
Gary (39:28.286)
Yeah.
Glenn (39:31.225)
I feel that it's, I don't know much about the returns, but I would imagine the returns would be, because it feels like there's, I would say that it feels like there's risk, but when you have the smart people that are helping you make those decisions and their money's going into it as well, I think it's when you start to, the returns are there, you know, because it's more of just, you know, kind of like what you were saying.
comparing it to my business, I think from what you were saying is we buy the stuff that a lot of operators wouldn't buy because it would be so much time intensive, but I see it as we kind of have the infrastructure in place to be able to buy these smaller parks and these park owned home parks and we can restructure them and redo them to make them better and to make them to where those bigger companies will come behind us and say,
Gary (40:25.118)
Yeah.
Glenn (40:30.265)
Yeah, we'll pay for that now, but we wouldn't have bought it the way you bought it. You know, like, so we're trying to get it positioned as in like a large portfolio to become worth something a lot more in the future. And I think that's it sounds similar to what you're doing.
Gary (40:34.11)
Yeah.
Gary (40:43.71)
100 % and I think it's Grant Cardone says this all the time. It's not the the property It's who's running the property, you know that the property is always going to be there But who's going to make the money depends on the operator and it might not be a good deal for one operator But it's a great deal for another operator based on their finance their experience their ability to execute and same thing in oil and gas so There's nothing wrong with
Glenn (40:57.273)
Yes.
Gary (41:12.254)
any of the wells that are out there for sale? Well, there might be, but anyway, the good property, there's a lot of good properties out there, but you just got to know what you're good at and work with a good operator that has experience in that area or get a partner who, if it's like in a different state, I'll give the example of Oklahoma. We're not in Oklahoma, but if I knew it was a good name player that was running those, I'd
Glenn (41:18.041)
Yeah.
Gary (41:41.438)
I'd be in that deal, no problem.
Glenn (41:44.665)
Also with your background with working with CEOs, I think you could, which is probably the most important part, is the operator. And if you, with your background, being able to vet them, you know, talk to them, work with them, I think that's a type of information, you know, a skill that is super helpful, especially for like a limited partner that would be investing.
Gary (42:10.558)
Yeah, well, I think I come at it from a pretty fresh perspective. So I'm just trying to understand. So I'm like you, I asked lots of questions. I'm my partner, Barry jokes with me and says, Gary, you're starting to talk like an oil man now. And it's like, I know he doesn't mean it. It's just being nice, but he's a real oil man. I think as long as I know that I'm not an oil man, that that's where I keep safe. You know, it's one, once I know I'm sure about everything and that.
Maybe I want to ask the questions. I think, and that's important, I think on every deal, whatever real estate, oil and gas, stocks, stay curious.
Glenn (42:50.905)
Yeah, we were doing, we were walking a park today that we're looking at purchasing and I felt kind of good about myself because I, after walking, I was like, I could see every red. I felt like I could see all the red flags of this park. And when you're inside it, you're like, you're like, I might've believed that probably two years ago, but I'm pretty sure I know what's going on here. So it's, it's one of those things that you just, it's like, you don't really get it until you start doing it.
Gary (43:04.222)
Great. Yeah.
Gary (43:13.438)
Yeah. Yeah.
Glenn (43:20.153)
learning it and it's my favorite part about the podcast. I talked about doing this podcast for two years and now that I'm doing it, it's like the best thing I could have done for myself.
Gary (43:31.678)
Yeah, well great. Well, you're doing a great job on it and you're staying consistent. That's one of the most important things is, you know, in our businesses is stay persistent, stay consistent, stay with it. Yeah, yeah.
Glenn (43:48.281)
Awesome. Well, I'll put all your contact information in the show notes. What's the name of your podcast?
Gary (43:56.158)
leading prosperity.
Glenn (43:59.449)
Awesome. With Gary Covert and thanks for being on the show.
Gary (44:04.958)
Lynn, thank you so much. I appreciate it. I really love this asset class. I think it's really exciting. I think it's, well, it's been very good for us to date. And it's really been a vehicle for me to help me learn about other kinds of assets. And it's opened up the world for me to also meet people like you, other people doing deals and things like that. So it's been great.
Glenn (44:05.497)
Ed.
Glenn (44:34.457)
Awesome, thanks for being on the show.
Gary (44:36.158)
Absolutely. Thank you.