Connecting projects with funding sources since 1983
The Oldest Energy Property Clearinghouse
and
the First Website in the Petroleum Industry
1
3Dec09
Energy Exchange Presents:
WINDOWS OF
OPPORTUNITY
IN ENERGY
Three Parts
• What is the Energy Exchange?
• Opportunities in Energy
• Select Projects
What is the Energy Exchange?
• An energy consulting firm
www.ERCO-EnergyResources.Com
• An association of engineers,
geologists, and financial
professionals
• Not a brokerage firm
Our Purpose
To connect energy
projects with
funding sources
The Energy Exchange
• Modeled after Real Estate’s MLS
• Oldest energy clearing house (1983)
• Petroleum industry's first website (1994)
www.enex.com
The Energy Exchange
• Hundreds of projects available
• From $10 thousand to $10 billion
Gold Silver Mining Coins Bullion Treasure
Oil Gas Biofuels Nuclear Wind Solar
China Russia Japan Middle East
Pipe Pumps
Hardware Rigs Equipment
Patents Processes Chemistry Technology
The Energy Exchange
• Technical Network
• Financial Network
The Energy Exchange is a bridge
between the technical community
and the financial community.
The Energy Exchange
Project A1
Oil Company
Project B1
Energy Exchange
Project C1
Project C2
Rep
$
$
Rep.
$
$
Rep
$
$
Venture Capital
Project B2
Engineer
$
$
Broker Dealer
Project A2
Geologist
Agent.
Institutional
Investor
Rep.
$
$
Rep
$
$
Energy Store Analogy
One Project Store
Energy Exchange Store
Oil
Natural
Gas
Geo-thermal
Wind
Solar
Coal
Nuclear
Bio-Fuels
(Bio-diesel)
Bio-Mass
Fuel Cells
Who are we?
Discovery of the East Texas Oil Field
(7 Billion Barrels of Oil)
Technical Associates
David H. Mangum - Petroleum Engineer, Geologist, MBA
Bill Olson - Geologist, Geophysicist, MBA, Attorney
Cesar Abeigne, PhD – International Operations, Geoscientist
Tyler C. Shantz – Petroleum Engineer
Belkis Fernandez – Petroleum Engineer, Reservoir Modeling, Venezuela
Vladimir Ingerman, Ph.D. – Geophysicist, Russia
Charles Mangum, – Civil Engineer, Drilling Rig Designer - Houston
Dennis McMurdie – M.S., Geologist, Salt Lake City
Bob Oberndorf, Geologist, Denver
Edwin Tillman – Computer Systems Engineer
D. Grady Mangum – Information Systems
Khalid Al-Ruwaili – Petroleum Engineer, Saudi Arabia
Jim Evans – Geophysicist, Denver
Many Others Nationwide & Worldwide
Landman Services
Richard Rosenberg – Senior Landman
Daniel Mangum, Petroleum Landman
D. B. Mangum – Landman
David H. Mangum, President
• Over 35 years petroleum experience
with five Fortune-100 energy companies
(Mobil, Shell, Schlumberger, Tenneco, XDS, and Coastal)
• Geology, Mississippi State University
• B.S. in Petroleum Engineering, University of Texas
• M.B.A., Pepperdine University
• Professional Engineering, Real Estate,
Insurance, and Securities Licenses (All Expired)
Technical Professionals (continued)
•
•
•
•
Cesar Abeigne, Ph.D., Asst. V.P. International
Five Languages (French, Arabic, and Spanish)
Over 12 years experience with Elf Aquitaine, Shell
Oil Company and Total.
Ph.D. in Geosciences from Montpellier in France
One of the first geophysicists to explore deep water
off coast of West Africa.
Technical Professionals (continued)
• Charles Mangum, P.E., V P - Engineering
Registered Professional Engineer
Over 35 years experience in Offshore Drilling
Captain in the U.S. Army Corps of Engineers
Army Ranger, Airborne
B.S. in Civil Engineering -- Mississippi State University
M.S. in Engineering -- University of Texas , Austin
Technical Professionals (continued)
• Vladimir Ingerman, PhD, Manager, Russia Operations
Petrophysics software development,
International Business Development.
Twenty-years oil exploration experience in Russia
VP of Tyumen (#2 geophysical company in Russia)
Worked for Schlumberger in the U.S.A.
PhD in Natural Resources Exploration and Development
Authored 47 professional publications and one textbook
Legal Professionals
Bill Olson, Esq. – Attorney, Geologist, Geophysicist, MBA
George Nama, Esq. – International Law
Darin Mangum, Esq. – Securities, Former SEC
Carlos Reyerson, Esq. – EB5 Immigration
Legal Professionals (continued)
Bill Olson, Esq., CEO of ERCO
• Geologist
• Geophysicist
• Attorney
• M.B.A.
• Over 27 years petroleum experience
• University of Southern California
Legal Professionals (continued)
Darin H. Mangum, Esq., Legal Counsel
• Securities Attorney
• Oil and Gas
• SEC - Los Angeles and Salt Lake City
• Syndication, partnership law, mergers,
acquisitions, and compliance
• EB5 Immigration
• BYU
Financial Associates
Brent Harley
Janson Durney, West Point Military Academy
Alex Westwood, Finance
Rick Veale, Petroleum Products Trading
Alan Tomkow, Business Development
Gerald Avery, Administration
Hector Escamilla, Jr.
Gwen O. Pearson, African Business Development
Kate Nesselrode, Regional Advisor - Latin America
Many More Nationwide & Worldwide
Projects Funded
Project Name
Athens
Bender
West Jefferson*
Misener
Quinn #1
Loving County
Salt Folk #1, #2
Tabb-Harrell #1, #2
Jimmy Joe #1, #2
Goliad County
Atascosa County
Harrington #1*
Trinity Unit #1*
Luna #1*
Tschirhart #1*
Solcher #1
Polocek #1
Milam #1
Mayo #1
Ealand #1
Jones #1
Billings #1
Sweeney #1
State
Wells Drilled
Successful Completions
Dry Holes
Pennsylvania
Texas
Oklahoma
Oklahoma
Texas
Texas
Oklahoma
Texas
Oklahoma
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
30
2
2*
2
1
5
2
1
5
3
15
1*
1*
1*
1*
1
1
1
1
1
1
1
1
30
2
2*
1
0
5
2
2
2
3
15
0*
1*
0*
0*
1
1
1
1
0
1
1
1
0
0
0*
1
1
0
0
0
0
0
0
1*
0*
1*
1*
0
0
0
0
1
0
0
0
*Wildcat wells
Projects Funded (continued)
Project Name
Sweeney #2
Weeks #2
Woods #A-1
Wilmeth #1
Solcher #2
Patrick #1
Stewart-Menefee #3
Zernial #1-H
Williams #1
Wilson #1
Dunn A-#1
Raintree #1
EDCO Ranch #1
Brazoria Unit #1*
Starr County
Flowella, Brooks Co.
Queen City
Loma Blanca
Hardeman Co.*
Zipsie #1*
Horne#1*
Hawkins Ranch #1
Cadjewl #2-5
Phillips #1
State
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Louisiana
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Texas
Oklahoma
Texas
Texas
Oklahoma
Texas
TOTALS:
Wells Drilled
Successful Completions
Dry Holes
1
1
1
1
1
1
1
1
1
1
1
1
1
1*
2
3
1
3
1*
1*
1*
1
1
1
107
1
1
1
1
1
1
1
1
1
1
1
1
1
0*
2
3
1
3
0*
0*
0*
1
1
1
97
0
0
0
0
0
0
0
0
0
0
0
0
0
1*
0
0
0
0
1*
1*
1*
0
0
0
10
Part II
WHY INVEST
IN ENERGY?
WHY INVEST IN ENERGY?
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•
•
•
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•
•
•
•
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Inflation Hedge
High Financial Rewards
Cash Flow (Mail Box Money)
Diversification
Tax Benefits
Competition
Lease Costs
Drilling Prospect Availability
Demand / Consumption
Oil Production Trend
Price Forecasts
Drilling Costs
Technology
Environment
Government Endorsement
Money Crunch
The Sinking US Dollar
Three Boogie Men
• Inflation – (As the government spends its way
out of the current economic downturn.)
• Demand – rapidly increasing
• Supply
-- rapidly decreasing
“If you think $140 oil was bad,
wait until exploding Asian
demand overwhelms global
markets and America's suppliers
cut us off.”
Weiss Research, Inc.
HIGH FINANCIAL REWARDS
• Producing Wells – 10-20% Cash-on-Cash Return
• Developmental Wells – Average 85% success
25% to 100% Annualized Return on Investment
• Exploratory Wells (Wildcats = 10% to 50% Success)
100 to one Return-on-Investment
RISK
• Drilling is becoming less risky.
• Occasional projects have a probability
of success better than 90%.
• Many projects would be economically
attractive even if oil or gas prices
would fall 50%.
COMPETITION
The big money has gone offshore,
because there are “too few easyto-find big oil fields” remaining
onshore in the USA. (To quote Mobil Oil Co.)
– Over 10,000 small oil companies
have left the arena since 1982.
Average Oil Well Producing Rates
Producing
Oil Wells
221
592
528
1,127
3,263
5,729
9,971
31,875
36,955
635,015
Average Barrels of Oil Per Day
Iran
8,729
Saudi Arabia
8,339
4,709
United Kingdom
1,304
Nigeria
766
Mexico
243
Indonesia
Venezuela
China
Canada
United States
180
82
40
14
QUALITY OF DRILLING PROSPECTS
Because big oil companies are
pulling out of the USA, the
quality of small drilling
prospects are getting better.
Newsweek
Magazine
LEASE COSTS
Oil companies are
not as anxious to
renew oil leases.
(so lease costs are low)
Demand / Consumption
• U.S. consumes 25% of world’s petroleum.
• Asians are becoming like Americans, with
an automobile or two in every household.
U.S. Oil Production
Natural Gas Production/Consumption - China
China is buying up world oil reserves
•South America (Venezuela)
•Africa (Angola)
•North America (USA, Canada)
U.S. OIL PRODUCTION
U.S. OIL PRODUCTION TREND
• USA production began decline in 1973
• Over two-thirds of USA onshore oil
wells are “marginal”. (Less than 10 barrels per day)
Oil Price Chart
U.S. Oil Production vrs. Imports
U.S. Oil Imports
• 1970 – 30% During OPEC Oil Embargo
(Remember the gas lines?)
• 2012 – 61.2% Imported (High was 66% in 2006)
(What would happen if OPEC cut us off again?)
• 2030 – possibly 73% Imported.
U.S. Office of Technology Assessment says:
“This will Bankrupt the U.S.A.”
USA’s Dangerous Addiction to IMPORTED OIL
Imports have exceeded 66% of U.S. consumption!
(USA paid over $51 per barrel just to maintain a military presence in the Middle East)
The days of cheap
oil are over.
TECHNOLOGY
Recent advances in oil
finding technology have
reduced risk and
improved recovery .
Some companies report 85% success on wildcat wells.
ENVIRONMENT
Sierra Club endorses
natural gas, wind,
solar, and geothermal
(Combustion by-products of natural gas are carbon dioxide and water).
Benefits of Natural Gas
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It’s Clean – “Green Energy”
Fuels energy efficient vehicles
Generates our electricity
Warms our homes
Cools our homes
Heats our hot water
Cooks our food
The “Fuel of the Future”
Oil and gas has become a “necessity”
What Will Gas Prices do over the next decade?
Gas Price Historical Statistics ($/MCF)
• $5.00 Approximate price
– “We are currently at historically low energy prices”
• $5.15 Ten Year Average
• $15.00 Highest Price during the past 10 years
What is your guess?
The price of Natural Gas in 10 years will be: ________ $/MCF.
The price of Oil in 10 years will be: ________ $/Barrel
What increase do you expect in your energy costs - Oil, Gasoline, Natural Gas, Etc.
GOVERNMENT
• Encourages domestic drilling with
special tax breaks.
• Mandates natural gas usage over oil
and coal.
• Natural gas is now deregulated.
TAX BENEFITS
• Congress gives tax breaks to individual oil
investors that are not available to large oil
companies.
• 100% tax deductible
... 65 to 80% written off in first year
• Up to 100% tax-free income.
MONEY CRUNCH
Traditional sources of drilling money
• Big Oil Companies
• Banks
• Mezzanine Financing
(money is not as available as it once was)
Sources of Funding
• Other Small Oil Companies
• Foreign Funds
• Private Funds
TAXES
“Oil Well Drilling is the
best tax advantaged
investment.”
.
(Newsweek Magazine)
CONGRESSIONAL TAX INCENTIVES
U.S. Congress provides great tax
incentives to stimulate private investment
in drilling.
These incentives are not "Loop Holes" –
they were placed in the Tax Code by
Congress to encourage investment in oil
and gas, thereby making drilling one of
the best tax advantaged investments.
Well Work-over Tax Incentive (Texas)
• Tax exempt for the first 10 years
from paying Texas Severance Tax
4.6 % Tax on oil
7.5 % Tax on natural gas.
INTANGIBLE DRILLING COST TAX DEDUCTION
The Intangible Drilling Cost (IDC) - labor, chemicals, mud,
grease, etc. - usually about 75% of the cost of a well.
IDC is 100% deductible during the first year.
For example: a $100,000 investment would yield approximately
$75,000 reduction in taxable income during the first year of the venture.
These deductions are available in the year the
money was invested, even if the well does not start
drilling until March 31 of the following year.
(See Section 263 of the Tax Code.)
TANGIBLE DRILLING COST TAX DEDUCTION
Tangible Drilling Costs (TDC) are
100% tax deductible over a
seven-year period.
In the $100,000 example above, that is $25,000.
(See Section 263 of the Tax Code.)
ACTIVE VS. PASSIVE INCOME
• The Tax Code prohibits the offsetting of
losses from “Passive” activities against
investor’s “Active“ businesses.
• The Tax Code specifically states that a
Working Interest in an oil and gas well is not
a "Passive" activity,
Therefore, deductions can be offset against
income from active stock trades, business
income, salaries, etc.
(See Section 469(c)(3) of the Tax Code).
SMALL PRODUCERS TAX EXEMPTION
The 1990 Tax Act provided special tax
advantages for small companies and
individuals. This tax incentive, known as the
"Percentage Depletion Allowance", is
specifically intended to encourage small
investor to participate in oil and gas drilling.
This tax benefit is not available to large oil
companies The "Small Producers
Exemption" allows 15% of the Gross Income
(not Net Income) from an oil and gas producing
property to be tax-free.
(See Section 613A of the Tax Code.)
ALTERNATIVE MINIMUM TAX (AMT)
The Tax Code specifically exempts
Intangible Drilling Cost (IDC) as a
Tax Preference Item.
"Alternative Minimum Taxable Income" generally consists of :
Adjusted gross income, minus allowable AMT itemized deductions, plus the
sum of tax preference items and adjustments. "Tax Preference Items" are
preferences existing in the Code to greatly reduce or eliminate regular income
taxation. Included within this group are deductions for excess Intangible Drilling
and Development Costs and the deduction for depletion allowable for a taxable
year over the adjusted basis in the Drilling Acreage and the wells thereon.
Green Tax Breaks
• 2.1 cents per Kilo-Watt-Hour (For 10 Years)
• Full Depreciation in 5 years
• Federal Cash Grants
Replaces the Capital Cost Tax Credit with Cash (30% of the Qualifying Cost)
•
•
•
•
50% Depreciation
MACRS – (Modified Accelerated Cost-Recovery System)
Bonus Depreciation
Investment Tax Credits
10% for Geothermal, 30% for Solar, Fuel Cells, and Small Wind Systems
Why Invest in Oil and Gas?
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High Financial Rewards
Risk
Tax Benefits
Competition
Lease Costs are Low
Drilling Prospect Availability
Demand / Consumption
Limited Resource – We are Past “Peak Oil”
Price Forecast is Up
Technology
Environment
Government Likes Natural Gas and Dislikes Coal
Money is Tight for Small Oil Operators
Connecting projects with funding sources since 1983
Part 3
Project Overviews
73
Sample Projects
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Gulf Coast Well Recompletion Program (#9022)
Texas Over-thrust Exploration Venture (#9019)
Domestic Refinery Expansion (#9048)
High-risk Central Texas Drilling Venture (#9028)
Geothermal Electrical Generation (#9020)
Diesel Emissions Control (#9098)
Nuclear Power Plant (90xx)
Steam Enhanced Oil Recovery (90xx)
Biofuels Electrical Power Generation (#9023)
Ethanol From Wood Pulp
Alabama Wildcat Oil Well
Texas Gold Mining / Processing
Central Louisiana Well Work-over Program
“Hundreds of other projects available”
Direct Ownership of Energy
The USA is only country in world where foreigners can own the oil and gas in the ground
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Oil
Natural Gas
Wind
Solar
Coal
Nuclear
Geothermal
Alternative Energy
Summary
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Protect yourself from inflation
Buy oil in the ground at deep discount
Sell it later at Market Price
Virtually work and worry free
Ownership recorded at County Courthouse
Help USA become energy independent
Revive “dead” oil and gas wells
Automatic monthly payments to your bank
“Mail-Box Money”
(For the next 10 - 20 years)
Earn handsome profits
Smile as energy prices increase
Connecting projects with funding sources since 1983
The Oldest Energy Property Clearinghouse
and
The First Website in the Petroleum Industry.
77
END
Texas
Oklahoma
Kay and Pawnee Counties
Oil Consumption - Asia
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