Building Wealth through Tax Advantaged Oil & Gas Joint Ventures with John Engel - Episode - 550

The drilling apparatus, the drill bit, is essentially— the whole stem is like a giant syringe. They're injecting drilling fluids through that drill stem, out through the bottom, through that drill bit, and that works to lubricate the bit. And it also flushes those cuttings that the bit is cutting in the rock back up to the surface. And the mudlogging unit, they're testing the mud that's coming back up through recirculation and seeing what kind of— they're getting any kind of indicators of oil and gas there too.

Most people think oil and gas investing is only for big corporations and billionaires. In this episode, you will discover how one company is opening the gates for professionals to participate in energy ventures that generate strong cash flow, tax advantages, and lasting impact. Welcome to Streams to Impact, brought to you by State Hawker Capital. I'm your host, Dr. Allen. Every high-achieving professional eventually faces the same realization: working harder won't buy you freedom. True wealth isn't earned by the hour. It's built when your money starts working for you. For decades, oil and gas have quietly powered not only our economy but also portfolios of investors who understand the value of tangible assets and tax-advantaged cash flow. Yet for most professionals, this world has remained Out of reach until now. In this episode, we'll discover how one company is opening the gates for every professional to participate in domestic energy ventures that deliver real returns, real ownership, and real impact. And when you're ready to take the next step beyond trading time for money, I invite you to watch The mini masterclass Beyond the Paycheck: How High-Income Professionals Build Time Freedom Through Passive Investing, and you can access it free at go.stetucker.com/beyond-paycheck. Once again, that is go.stetucker.com/beyond-paycheck. Before we jump into today's conversation, just a brief disclaimer. All information shared on Streams to Impact is for educational purposes only. It is not to be construed as investment, financial, legal, or tax advice. All investments incur risk. You should not invest if you are not prepared to lose 100% of your investment. Always consult your legal, accounting, and tax advisors. And please remember, this is a podcast. Before making any investment. When you think oil and gas, you might picture corporation giants and complex deals reserved only for the Wall Street insiders. But John Engel, Chief Operating Officer at Gulf Coast Western, has spent his career proving that energy investing can be both accessible and intelligently managed for everyday professionals. With more than 25 years in finance and oil and gas, including 16 years at Gulf Coast Western, John brings both depth and clarity to a space that often feels opaque to new investors. Founded in 1970, Gulf Coast Western is a Dallas-based energy company focused on exploration, development, and acquisition of domestic oil and gas reserves across the Gulf Coast region. As the managing venture of oil and gas joint ventures, the company operates in Texas, Louisiana, Mississippi, Oklahoma, Colorado, and Alabama, providing qualified investors an opportunity to participate directly in domestic energy production. Today, John joins us to share how Gulf Coast Western is helping investors tap into one of the most powerful and often misunderstood wealth-building opportunities in America.

John, we are glad that you are with us today and looking forward to a very informative conversation. Before we get into that, just share with us a little bit about what was that defining moment that first led you into the oil and gas business that you have been in for Over some 25 years.

Well, thank you for having me, Allen. It really wasn't so much as a defining moment as much as growing up in the oil business. So my entire family was— I'm from Houston, Texas. My entire family were all in the business in some way, shape, or form. I worked for a subsidiary in College of Halliburton. building mudlogging units that went on offshore oil rigs and worked on all the downhole tools that went down into the wellbore and logged the wells to see if they were hitting oil or all kinds of equipment. So I learned a lot during that phase of my career, if you will. I always found it fascinating, and I loved that I was building something that was going out and helping develop our natural resources. From there, I, I was in college primarily to, to learn about finance and went from college to, to, you know, running stock brokerages and, and then found my way back into oil and gas. In the last 17 years, I've been with Gulf Coast Western, which is, you know, based here in Dallas. And it is the most interesting job I've ever had. And it is what I loved about building mudlogging units in college and taking it to the next level, because we truly are developing our, you know, helping to develop our country's energy independence through this company.

Well, so it's been a lifelong immersion in it by the accident of birth, apparently. Well, that's interesting, though. You left it and then you did come back to it. I don't— I have no clue what you're talking about when you call it log mudding. Was that what you were saying?

Yeah. So when you drill an oil well, you would— you drill the well and then they'll send these tools down after they reach total depth. They'll send these electronic tools that basically test, if you will, the wellbore that they've drilled for hitting different indicators of oil or gas. It'll be, you know, normal rock, and then you can hit a certain zone which is going to be their target reservoir. And when they're— when they get down to that target depth, they should see, based on those results, some kind of electronic analysis that indicates the presence of oil or gas. And so from there, when those logs come back and and they validate that the target reservoir did indicate that oil and gas is present. From there, they will go test those zones to see what those zones can produce based on— they'll perforate the well and then place it into production from that zone to see what kind of production they can get from that before they go and go to all the expense of completing the well and placing it into production.

Well, thanks for explaining that. When you said mudlogging, I was thinking of forest logs, but you're talking about data logs.

Well, that makes— Data logs, electronic logs. And also the mudlogging units, so the drilling apparatus, the drill bit is essentially, the whole stem is like a giant syringe. They're injecting drilling fluids through that drill stem out through the bottom through that drill bit, and that works to lubricate the bit. And it also flushes those cuttings that the bit is cutting in the rock back up to the surface. And the mud logging unit, they're testing the mud that's coming back up through recirculation and seeing what kind of— they're getting any kind of indicators from oil and gas there too. So they're monitoring the depth, and then they know when those cuttings are coming up. what to look for as far as seeing any kind of an oil sheen or certain bugs that were present in the rock at that time, you know, that period of time. So they're looking at all of those factors while they're drilling. It's truly remarkable everything that goes into drilling an oil well. It's not just a blind science.

Yeah.

Well, I'm sure it has evolved a great deal over the last few years as new technologies have become available and probably will evolve a great deal more with AI as part of the picture. as everything else is going in that direction, to be sure. Well, Gulf Coast Western has been building a reputation for many years on helping investors both preserve their wealth and to reduce their tax liability. It's difficult oftentimes to get those 2 things to work together, so can you just walk us through how these dual benefits do work together in the oil and gas industry and how it is that joint ventures can be so powerful in helping investors to have both stability and savings.

Yeah, that is what we're in business to do. Now, it's important to understand the risks involved in oil and gas, and that risk is the potential of going out And drilling a dry hole, if you go to the expense of going out and trying to find resources for our country, the United States government over 100 years ago wrote into the tax code the ability to write that investment off. If you're going to take the risk to develop our natural resources, the government put in the fact that you can write that off against your ordinary income in the year that you Uh, that you invested in the project. Um, we have— there are 2 types of drilling. There are— there's what's called wildcatting. You've probably heard that term. That's going out and exploring for oil. Uh, you're looking at seismic, you're relying on what that seismic tells you, you're relying on where the faults are, what, what was produced in the area. And from there, you, you kind of narrow down where you want to drill that well. But it's not a guaranteed science. There is still a tremendous amount of risk in exploratory drilling. You might have a 30% success rate of hitting oil. That does not mean that you hit enough oil to make your money back from the expense of drilling the well. We have done our fair share of those. We have done our fair share of drilling dry holes in the past. What we do now is field development. So we only drill in areas where there is proven production, primarily in areas where there are— it is a big blanket reservoir. And we only drill horizontal wells where we're putting 2 to 4 miles of pipe in the reservoir rather than 30 or 40 feet of pipe in the reservoir. And to compound that, to further reduce the risk of drilling a dry hole, We put together multi-well packages of wells. So we do not do a single well package. It's multi-well, multiple miles of pipe in the oil that's proven to be there in a known field with some of the best operators in the country. The reason I'm saying all this is we— if you drill a dry hole or you drill the best well in the country, The government still gives you the ability to write off everything you invested in that project off of your ordinary income in the year that you incurred the, uh, the cost to do so. So that's one of the benefits. The other benefit is because that oil in the ground that you've hit is not going to last forever, the government also wrote into the tax code a 15% depletion allowance. So every dollar that your oil well generates, 15% of that is going to be tax-free due to that depletion allowance. So it was— it's been in the tax code for, for over 100 years. In 1986, when Ronald Reagan was in office, the Tax Reform Act of 1986 is where they kind of, uh, tweaked it so that it's, it's more, uh, advantageous to those, uh, those investors who decide to, uh, to help develop our natural resources.

Well, fascinating, uh, to be, uh, certain. So much goes into this that those of us not familiar with the industry just really have no idea. Well, the other thing that's really— that is somewhat unfamiliar to many investors is this aspect of joint venture. Many come from investments in real estate and businesses where sometimes there are joint ventures, so it's not totally and completely unfamiliar, but for many it is. So can you really explain the joint venture structure and how it is that essentially what investors are going to want to know is how is it they're getting paid, but there's the other factor in a joint venture as opposed to investing in a syndication, and that is that aspect of general partner as opposed to limited partner. And in the joint venture, you're actually a joint partner or a general partner, and you don't have that liability protection from being a limited partner. So can you talk about those distinctions?

Yes, all of our joint ventures are general partnerships. They do have joint and several liability. Um, so you— that is the, the thing that sets the joint venture apart is this is one of the few investments where you actually have a say in how your money goes to work for you. Um, anything requiring dollars requires a vote of the partnership, and a 51% majority rules the day. Um, in most cases, we're voting on completing a well that the operator has already drilled and logged and they're ready to place the well into production, but they need to complete it. That's the process of setting up a well for completion. But that would require a vote of the partners. We send out ballots and we have conference calls where all of our partners can ask questions. There's no such thing as a stupid question whatsoever. Um, we limit the number of partners that can participate in a joint venture so that when there is a conference call, all questions and answers can be asked and answered. And it doesn't take everyone's day. Um, but it is— you do have an active role in the management of each joint venture. Each joint venture has a specific number of wells that are assigned to it, and, and it's really interest in those wells that's assigned to that joint venture. Um, so there's also— it's limited from a number of partners perspective. It's also limited in, in how much interest we have available to allocate. to that joint venture. But really, from the joint and several liability standpoint, because you are taking that risk to drill the wells with us, we're spreading our risk to drill more wells. Uh, you know, Gulf Coast Western as a, as a, as a business would rather own 10% of 100 wells rather than 100% of 10 wells. So we're spreading our risk and we're spreading the reward, but it allows us all through diversification to drill more wells together. I would say 70% of our projects or more are funded by existing partners. And then we're also reaching out to folks who have never looked at one of these before to see if it's something that fits their portfolio needs and their tax needs to build our business and go forth and drill more wells. So it's a unique niche product. It is, it's not a security, it's a joint venture. So you have a say. in how your money goes to work for you. Whereas if you were to invest in Chevron or Exxon, you're really doing the same thing. You're giving— you're buying ownership in their company so that they can take that money and go drill more wells. But, and then if you're lucky and you're in a good company, you might get paid quarterly through dividends. Um, but you, you own inter— you own interest in that company. You don't own interest in the wells that they're drilling. And you don't receive monthly revenue like you would through a joint venture. With Gulf Coast Western, you're investing as a group, as, as a partnership in a select number of wells, and you are being paid proportionately from those wells. And we direct deposit on a monthly basis, every month on the 20th, direct deposit the cash flow from those oil wells directly into our partners' bank accounts. Then in February of every year, our accounting firm issues K-1s for everyone that participated. They get a K-1 to reflect that they invested in their oil wells in the previous year so that they can give those— give that information to their accountants and get the tax advantages of the write-off.

Well, that's interesting to me that you offer the voting rights. There are A lot of joint ventures in oil and gas that have different classes of general partners, and they frequently do not have voting rights. So that is interesting that you all offer that.

And one more point to that. I was referring to the joint and several liability. Yes, you are jointly and severally liable, but we are dealing with the biggest companies in the country that drill these wells. We're not dealing with mom-and-pop shops, not mom-and-pop operators, not that, you know, there's anything wrong with them, but we work with some of the biggest names in the country. So if anything were to happen on these wells, we would be the very, very top of the totem pole, and they would have to get through multiple, multiple layers of insurance to get to that point, to get to us. All of our partnerships and all of our partners are protected under a $14 million umbrella policy, and our insurances have never been enacted. on any project we've ever done. So we feel very— we feel as though we're protecting our partners while still giving them all of the tax advantages through the structure of the joint venture.

Yeah.

So yeah, thanks for clarifying that. I was actually going to ask you about the insurance because I know there's multiple layers of that in most cases there. Another thing is you are distributing the profits on a monthly basis, which investors Most investors like and appreciate. Can you talk to us about the splits between you as the operating company and the other— I don't know what you call them— how you differentiate between you as the organizers and the parent company there? I'm sure you have a split between you and the regular joint venture members?

Yeah, so it's, it's important to understand that the Gulf Coast Western is not the operator. We are what's called a non-operating working interest partner in these wells. Most of our wells are operated by either very well-known public companies or very well-backed private equity firm Operators. The operator is who runs the show. We as a company are able to ride the coattails of these companies with multibillion-dollar budgets. There are teams of engineers, there are teams of geologists. So we don't have to rely on any of that. We don't have to do any of our own studies. We're relying on the best in the business to do the right thing and run these wells the proper way. From there, uh, we— but we are required to pay our proportionate share of the interest that we, we acquire from these— in these wells. So if, if we own 50% of a pad of wells that— let's just say it's 14 wells, and that, that package of wells is going to cost $60 million to drill and place into production— we're on the hook for $30 million of that. So when that— when those wells go online, we are also entitled to 50% of the revenues generated from those wells. So depending on how much interest is in each joint venture in those particular wells, that joint venture again has a set amount of interest. And based on that, before anybody invests in a joint venture, they see what the net revenue interest is going to be. And they they can see on a on a a theoretical basis if the wells do X per day for X amount of time at X price, removing all the taxes and production taxes and all the other costs that go into the lease operating expenses, they can expect a reasonable you know approximation of what the wells should generate. And that's based on before I will. Before I will acquire a package of wells from an operator, I'm looking at what the wells in the area did, very much like real estate. If I have good comps in the area, if I know that these 2-mile wells are drilled into the same rock, completed using the same technology by the same operator, chances are I should have the same, if not better results, considering technology is always improving, of the wells in the surrounding area. So that's how I'm looking at whether we decide to participate in some wells. But from there, the operator runs the show. They send us our bills, we pay our bills. And based on how the wells perform, that's, that's the risk part of it, is commodity pricing and how Mother Nature, you know, produces the wells. From there, the partners see— I try to design it before we ever put a bit in the ground to have a high double-digit annualized return. And anywhere from a 4 to 6 to 1 overall return. Keeping in mind, these wells will, will produce for 15 to 25 years economically. So the bulk of those returns come in the first 5 to 7 years, and then they'll level off at a nice steady rate, and then they'll produce for a long, long time under their own pressure before any type of additional lift or anything like that is added to the wells. We're primarily focused on It's called Weld County, Colorado, is where most of our wells are. And it is, uh, it's a highly economic, uh, producing area. It's the 4th largest proven field in the country, and it's just north of the Denver Airport. 2,000 square miles, thousands of horizontal wells, and there's lots of infrastructure in place. So that is our bread and butter. We've drilled coming up on 400 horizontal wells in the last 7 to 8 years, and we haven't drilled a dry hole. Again, primarily because we are drilling in a proven area with the best operators in the country. So that's kind of— we shifted from exploring for oil and offering tax advantages and taking a huge risk to getting those same tax advantages and drilling in an area of known production with with reasonable expectations as far as what the wells can generate, because we know what the wells in the area have done.

Okay.

Going back to the non-operating interest, that has a management team, correct?

It does not. Gulf Coast Western, and to that point, Gulf Coast Western is the managing partner of the joint venture, for each joint venture. That does not mean That just means we're running the day-to-day operations. We work directly with the operators. We, we post the production reports and we distribute the revenues and send out the revenue statements. Gulf Coast Western and every one of the joint ventures contributes 1% to the total allocated to the joint venture.

Mm-hmm.

So we do have a vote. You know, our 1% is really there to be a tiebreaker if we get to a 50-50 vote. One way or the other, but it's really the partners that rule the day. So we manage the day-to-day operations, but again, anything requiring money out of pocket that the operators propose has to be put to a vote by the partners.

Okay.

So in distributing the profits, revenues from this, as managing partners, you've got 1% in there. Are you getting 1% of the revenues? And the other 99% goes to the partners?

Correct.

There's no other split in there?

Nope.

Okey-doke.

That's interesting. That's very good. So in other words, so the partners and their investment, they are returning— they're receiving the returns 100% On 100%, essentially, of their investment without any splits or dividing that up. I'm sure there are management fees in there, I expect.

There are management fees, but they're nominal. It's mainly to cover the costs of running the accounting. We've got a full-time staff of accountants that are cranking these out. You can imagine with 400 wells in production that our accounting team is pretty robust and it's growing and we've done a lot of automation, but it's nominal in the big scheme of things. But what the partners would see on a new project, all of those, you know, the estimates of what the costs and what the taxes are, and taxes are different in every state, but it's specific to, in this case it would be Colorado, the lease operating expenses, all of those are netted out. So what the partners would see Based on their projections, if you will, of what the wells can do, are capable of, all of those costs are already figured out.

Okay. Well, just another incidental question here about organization. So the operators, like that's ExxonMobil and Conoco and so on and so forth. So are they the drillers or do they have third-party sources doing the drilling or is ExxonMobil and Conoco and so on and so forth? Are they the drillers?

Yeah, so great question. Most of these operators— and we work primarily, we have a lot of wells with some of the companies you just mentioned— most of these big companies do not own their own drilling rigs. The drilling is actually contracted out through a third-party drilling company. There's, there's, you know, several big Drilling contractors that are— they're, they're all over the country, but they are specialized in each group of, of rigs that they have active in an area. They know what they're doing in that area. So most of these operators stick with, uh, the bigger operators, um, to drill the wells. So they are contracted out.

Mm-hmm.

The same thing is true when it comes to completing the wells. All of these wells are drilled into very tight rock. They need to be perforated. They do need to be fracked with a fracture stimulation, which is injecting high-pressure water and sand into the wellbore, into the formation, to open up that rock to allow it to flow oil and gas back to the surface. The completion is typically going to be done by a Baker Hughes, a Halliburton, a Liberty Oilfield Services. Those are the, the 3 main companies that Schlumberger is another big one. Those are subcontracted out as well. But the main operator, the operator of record, is going to be that Occidental, Chevron, Exxon, BP, whoever the operator is. They are calling the shots and telling those contractors how they want their wells drilled, how they want their wells completed, how many, you know, they're putting the production tanks and designing all of that. And we just, we basically get an estimate of what the wells are going to cost. In advance and we commit to it. And once we commit to it, they run the show, we pay our bills, we receive the revenues. It's— we have simplified it for the partners so that all they have to do is look at the package of wells that we have available, decide whether based on their tax needs or their budget if they want to participate or not. And then from there, they're in the wells, um, it's— or they're not, and it's fine either way. But, um, it's— it's— we make it We've simplified it to where it's usually taking 1 or 2 votes over the life of a project. We're not— all of our partners are wealthy, sophisticated, accredited investors. We understand they are running their own businesses and don't have time for, you know, it's part of the reason we are the managing venture is we run the day-to-day operations so they don't have to. We do it. We do take them on field trips to the field to go see how their money Has gone to work for them. And there's really no better way outside of building a home that you can see how your money goes to work for you than going out and visiting an oil well. And those are a great time because most of our partners are scattered all over the United States. And so unless they happen to be passing through our Dallas office or one of our other locations, sometimes we don't get to meet them. So it's neat to go spend the day with them out in the field and let them see You know, and ask all those questions in person and, and see how it all works. But it's, it's a pretty unique, unique process.

Well, John, it's been a very enlightening and informative conversation. So I really appreciate you being with us and giving us your time today. So we have been talking with John Engel. He is the Chief Operating Officer of Gulf Coast Western, a company that's been transforming domestic energy production into a reliable Avenue for wealth stability and significant tax savings for over half a century. So they have certainly been around the block a few times. So John's insights remind us that energy investing isn't just about oil and gas, but it's about building enduring value, protecting wealth, and aligning our financial strategy with intelligent diversification. So if you are tuning in today and realize there is still time to make a meaningful impact on your 2025 tax plan, which there is time, but time is running out. So now is the moment to act, and there is limited time remaining to finalize your tax planning for 2025. It's really getting short. Act now. So Gulf Coast Western can show you how to save tax dollars. From going to the government while providing true diversification beyond stocks, bonds, and real estate markets. So to learn more, you'll need to go to their website, which is simply gulfcoastwestern.com. That is once again gulfcoastwestern.com, and you will find that in our show notes as well. So if today's discussion inspired you to explore additional ways to make your money work for you, don't stop here. Watch the mini masterclass Beyond the Paycheck, and that's how high-income professionals build freedom through passive investing.

You can access it here for free at our website, go.steettalker.com.

That's also in our show notes. Until next time, remember, wealth is not about working harder. It's about putting your capital to work in ways that secure your freedom, expand your purpose, and create lasting impact. I'm Dr. Allen, and this is Streams to Impact. Thank you.

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