#209 Mineral Rights as Passive Real Estate

Welcome to the Passive Income MD podcast where we talk about creating your ideal life through multiple streams of income. If you enjoy hearing about this stuff, make sure to hit subscribe. Now let's get on with the show.

Hey everyone.

I think we're having a fun talk today with someone that's pretty well known to our community. This is Troy Eckert. He's the CEO and founder of Eckard Enterprises. They've been a partner of ours at PIND for a while. I've been a personal investor of theirs. As you know, we've talked about different ways to create passive income on our platform. We talked about real estate, other types of investments. One of those investments we've talked quite a bit about is investing in energy. Now people know that we've talked about how energy basically rules the world. It rules all the economies, things going up and down by, you know, easy, cheap access to energy. As you know. Personally, I've invested both in things like mineral rights. I've also invested in future technologies for sustainable energy. And I think it's really fascinating to talk to someone like Troy who is, you know, on the ground seeing what's going on. And so I'm excited to talk today about the market, what's going on right now when it comes to mineral rights and, and the future of that, and then maybe talk a little bit about the investment in general, where it's going from here, and then what your investment might look like to, especially from a long term perspective, if you're investing in mineral rights. So, Troy, how you doing?

I'm doing good, Peter. Thanks for having me on again. I appreciate it.

I know you're busy, man, so I really appreciate the time. I always love these conversations and I know I get so much out of it and I know the audience does as well. So I'm excited to dive right into this today. If you don't, I'm just wondering today with what's going on with the world, everything that's going on, it seems kind of crazy out there. How is the market looking right now for you when it comes to mineral rise? If you can give us a kind of a peek behind the curtain?

Yeah. I think two things are obvious in the mineral market today. Number one, the lack of access to capital means there's less competition to buy and acquire high valued mineral rights. They can't get bank financing, they don't have the liquidity. So therefore the market is pretty much in the favor of the buy. It's a buy market right now. It's a buyer side market right now, which is really, really good. It helps you get the assets at the right price. I think the other thing is there's really a macro event going on and that was the administration's permit delays on liquefied natural gas, which has triggered a downstream effect to producers. Because we have so much natural gas in this country and if we don't have the chance to export it or there's delays, it causes that market to see a little bit robust supply and the demand becomes a big question mark. So those two things are really what's happening in the market today. And there are subsequent events or at least what I call downstream events. But that's really what's happening in the market today within the industry itself, not the investor side, but the industry.

And obviously you're in that industry and perhaps you're biased a little bit. But I mean, just for people just to spell it out, I mean, you see the future is up, neutral or down over the next, I guess even the five, 10 years. And then where it looks like in the future.

Well, two things that I, that I've realized over the last three years. One, we used to have a base value of about $40 a barrel for crude oil for the producers to. So $40 a barrel just to, just to make the wash or get even, right. That's moved up to closer to 52 to $55 a barrel. Just like every other industry. Inflation, services, cost, insurance, labor. So what's happening is that the long term trend of oil used to be around $25 a barrel in the 70s and 80s, then it moved about $65 a barrel in the late 90s and early 2000s. We're now seeing, we're probably closer to $85 a barrel for the next 15 years is going to be most likely that bottom line trend. Now the reason that's important is when you have countries like Saudi Arabia and Russia saying we've got to have $85 to satisfy our internal financial needs because they're a sovereign oil producer. You can be assured that when two big producers like Russia and Saudi say we've got to have 85, they will continue to do that kind of management on supply till they get to that price point. That's really a healthy market for the US oil and gas industry. 85 is a great market. We get too high, we get to 105 to $110 a barrel. You almost negatively affect your consumer. So we got a sweet spot today between let's say 80 and $95 a barrel. Which we'd be more than happy to be satisfied with. I don't think you're going to see that kind of stability for a while, but at this point we'll take 85. That's a very healthy profit margin. Right. And I look like for the investor.

Though, I mean, I'm just curious, like.

Yeah, so, yeah. So from the investor side downstream, whether you're buying stock like Exxon or Diamondback or Chevron, the, the investors today, I think you'd be making very good investment decisions buying public stocks, service providers today. Also, if you can directly own assets, you're buying them at a discount because you're not having a lot of competition trying to buy that same asset. So your, your buy price is the right price today. And I believe that what you see in that buy price is, is no one who's selling it can actually add that future increase in commodity price to the asking price because you're not there yet. So I kind of have an advantage. Very few competition competitors buying it and nobody can add to the model, add to the value. But yes, I've got an extra two townhouses that goes with that multifamily project. There's no upside value. So you're getting both sides of the trade. I think very, very fair in today's market. That provides what I see is a very clear window for investors to say if I'm going to look at oil and gas, if I'm going to look at minerals, if I'm going to drill wells, probably the best scenarios today where I have this equality between buyer and seller saying fair prices are what we can obtain.

You know, we talk a lot about real estate on our platform. And when we talk about real estate, our focus on our goal mainly with these investments is cash flow. We talk about buying at the right price, having that asset. Once you buy at the right price, like you said, demand is there, then you've got good cash flow from that. So what does that cash flow look like for somebody? If this is the market right now and somebody has an opportunity to invest in this mineral rights market and the oil and gas right now, what does that look like on the backside for cash flow for like an investor today?

Yeah. So if you're talking specifically mineral rights, at our company we model everything based on achieving a double digit return 10 or higher on average over five years. We expect to make a 50 return in five years. Within that model, we have adjustments to the variables in the model and that gives us a very high assurance will achieve that and much better. And When I look at alternative assets, Peter, I'll be frankly, whether it's, you know, Bitcoin or real estate or any kind of alternative asset, there's so many variables that you have to be incredibly conservative in your financial modeling because you don't know when the bank rules change and lending change and interest rates change and consumption change. So for our standpoint, having 40 years or four decades in oil and gas, I look at the last 40 years and say, here's the things that used to be, hey, this will never happen. But it did. This is a black swan. That's not true. So in our model we said, look, this is what 40 years has told us. Let's create a model that gives us the highest level of assurance we can achieve that 10 rate of return or higher. And it's worked out very, very well for us by being that conservative. The investors who are have been in the, the rumor mill, hey, I've got a friend who invests in oil and gas. Hey, I've seen some bad news about only gas or I did it back in the 90s and the early 2000s. It has a hor reputation. Oil and gas has an entire incredibly horrible reputation primarily because of the, the scams and the people being taken advantage of by these, these unscrupulous individuals. You add that on top of not having a centralized place to go to get information, there's a thousand sites on multifamily. I can compare everybody's opinion to multifamily and come up with a general what's truly true. You can't do that in oil and gas. It's a very obscure investment. So there's a tremendous amount of trust that has to be earned. There's a tremendous amount of acceptance of the value that oil and gas might give somebody in their portfolio. And then your has to be that, that, that trial and error. I'm like, I'm going to try this, I'm going to see if it works. What's that look like? How long before I digest it to get some kind of relative proof of concept that it's something that really belongs to your portfolio and that you're willing and wanting to invest in. You know that from being my partner for three years. It's the, yeah, sounds good, feels good, but I got to see it before I know it's good. And I think that's the issue is that this is a long term investment meaning long time to get comfortable with it. But it's also something that once you do it, you kind of go, I see how that can really be part of a fundamental portfolio.

You mentioned double digit returns for five years. What happens to your investment? I think people have always asked, is it just a 5 year investment? What does that look like after that?

Well, here's the fun part, Peter, and this makes my job easier, is back in the day you used to have to always guess how long a well will last because the reservoir was not really truly mapped out. You might hit a buried river channel or a buried lake and you're like, I hope it's got, you know, 500 acres of oil in, right? Today it's different. It's, it's so well mapped out, it's so well known. Now you have literally thousands and thousands of wells being drilled. So the engineers, the reservoir engineers, the production engineers are able to put in thousands of data points in the same area geologically. They can now say, okay, based on 14 years of drilling horizontal wells, all these thousands of wells are produced to this level. They can use that engineering software, they go, okay, new wells drilled today will have 25 to 75 years of production life. That's enormous. The average one in the US used to last like seven or eight years. Now these wells will come in and they're, they're estimating 25 to 75 year life. So from an investor standpoint, Eckerd models the first five years because most investors don't really think long term anymore. They think like, you know, I bought a stock on Monday and I sold it on Tuesday and that was a long holding period. So we modeled on five years because we know that some investors have a specific cycle they're chasing in real estate, out of real estate, in bonds, in stocks. We as a, as a company, knowing what our clients look like, modeling on five years, knowing that you might do a great job for them, but they still may want to exit and redeploy that in a multi family or self storage or go buy another business. Right. But when the reality is I've been getting checks every month on minerals I've owned since like 1989, every single month on, on 30, 40 years. Right? So you really, if you bought minerals in what we do and you never intended on selling it, you will see checks every month for 300 to 1200 months in a row of distributions uninterrupted with no expenses. So it's a different mindset. Right, But I believe that's a fair mindset considering this is a relatively new asset class and it's never been so low risk or available as it is today. And that's because of technology. So I think that's some of the things that are becoming more evident as the name, the information, the understanding of minerals becomes more commonplace. People start to recognize the value of minerals.

Hey everyone have a quick question for you. Are you looking for a secure and reliable long term investment strategy? Meet Eckerd Enterprises. It's a family owned and operated firm with over 35 years of experience specializing in US energy and alternative investments. Here at Passive Income MD, you often hear me talk about the need to diversify. One of the safest investment strategies available today are mineral rights. And with Eckerd Enterprises you can diversify your portfolio. Their team is committed to helping private investors like you and me identify and develop successful diversified portfolios with an average return on investment of over 24% across their portfolios. The Ecker team is dedicated to helping you build and protect your wealth through long term passive income. All of this while minimizing the risks associated with traditional investments. So check out Eckerd Enterprises if you want that great investment experience, go to eckerd enterprises.com again that's erdenterprises.com thanks and back to the show. Now I've been investing in a few years and I've seen the cash flow that comes from it. I even talked to some of your investors who have been with you a while and they talk about they've been getting checks for those years like you've been talking about. What do you think more people who are chasing cash flow, let's say. Why, why aren't more people investing than in mineral rights? Because whenever I talk to people out there, it seems to be kind of a little bit of a foreign concept like why do you think that's the case?

So I'll be a little bit arrogant for just a short second and I'll say I don't know of another privately held or energy sponsor like myself that offers private investors the chance to invest directly on gas that even comes close to doing it the way we do it. They do them in blind pools, they do them in closed in syndications, they do them in, in aggregation where you don't really know what you own. It's in a structured vehicle, it's got a K1, you know, it's watered down, there's no transparency. So it's always the shell game with oil guys. They're always trying to hide the, hide the ball. And so because of that, the, the, the acceptance of this asset into a normal investment consideration doesn't exist. So one person out of 20 in a room like you can say, hey, I'm investing in mineralize and go, you're going to get burned. You're an idiot. What are you doing here? How do you know that guy? How do you know you have wells? How you know he's not skimming off the top? So 19 out of 20 absent. You are going to. Yeah, good luck with that, buddy. You're going to have a great time. Because it is a new asset class. It's only been an asset class really in my mind for private investors the last seven or eight years. And the reason for that is the major oil companies have finally solved the riddle. The riddle is we have tremendous amounts of oil and gas. It's in a reservoir that's very hard to engineer and complete and figure out how to produce oil and gas. But now that they've solved that riddle, we're now the number one oil producer in the world. Not only that, but we're doing it extremely environmentally sensitive. So instead of having a well drilled every 20 acres, they're drilling one 3 acre pad site. They may drill 10 or 20 wells. You're not scarring the land, you're not adding all this oil in the ground, you're piping it. So one little pad site might have 20 wells before you'd have 22 acre pads. I didn't look like a pin cushion. So not only are we environmentally sensitive, but we're producing some of the highest gravity crude oil we've ever produced, meaning it is about as pure as gasoline in your car. So it has less byproducts when it's being produced. Which means we are moving toward, I think a more climate friendly type of production in that we have such good oil, clean oil and environmentally so safe. The other thing is I think the regulatory agencies have really honed in on the only gas and said you guys need to be carbon neutral, you need to figure out how to capture carbon. You make sure your natural gas not pumping out methane. So the majors, which is what we buy minerals under, we're basically mineral owners for the largest, smartest oil companies who are leading the world in carbon neutrality, carbon sensitivity, methane capture. And that gives us a great sense of being environmentally sensitive as we buy these assets which are cash flowing like they are.

I love that you guys take considerate that, that kind of, that obviously the environmental stuff into consideration. I think that's important. You mentioned something about regulation and so I'm curious like what's that look like for the industry moving forward? A lot of us hear a lot of news about the industry. And again, we only hear what we, we hear on, on media, but we don't have an inside kind of, you know, inside knowledge into what's going on there. But do you feel like, you know, things are moving in the wrong direction for you guys when it comes to regulations? Especially as an investor, I want to make sure that my investment is not at risk for future, you know, politics and regulation, that it's going to be a good Runway for us. So what do you say to that?

So let's use two fossil fuels, coal and oil and gas. Right? They're both fossil fuels, but they're separate. Right. When it comes to coal, it's mainly used for electricity and it's run for basically heating our homes, heating up factories and plants. Right. It's a consumption for energy creation as a result of burning the coal. Oil and gas is different. Gas is used for fertilizer and plastics and synthetics and syringes and it can be chemically altered. So the byproducts of that gas molecule can. Everything in my office is made from a barrel oil or a molecule of gas. Right. So the difference is, is that there are regulations being put in place to try to help improve the climate, but there's also regulations in place that may be absent of the downstream effect of too much regulation. So anytime you have a hundred percent demand, which in this case every single person us burns or uses a barrel oil or molecule of gas, whether you like it or not, I don't care what side of the climate issue you're on, you're consuming it. So if it's 100% consumption, the increased regulations are really doing one thing. You're maybe slowing it down and modifying that industry, but you're also creating a much higher value for the product it produces. Because the higher the threshold, the higher the barrier entry, the more it costs to drill wells, produce wells, refine wells, the more we have to charge for what we produce. So that negatively affects the economy because every trucker with diesel, every doctor with, with syringes and gloves, plastics and that are going to pay more and more and more because it's all synthetically produced byproducts from oil and gas. So when you think of regulation, I kind of have a joke. Every time the administration makes a negative oil and gas regulation, we make more money because you just raise the value what we have because you've shrunk the supply. The flip side of that is, is that in the case of oil and gas, because it is 100% consumption, you can't regulate it out of business. You can literally shut down every coal plant in the US we can still have gas, wind, solar. You cannot get rid of oil and gas ever because you don't know how to make the rest of things in this office without oil and gas. So it might be a diminishment of supply. Tighter regulations on environmental responsibility. You're never going to get rid of 75 to 80% oil and gas ever as a result of the byproduct use. So that's a great thing in that regulations will not eliminate it, but it will definitely support a higher value creation as a result of those tighter regulations. That's my analysis.

All right, I want to ask you two questions that we get quite a bit about, you know, Eckard and your investments in Eckhard. Number one, what's the minimum investment?

Yeah, so every portfolio is roughly a $25,000 minimum investment. And on the bigger portfolios, it's more like 100 or 250,000. And it's all about math. If we own, I think the. The Cornerstone portfolio had 4,000 wells, so a vertical well, we own 8% in. To extrapolate the zeros for your decimal as an owner might be so far out it almost becomes de minimis. So what we do is set a $25,000 minimum per portfolio. If it's a really big portfolio, let's say north of $100 million, you might have a minimum of 100 or $250,000. We're not worried about minimums, Peter, as much as we are about slowly, respectfully, helping somebody build a mineral, oil and gas portfolio at their speed and their comfort level. We just need to have a certain minimum to allow us to be able to put one brick in that portfolio at a time. Right. That's with a minimum.

Got it. And when it comes to these type of investments, how does somebody choose or how does people. How do people figure out what type of investments are open at any current, current time?

Yeah, that's a good question. I say that because I feel like I'm down in the trenches and I'm getting shot at with an Uzi. Because it's funny, we probably have at least one open program pretty much all the time. Right now we have four open at the same time. We have two small Anadarko, Oklahoma portfolios. We have a small Texas portfolio, and then we have our big portfolio in Texas. And the reason we do that is a lot of our partners are very disciplined. I'll put 50,000 in this one. 50,000 this one, I'll put a hundred thousand, this one and 50,000. So we have partners that are building their own portfolio of our portfolios and they have money to deploy a 1031 transaction. They got money in their self directed Iraq. So we'll open generally two to four at a time. And the reason that works, Peter, is that of the portfolios we have, Eckerd has already gone out and spent our money to buy those minerals, take the risk, file the deeds and title, notify the oil companies we own it. But more importantly is because we do it in advance of offering it to our investors. We've already notified the oil company, we're the new owner, start processing our check. So we want revenue to be coming while those minerals are held in our inventory. So when you finally invest, we've maybe shaved off half the wait time to get revenue because we've already bought it, owned it ahead of time. So we have no problem offering different mineral packages. But we try to stay one at a time. But sometimes like today, we got four open at the same time and it's kind of a madhouse around here right now. And they're, and they're selling very quickly. That's the, it's also very shocking. I thought we'd have a slow year this year. I think we're actually ahead of last year as far as capital input. It's, it's, it's a very busy time around Eckerd.

But we talk about passive investments all the time and we talk about how there's a spectrum of passive income, especially in real estate. You can be really active, really passive. Where does this sit on the spectrum in terms of investing with you guys on that like active passive scale?

Well, I'm, I'm obviously a one gas expert. That's my preference. But I got to tell you, the reason why I can truly say that mineral ownership is the most passive income generating asset you, me or any one of your listeners can invest in is for two reasons. Number one, the oil companies who have leased and are responsible for drilling all the wells, taking all the risk, they don't even have to tell us when they're drilling a well. It's so passive it's like being in a car, like a limousine and the window's blacked out and it goes up. You can't even talk to the driver. And they're not telling you where they're going when they're getting there. You're just going to get some revenue in about 180 days for all the wells they drilled. Unless you're going online and searching databases, which is what we do, because they don't need your input. They're not going to share their input. They're not going to tell you how good your wells are. You're just going to get some big fat check in six months ago.

Oh.

Oh, that's enormous. Well, have no clue. Because of that passivity from the actual lessee, the Exxons, the Chevrons that have leased our minerals, we're limited in what we know to pass on to our investors because we have no clue what the driver's doing in that limo. The second part is from you as an investor, that this is probably what I've enjoyed the most, watching busy doctors and dentists and lawyers and engineers. You're busy running your life. The last thing you want to do is have to have on your checklist. Well, I better call Troy and see how my minerals. And I better. I better find out how many wells got drilled, where's my revenue, what's going on? And so the passivity is, there's nothing you can do to change it. There's no debt. It's all paid for. It comes every 30 days, no matter what. It's. It's beyond bankruptcy. They can't stop paying us. They owe us the money. If they ever fail, we take the minerals back, they lose their wells. We have the richest oil comes world managing it for us with the smartest people. So you sit back and go, I have clients all the time. They're engineers. What's going on? I go, nothing. Well, what can I do about it? Nothing. Well, what should I do? Wait for the 25th, you'll get your ACH deposit. Look on the app, find out what you got paid for and go have Fun the other 29.24 hours a day because there's nothing you can do. That is truly the definition of passive. Where I'm making money on an asset, I'm not negatively effective. I'm not being cash called. I'm simply receiving revenue for 25 to 75 years. Wow. That is a perfect investment for me.

Awesome. Well, Troy, every time I talk to you, I feel like I get a little smarter in this area. I learn a little bit more about where things are headed. And obviously, now that I hear the news out there, I'm a little bit more informed about what's going on in the world.

How can.

What's the best way for people to reach out to you if they want to find out more information about, you know, some of your open investments? Or just get more information about the industry.

Well, you know, Peter, you and I got to know each other pretty well. And I'm like you, you're 24, seven. I, I think I'm hyper. And work hard. You work harder than I do. And you, you're more hyper than I am. You're 20 years younger, which is good. But I will tell you two things. I, I this out with full intention. My cell phone number is 469-422-1781. Call me. I'm hands on with my investing partners because it's very important to me that I help you accomplish your own goals. Number two, you can sign up by going to eckerdenterprises.com you get into our website and there's Eckerd Insights, which is our, our self proprietary app. You sign up now, you have hundreds of hours of education information and it'll educate you as much or as little as you want. And the last thing you can do is just email me@t eckerdecker enterprises.com tekker decker enterprise.com and we'll have a salaried wealth manager take their time to tell you what we do and how we do it. There's no commission, no transaction fees, and they'll walk you through the benefits and the risk and the exposure. And then together you'll tell them what you want to do and how you do it. So those three ways are pretty innocuous. We're not high pressure, we're pretty laid back. But what we want really is we want to build a long term relationship with you so we're not in a hurry. I think that's just the three things I would do and I would just understand. Mineral packages are like trains. In a train station, one comes along every 15 minutes. It's just a difference in where that train's going. That's, that's the only difference, one train to the next. That's portfolio differentials.

Well, Troy, I want to thank you for the time. Obviously, you know, we've seen the benefits partnering with you here at pimd and many of our audience members have become real big fans of what you guys are doing over there. So really want to thank you for your time. Thanks for the education. Hopefully people will check it out and let's talk again soon.

Yeah, I will leave you with one last word, Peter. I do a lot of podcasts, I do a lot of education information with PIMD and with the sincerity that you have. And this is, this is just a wrap up for me is I'm honored to always be on your on your conversation, your podcast, and your IQs, your questionnaires because your members feel the same way about you as you do about them. And I hear that from all your partners all the time about what a great job you do. I just want you to know that because there's a lot of doctors out there are really trying to get through their career and figure out how to prepare for retirement and their family. And I just think that by having these educational information, it really highlights the value you bring. And so I want to thank you for having me on the show and thank you for allowing me to be part of your organization.

Thanks, Troy. I really appreciate the kind words. Let's talk again soon.

Thank you. Take care.

Enjoy the show. Let me know by dropping a review in the podcast app you're listening to us at. And if you haven't already, make sure to hit subscribe. Join thousands of physicians who are also on this journey to creating their ideal lives through multiple streams of income. Learn more at our website, passiveincomemd.com thanks again for allowing me to be a part of your journey. See you next time.