Alt Investing Made Easy

Sarah Florer (00:03.457)

Welcome everyone to Alt Investing Made Easy. Today our topic will be interesting for investors interested in oil and gas investments and everyone else who wants to know more about this class of alternative investments. We're joined by Jace Graham of Rising Phoenix Capital. He's a long time oil man and investor and a promoter of oil and gas alternative investments. Roland, do you want to introduce Jace further?

Roland Wiederänders (00:46.892)
Yeah, Jay's, it's great to have you here with us today.

Jace Graham (00:51.51)
Honored to be on the call.

Roland Wiederänders (00:53.718)
Jace's new friend actually saw the podcast and he and his team reached out and we're excited to have him on as a guest today. Investments in oil and gas are classified at law as real estate, so they for sure fall into the category of alternative investments of Jase's investments that he offers through Rising Phoenix Capital or 506C deals. So that means that we can use general solicitation advertising. We can use this podcast as a platform to tell people about these investment opportunities and we'll for sure include in the notes information about how to find out more about the investment opportunities that JACE is going to be discussing today. We give this kind of standard disclaimer that we can't make any investment recommendations without a specific relationship with our, you know, any one of our audience members. So this is really for informational and educational purposes only. The reason why we can't make a recommendation isn't because we don't believe in JACE, but it's because we don't know necessarily without that relationship in place what your portfolio looks like. We have to talk about asset allocation and make sure that you have an appropriately balanced portfolio considering your level of risk tolerance. So again, this alternative investment space that we're talking about, it's more of the risk portion of your portfolio. And once we did create an investment advisory relationship, maybe we could recommend this, but in any event, we're here to learn more about what these investments are. And I think Jace is going to be a great person to tell us more about the investment opportunities here in oil and gas and real estate.

Sarah Florer (02:57.135)
So, Jace, you want to tell us who you are and about yourself and then maybe more about Rising Phoenix Capital?

Jace Graham (03:03.97)
Absolutely. Well, guys, first and foremost, really appreciate being on the podcast. Love speaking to investors that are looking in the alternative investment space. I think it's a great way to diversify a portfolio and find some really unique types of assets that you can directly invest in. So quick backstory on me, Sarah, you kind of alluded to it. I'm a fourth generation oil and gas guy. Grew up in and around the business. My old man was a old school operator I don't if you guys remember the show Dallas but he was the real deal JR Ewing on steroids but I got to you know learn from him grew up in the Dallas Fort Worth area went to college up in the northeast at Cornell University when I got back I did a little stint in the restaurant business at a phenomenal restaurant called Houston's which is now Hillstone where I learned systems and process I mean they run that restaurant better than any of out there. And I apply a lot of the stuff that I learned from that restaurant and how we run our day-to-day business now. So I looked at jumping in the oil and gas industry probably about two or three years after I was in that restaurant. My father came to me and wanted to see if one of his sons were interested in the business. And I really wasn't familiar with how everything went down. I knew how wells were getting drilled and whatnot as just growing up in and around it. Got a job as an independent landman. So I'd go out and negotiate oil and gas leases and run titles back to patent. Back when from the first president that deeded the first land back in the 1800s, chaining that title all the way from that point to the current owner to see who the mineral owners were. Did that up in Northeast Colorado for about 18 months. I really learned a ton about the industry, spent a little time down in East Texas doing more complicated titles and a little stand up in Oklahoma before I partnered up with my father at Palo Petroleum, where we really started doing a lot of oil and gas mineral buying in the Barnett Shale, which is just right outside Dallas, Fort Worth. We were doing drilling deals where we were leasing areas and then participating in drilling deals with operators. We've done direct drilling deals. So I've raised capital and been on well sites and on rigs and reporting back as the company man back to our investor. So I've seen all kinds of facets of what we call upstream oil and gas, which is where really the tire hits the road from the drilling and completion side of the equation. So fast forward to 2016. My father was kind of winding down into retirement. My brother was coming in, wanting to take over our family company. And I started Rising Phoenix with a focus on real estate investing. You know, we do private mortgages, do hard money lending, do real estate, investing, land development, and also our backbone is in oil and gas as you can imagine. We started doing a series of 506c offerings, Reg D 506c, a credit investor offerings to basically our friends and family in the Dallas Fort Worth area. That's since grown. We now have about 35 million of assets under management. So we're not some huge private equity company that's trying to put 500 million to work. We're really heavy into the ground game. We've got really good sales teams that are picking up the phones, talking to mineral owners throughout the country, and really trying to focus on where we buy and how we buy as close to the source as possible to be able to bring that value back to our investor base. So here we are today. It's 2024 going into 2025. We've got three distinct verticals at Rising Phoenix. Rising Phoenix Capital is kind of our capital raising arm. We've got Rising Phoenix Real Estate, where we do a lot of real estate acquisitions and the lending and all that. And then of course, Rising Phoenix Royalties, which is really focused on the acquisition and disposition of oil and gas minerals throughout the country, but with a focus right now in the Permian Basin, where there's just a ton of activity from really good operators.

Roland Wiederänders (07:24.334)
Hey, Jace, you know, this is the first time we've really talked about oil and gas on our show here. And I think one thing that would be really interesting, you know, I've learned more about this and I haven't really fully appreciated it, but how drilling technology has developed over the last maybe 20 to 30 years. You can give the timeline better than me, but it really has changed the risk profile or kind of the risks that I think historically have been associated with oil and gas drilling.

Jace Graham (07:58.368)
Yeah, you're right, Roland. I mean, you know, the development of horizontal shale development drilling has really allowed the United States to become energy independent. I mean, you can say what you want about fossil fuels, but you know, the way we live, the consumption of energy from electricity to, you know, natural gas to oil to gasoline, all those things that we have, you know, in America that a lot of times we're not, don't even really pay that much attention. It comes from the ability of these operators to be able to horizontally produce in these shale plates. The shale plates have been around for billions of years. There's no doubt about it, right? But to really figure out how to, these are very tight plays that if you were drilling vertically down and trying to stimulate or frack around them, you just were only getting a certain amount. It really didn't make sense based on the drilling costs. But if you're able to drill horizontally all the way through, they would have taken 10, sometimes 20 wells to drill vertically and get the same results out of one well. It really has allowed us to become energy independent and the top producer of oil in the nation, in the world. And so obviously we're a big proponent of oil and natural gas. It's not going anywhere anytime soon. Just with the infrastructure we have in place and we can definitely talk more about that.

Sarah Florer (09:21.987)
You know, something that I found interesting from what you just said, that being here in Texas, we think, oil and gas is a Texas kind of a thing. But just from your experience and also what you're saying about part of what you focus on as a business in terms of finding mineral rights that might be interesting around the country, that's, I think, an interesting point just to note, because we have investors from around the country invest in deals all over the country. And it actually sounds like oil and gas are mineral right minerals as an alternative asset class is something that's viable around the country also. It's not state dependent on Texas only or Louisiana. I think that's always something interesting to think about. I wouldn't have thought about it otherwise.

Roland Wiederänders (10:05.87)
Well, that would be an interesting thing to ask Jace, what is the breakdown? What percentage of the oil market does Texas represent? Colorado? I would bet, not knowing this, Texas is at top. Probably the top oil producing state.

Jace Graham (10:23.27)
Texas is by far. You know, Texas produces just the Permian alone, but Texas also has the Barnett shale, has the Eagleford shale kind of in the south, and even the Haynesville shale over to the east on top of all the older, conventional vertical drilling. Texas definitely, Alaska's up there, okay? So there's no doubt about that. We kind of forget about that state way up there. It produces quite a bit of oil. But there's deposits all throughout our nation. The Northeast has got the Marcellus shale, a lot of natural gas up there. Colorado's got the DJ base in the West Coast. California has quite a bit of oil and natural gas production, believe it not. And so it's in almost every state, some more focused than others. But I think what you really got to think about is just like thinking about the amount of jobs it creates. Think about all of these, the oil and natural gas is taxed of all the tax revenue dollars that are generated from this industry, they go back into the community and into the areas where it's produced from.

Roland Wiederänders (11:26.914)
Yeah, you brought up an important point too, and the tax advantages of oil and gas investing at a high level. I mean, we can give people tax advice, but I'm sure your investors ask all the time, or you have some sort of a response or quick description that you can give of the tax advantages of investing in oil and gas.

Jace Graham (11:52.054)
Yeah, no, absolutely. I mean, there's three main areas where there's tax advantages. On owning oil and gas mineral rights, you get what's called a 15 % depletion allowance in perpetuity. That's forever. So meaning if you receive $10,000 in royalty income, you're paying taxes on 8,500 of that. OK, so that's just kind of basic. It's still a nice little bump. When you look at actual drilling deals, which is one of our strategies we'll talk about, you have what's called IDCs, or intangible drilling cost. That's massive as far as tax write-off. You can take up to 70 to 80 % of the entire investment as a write-off in the first year. So a lot of people look at that as just a way to just offset taxes with the upside potential of a really good return. Little riskier deals. You're investing in oil and gas wells, but there's massive tax savings there. And the third way is through the 1031 exchange. So you can do a tax deferred. You could sell real estate and do a 1031 exchange tax deferred into oil and gas minerals and we've got quite a few investors that do that.

Roland Wiederänders (13:00.386)
Yeah, the deals that we've looked at recently are structured as general partnership interests that are convertible into limited partnership interests after the well has been completed. There's a specific passive loss limitation rule that applies to the general partnership interest. so we've been learning more about it. And we want to get to a place where we are really conversing and being able to help people structure those types of offerings for our clients.

Jace Graham (13:33.922)
Absolutely.

Sarah Florer (13:35.023)
So just continuing, Jace, one of the topics that we had set out to discuss was maybe how we can, or the topic of diversifying your portfolio with energy and other, well, real estate energy and alternative investments, but maybe focusing on energy here. Also maybe discussing, I think I remember discussing this with somebody recently that we talked about the oil and gas industry, but really now maybe the energy industry is more appropriate or more comprehensive. So it'd be interesting to hear your view on that. And just in general, like there's some tax benefits here, but in your experience with working with investors, what is the usefulness here for portfolio diversification?

Jace Graham (14:27.426)
Yeah, no, great question. I mean, that's what we're here to talk about. I mean, investors can invest into oil and gas in various ways. Obviously, you can invest in Exxon Mobil stock. There are publicly traded royalty trusts that you can invest in on the S&P 500 or the New York Stock Exchange. You can also do commodity futures, which is a little higher risk. You got to know that stuff, right? And there's some master limited partnerships that focus more on the pipeline side, what we call midstream. Again, all that's like, you can do that in the public markets. What I want to talk about and what we do is where we're directly investing actually in the minerals and royalties and our investors, our equity partners in those acquisitions. And so we've got three strategies at Rising Phoenix Capital. The first strategy is what we're going to call our bond debt strategy, all right, where the minerals and royalties that we're buying are the secured asset as the collateral. And so if investors want just a flat coupon, say I want to put $100,000 in for a year, there's a 9 % just return that comes with that and then it matures and you get your $100,000 back. If you want to do two years, 10%, three years, 11%. So if you just want just a flat, almost like a preferred rate of return, that's a nice investment strategy to consider. You don't have the upside, but you don't have the downside either. In the middle, which is kind of our fairway that we're known for, is what we call our income strategy. Now, this is actually where you're investing your cash into, like Roland said, a limited partnership. You're a limited partner. And we were pooling the capital of other investors into a fund to then go out and aggregate and put a portfolio of minerals together that have hundreds, if not thousands of wells in them across the country. And those funds are going to generate cash flow immediately. So we're looking to buy assets that already have producing wells on them so that risk has been taken out, they've been de-risked, and then we underwrite and engineer what we think the future value is. So those assets have cash on cash returns ranging between 10 % all the way up to sometimes 30-35 % cash on cash on an annual basis. We've averaged since 2019 16 % that's through COVID times when oil went almost down it never went negative. We never saw negative check stubs where the operator was basically influencing us for production, but we did see it get pretty low. So it just kind of speaks to what that cash on cash return looks like. And then the third kind of bucket that we look at is what we call our growth strategy. And that's the investment in the direct drilling deals. That's a higher return profile. There is more risk, right? Because you're investing in the drilling of oil and gas wells, and you get that massive write off. So happy to unpack any of those three. Again, we really focus on that income strategy as a good foundation for people if they want to kind of get in and kind of test it out. You'll get monthly distributions. We do quarterly newsletters. You get K1s before you know the April 15th deadline. We've always been good at that so happy to go wherever you want on those three types of strategies.
Roland Wiederänders (17:41.75)
Yeah, I mean, I think the fixed return is pretty easy for people to understand and maybe like the income strategy, you said it's a diversified portfolio or basket of multiple assets. So is that really a continuous deal or do you have a term for the fund?

Jace Graham (18:02.21)
There are terms. What we do is we open a fund up and investors that invest immediately, we pay an 8 % preferred rate of return until the fund closes. And as soon as it closes, then we know who all's in. We know exactly how the investor deck's going to look as far as distribution percentages. We'll pay that 8 % first, and then we'll start doing the distributions as soon as royalty income comes in. And so that strategy, that income strategy, we're looking at a one and a half to two to one mo'ik multiple uninvested capital. So if you put a hundred thousand in we're looking for 150 to 200 thousand dollars back that's including the royalty revenue distributions each month and then ultimately we're looking to sell within a three to four year window. Internal rates of return shooting out at 18 to 22 percent is what we're targeting for that strategy.

Sarah Florer (18:55.119)
I remember when we discussed this episode earlier, Jace, that you had mentioned that, if I'm correct, you have lots of opportunities for assets to acquire for this fund or other funds like this right now, that you've developed your underwriting strategy for sussing out those kinds of assets and that it's perhaps one reason that you're able to keep doing new ones or rolling over new ones. Is that, am I remembering that correctly?

Jace Graham (19:26.398)
Yeah Sarah, exactly right. You know, we've got an in-house acquisition team. It's very skilled and just understanding sales pipeline sales process, connecting with sellers, working with its sellers over time, not just we try to do more pull less push. We try to be transparent with our underwriting so that they can make an educated decision. We think that's important. So building that rapport on the front end. But yeah, our pipeline is extremely full. What we found is, mean, listen, there's nothing sexy about what we're doing. I mean, it's know, ground game. It's not easy. We're picking up a lot of frogs and kissing them to see what we can find. And it's, you know, direct mail. It's a heavy cold calling. It's reaching out into networks and finding people that may be interested in entertaining an offer on their mineral estate and we can do that fairly quickly if they want. They want to know that we can do that as well. I'd say right now pipeline you know I was talking to Adam Lapuche who's our director of royalties he said over the next 12 months you know we could probably deploy up to 100 million based on our current strategy alone. So we've got quite a bit of pipeline right now . If it fits the buy box for one of our income funds we'll do that. If not then we'll look to divest and do a quick flip out to some bigger private equity type buyers.

Roland Wiederänders (20:46.382)
That's really exciting, Jace.

Sarah Florer (20:48.921)
Yeah, really it is. Just one other quick point was, guess the tax, you've got these three different strategies and obviously the tax impact or the tax benefits from them would vary in accordance with what kind of strategy that you would elect, which is also, I guess, part of what's appealing. I mean, it's just quite amazing. To me, it's quite amazing the breadth of what you can offer to people.

Roland Wiederänders (21:13.902)
So the most aggressive tax benefits are kind of in the highest risk category. It's in that third bucket where you were describing the direct investment in working interests, right? Is that how you would describe that?

Jace Graham (21:27.072)
Correct. Yeah, that's absolutely correct. And we're looking, you in those deals, we're looking at really curating a good direct drill and dealing with, you know, people that we know and trust on the operator side. In that return profile, we're looking at.

Sarah Florer (21:28.206)
Yeah, that makes sense.

Jace Graham (21:43.298)
You know, I don't want to participate in direct drilling deals unless I have an opportunity to hit a three to four to one mick Internal rates return 40 plus percent and so that's what we're trying to look for for that strategy There is inherent risk with that right you can put your money in and there's dry holes that occur that's obviously that's that's not why you want to invest is just for the taxes, but We really try to curate good opportunities, you know, it's a it's a small circle in our industry that we kind of work with and to try to find those types of opportunities. We'll probably do one, maybe two of those a year. And they're kind of a sidecar, they'll come up. They usually kind of come up towards the back half of the year when people are starting to kind of think about, hey, I had a good year. I want to figure out a way to kind of offset some tax. And so that's kind of when we're trying to look to bring those to market.

Roland Wiederänders (22:35.426)
That's good. So I think that gives us a really good overview. And then what we wanted to move on to is a discussion about self-directed retirement accounts. And we're talking about investment in these private securities, of course. are opportunities to invest in public securities in the energy space. But these are private investments. We've talked about that before, what that means, but I think this just comes up over and over
again with our clients that it is a surprise to many investors that they can actually use their retirement account funds. So either through an individual retirement account, an IRA or a 401k plan, you can use those funds to invest in private deals. There are some requirements about that, but Jay, tell us about how you talk with people about that and how you advise people about investing through their self-directed retirement accounts.

Jace Graham (23:39.65)
I think the self-directed IRA investing into that income strategy is ideal. I'd say about 20 % of our investors in that strategy are coming from self-directed IRA. And so, as you mentioned, having a self-directed IRA, you're able to allocate and invest in more of what you want to invest in versus maybe a mutual fund that a larger institution is trying to put you in. So you can look at these types of assets to invest in and I think it's a great diversification. Obviously, it grows tax-free, which is great. So we've got quite a bit of investors. work with several self-directed IRA custodians throughout the country. There's a little bit of a, we've got to provide the documentation. There's some forms to fill out. So there's a few extra little steps as far as the subscription, but our investor relations team does a phenomenal job of working with the custodians. And then they obviously transfer the money from the self-directed IRA account into our separate partnership account and then distributions go back into that self-directed IRA.

Roland Wiederänders (24:50.862)
You want to give a shout out to any administrator that you find particularly easy to work with and cost effective?

Jace Graham (24:58.452)
Absolutely, Horizon Trust is our favorite. Greg Hurling, who runs Horizon Trust, is a phenomenal operator, astute businessman, and their level of service is phenomenal. So I highly recommend Horizon Trust.

Roland Wiederänders (25:12.628)
Okay, that's helpful for sure.

Sarah Florer (25:13.209)
Thank you. Yeah, thank you. So you know what, Jace, we could talk about all of this some more. Roland, do you want to flesh it out any more or should we move on?

Jace Graham (25:15.522)
Mm-hmm.

Roland Wiederänders (25:25.078)
Well, I don't know. I just think it's really useful for people to understand that with the income strategy like that, you know, it's great. That's how the IRA attacks deferred deals. If you invest in that through your taxable funds you're going to have to be reporting that income but that's the advantage of the tax deferred retirement account. I would really recommend people get in touch with understanding those, you know, and as part of any kind of, you know, financial plan that you've worked out, you always want to take advantage of the opportunities to save on taxes through making contributions and their limits on what you can contribute. But I think a lot of times people will forget about those or maybe you'll be employed for a long time and an employer and your only investment option was to invest in public companies, you know, stocks. And so you did your allocations like we do through the law firms. You know, you do your allocations to those different funds that are available, but then if you leave that employer, you're going to have to roll it over into an IRA, most likely. And then in that rollover process, just selecting an administrator like Jace told us about Horizon that will allow you to invest in private assets. I mean, think that's the question that our audience members should ask, that the administrator is, I mean, just that self-directed concept. Make sure that your administrator… know, allows for self-directed investments. Jace, did I miss anything?

Jace Graham (27:10.474)
No, that's where I mean, I think the biggest area that people often forget about is like you mentioned, you know, I was working for a company for 10 years, I'm no longer there. I've got a 401k, it's no longer hinged to their plan. And it's just sitting there. And that's a perfect example where the group over at Horizon Trust could work on converting that over into a self-directed IRA to then be able to then look at directly investing into alternative investments such as oil and gas minerals.

Sarah Florer (27:45.869)
Jay, I was just thinking, you know, something we didn't mention before that might be interesting to viewers is because you have these different options and of course we'll put your contact details down below the video. So I assume people can contact you and ask questions if people are interested. But generally, what's your typical buy-in in one of your funds? Do you have a pretty high minimum threshold? I mean, we see everything from $25,000 all the way to, you know, a million being a minimum buy-in depending on the situation.

Jace Graham (28:16.13)
Yeah, we do. It's a $50,000 minimum. So we think we're right there where you need to be. But yeah, and we have a little bit of a promotion structure. If people invest over $250,000, it's less of a promotion on the back end. our biggest, I'll add to that, how we're compensated, it's kind of, it's a way my home man did it. It's called a back end after payout. It's kind of an old school oil and gas set up where, you know, investors earn all their money back and then after they get all their money back, then we as a sponsor back in after that, not on the front. It's not an 80-20. Once we eclipse a certain threshold, we start, we're really committed to, you know, getting all of our investors their money back as quickly as possible. Because that's when we come in and start to earn our promotion. So, yeah, if it's over 250,000, it's a little bit less than if it's under 250.

Sarah Florer (29:04.303)
Hmm.

Jace Graham (29:14.572)
But again, it's all very, very reasonable.

Sarah Florer (29:17.133)
that completely tracks what we experience with our clients with the varying degrees of kinds of deals that they're promoting or offering or what people might be investing in. And it's actually great because then if you're new to all of this and you have $50,000 that's, especially if you're an accredited investor that you want to give a new asset class a try, then you can go in more if you want to, but sometimes people need to try bite-sized pieces, right?

So while they get comfortable with different kinds of investment strategies. But in any event, I think what you're doing again, Roland, you know, we talk about commercial real estate, how in the end you're always, there's always something underpinning some kind of a real estate asset, some kind of a real property that's there. you know, mineral estates for the most part are a pretty sure thing in the places, you know, where that's a normal part of, you know, the property that people own. so.

It seems like it's a really important area not to forget about, especially when you're maybe culturally or from a part of the country where you don't immediately think of the energy industry.

Roland Wiederänders (30:28.3)
Yeah, sure. I mean, we live here in Austin and there's not a lot of activity here, but man, we just drive a couple of hours outside of Austin in almost any direction and you'll see, you know, those, the jacks, the pump jacks, now, going.

Sarah Florer (30:40.847)
Exactly. I grew up mostly in Dallas and so of course, now, driving anywhere from Dallas, especially West, it's, you know, but East, could be anywhere. guess historically the oil industry, it first started in Pennsylvania technically, but then actually it was Eastern Texas where things really got going as the original founder of this new industry called oil and gas. That was, I guess, you know, over a century ago now, but from what I've read, that was...

Jace Graham (31:10.322)
H.L. H.L. Hunt. The Hunt family.

Sarah Florer (31:10.359)
You know, huh. I know it's funny because where I grew up, one of their family houses was kind of down the street from us. And so we grew up with the sort of the hunt, the myth or the reality, you know, the story of the hunts kind of like, because we drove by their house on the way to school. anyway.

Roland Wiederänders (31:33.102)
But I just think, not to be repetitive, but harkening back to that earlier time, and there was just such a view, meaning, wildcatter is a term. Just in my mind, there was so much risk associated with this, and there are no guarantees of anything, but somebody described oil and gas more as mining now rather than a...

Jace Graham (31:33.174)
Yep.

Roland Wiederänders (32:01.13)
catting, or just you drill a hole and hope with these new technologies there really is a lot more certainty so that's what really intrigues me about these investment opportunities we're talking about.

Jace Graham (32:13.794)
Yeah, let me add to that. So what you're speaking to is what we call conventional drilling. was the vertical wells. They would be finding little pockets that had a lot of pressure. And they would poke around. And you could be 100 feet off and out of it. And if you're over, you're in it. And that still goes on today. Don't get me wrong. I mean, my dad built a career around that. He had more wins than losses. But he definitely had his fair share of dry holes. It just goes with the territory. With horizontal drilling into shale places in the Permian, the Haynesville, in the Barnett, in the Marcellus, in the Utica you've got these like homogenous shale plays, right? That is blanketed in these regions. And it's literally, like you said, you're just layering in these horizontals. this, you know, dry hole risk in these horizontal shale plays, especially in these tier one, tier two areas where you know it's there. It's not like you're guessing. You can see it. It's everywhere around you. That high risk piece has really been taken out in the, it's called unconventional drilling. And so that's where the wild the wildcatters of yesterday. They're kind of hard to find. They're doing crazy stuff like trying to find heavy oil in Missouri. And by the way, we did that. I did that with my dad, believe it or not. So there still are wildcatters out there. They're just really hard to find.

Sarah Florer (33:33.135)
You know, Jace, I don't know if we talked about it, but I spent basically the last 20 years living in the Gulf and the United Arab Emirates. And of course, you know, being the Gulf and Saudi Arabia is right there. And also Abu Dhabi is a gigantic producer of natural gas. You know, you hear about it. And the price of oil actually dictates everything in those economies. But what's interesting, I think, is just to note to our viewers that in most places in the world, perhaps all other places but the United States and Canada, you don't have private ownership of mineral assets. The government owns them and disperses the benefits as it sees fit, really. It might be that there are pockets of private ownership in some parts of the world. I mean, the Nordic countries, perhaps, but their government, I mean, is on the back of oil and gas. Some of those largest sovereign wealth funds in the world are based on the oil and gas reserves that are in the North Sea. those, you know, the Scandinavian countries all benefit from that and people from those countries. I don't know if you have any observations or just ponderings about this topic, but this whole idea that private individuals can invest in and benefit from the oil and gas industry is something that's pretty unique to the United States, I think.

Jace Graham (35:00.246)
Very unique. I mean, there's some small pockets in Canada. Like you mentioned, I'm not as familiar with the Nordic countries, but yeah, the United States is the only place where surface owners could own the minerals. And a lot of times it's been cut up and you can also reserve them. So the oil and gas minerals, when we talk about, they say from the center of the earth to the zenith of the sky, right, title and interest as far as owning real estate, right? All the bundles of sticks. Oil and gas and the mineral interest are part of those bundles of sticks that go along with the real estate.

Sarah Florer (35:13.615)
Hmm.

Sarah Florer (35:21.945)
Hmm.

Jace Graham (35:30.18)
And so yeah, it's a unique opportunity. But imagine from the first person that was patented from that president back in 1850 and then he transfers it to his family and people. So you can imagine this, how it all gets broken out over the years. That's what, you know, land men do is go out and kind of piece that together. Cause there's no title policy for this kind of stuff. You know, where you go to a title company and they'll give you a title policy. mean, you got to know your stuff. We got to run the title ourselves and make sure that we agree with who owns what, but it's made many families very wealthy. i think I heard that, you know, out in West Texas, you know the ranchers are really oil men that just have cattle because of the oil because they've made a lot of money out in the Permian owning land in the right spot.

Sarah Florer (36:23.361)
Hmm. Yeah.

Roland Wiederänders (36:25.216)
That's great. Now, we like to take a step back and look at the structural advantages, you know, the laws that are implemented. We talked about the securities laws previously and then, you know, this private ownership of minerals rights. You know, it's really combining that with capitalism or whatever your political leanings are, you have to appreciate that, you know, the United States achieving energy independence and now becoming the world's biggest hydrocarbon producer, you know, that's really significant. It gives us, you know, a blessing for our country, so to speak. Whatever, you know, whatever you think about the future, you know, and probably we will see more electric cars on the road. But just like you said, Jace, our infrastructure is so oriented around hydrocarbons, it's not going away at any time. And I think, yeah.

Jace Graham (37:23.074)
Well, let's talk about, I mean, because that's definitely a big point that comes up when people ask me all the time is, hey, where's the future of this stuff? What's going on? mean, with all these Teslas and EVs and all, I mean, you got to go all the way back to the source and really think through this, like what charges the battery? Where's that charge? Right? And so you got to think about that. And so the way I look at it is that coal was the energy source of the past.

Roland Wiederänders (37:43.024)
Hahaha

Jace Graham (37:50.274)
Oil is the energy source today, natural gas is the future. We're the Saudi Arabia of natural gas. We've got more natural gas reserves throughout our country than any country anywhere in the world. And so what you're seeing is coal-fired plants converting into natural gas-fired plants.

Sarah Florer (37:59.727)
Hmm.

Jace Graham (38:07.296)
So more demand on natural gas. You're also seeing LNG, liquefied natural gas, especially along the Gulf Coast, exporting out to other countries that don't have that, that need that. So they're liquefying natural gas to like negative, you name it, to get it frozen and then put it on a tanker and send it overseas. And even something that's come up and I'm hearing in a lot of the only gas conferences that I go to within the last year are these AI data centers and how much demand.

they put on the grid for energy and electricity. And so, you know, we're looking at a project of drilling natural gas wells that feed right into AI data centers on the same location. So there's just, there's going to be a lot of demand and just the infrastructure alone, you know, for the foreseeable future. So.

Sarah Florer (38:54.86)
southern paper.

Roland Wiederänders (39:01.4)
Well, crypto mining too. I've heard about natural gas powered crypto mining operations.

Jace Graham (39:06.806)
Exactly.

Sarah Florer (39:08.495)
Yeah, I think all of that fits in West Texas. I read an article about it. You don't need cattle anymore if you can put a mining facility on there, a crypto mining facility.

Jace Graham (39:22.53)
or AI data center. AI is really the big one that's starting to drive.

Sarah Florer (39:26.775)
It's really, yeah, it's super power intensive, right? Yeah. I think Texas already has the crypto mining facilities. I saw a few articles about that recently. So why not? It's suited for it in terms of space. Anyway, well, go ahead.

Jace Graham (39:30.389)
So.

Roland Wiederänders (39:43.598)
Well, hey, Jace, before we move on, know that the next topic, sorry to interrupt, sir, but the next, what we wanted to kind of wind up with is a discussion about the 1031 exchanges. But anything else from your business standpoint, anything that we haven't told our viewers about that you would want to make sure that everybody knows.

Jace Graham (40:06.208)
No, I think we've covered, you know, most of it. Again, just kind of, you know, our strategy, what we do is we go in, we're talking to mineral owners throughout the country. We are seeing if there's a motivation to sell. If there is, then we're really going tight and underwriting those types of opportunities with our in-house engineering team to then make solid offers. And so, you know, we believe in that approach versus going in and underwriting a certain basin and saying specific to a certain part of a basin, we want to figure out, do we have an interested seller that we could get a value add position on the purchase with a lump sum payout. You know, we've got funds in play throughout the year. We're wrapping up a fund right now called Maroon Bells. You can check it out at maroonbellsfund.com. I started naming these funds after 14ers I climbed in Colorado. I got tired of finding one, two, three, and four. So the next fund rolling out is La Plata Peak in 2025, but I need to, I think I need to go climb some more 14ers and run out of names.

Roland Wiederänders (40:59.416)
Cool.

Sarah Florer (41:03.353)
Hahaha.

Roland Wiederänders (41:03.384)
Nice.

Sarah Florer (41:10.383)
There are a lot of those down in the San Juan Mountains, aren't there in Colorado? Yeah.

Jace Graham (41:13.974)
There are, there are. But I want to only climb the ones that I don't, I may not fall off and, really legit ones. I need some tough ones. Yeah, so.

Sarah Florer (41:18.677)
Yeah, I've only done one of them. I don't even remember its name.

Roland Wiederänders (41:26.062)
Okay, you know, this is setting us up. You know, one of the things that we wanted to talk about is 1031 exchanges. And we haven't talked about this a lot or at all yet, but it's really fundamental in this area because it pertains to investments primarily in real estate. And section 1031 is a provision from the Internal Revenue Code that allows you to sell a piece of real estate and then provided that you roll the proceeds of that into another piece of real estate or conduct a like kind of exchange, sorry, then you won't recognize, you won't be required to recognize the tax on the sale of that first property. And it's just really a provision that's been in the Internal Revenue Code for a long time to encourage real estate investment essentially. But Jase, tell us maybe about how this comes up and the investors that come into your deals.

Jace Graham (42:24.994)
Absolutely. We do have quite a few investors that invest in our funds, but also have a 1031 exchange event going on, primarily with real estate, selling commercial real estate, selling multifamily, whatever it may be, and are looking for options. And they either come to us in advance, hey, I'm looking to sell. Do you have anything out there? Obviously, we've got a big pipeline, as I mentioned earlier. But we also have assets under management just sitting on the shelf, ready to go. It could be a fit. So we talked to those investors. We try to figure it out a little bit. What is the strategy? Is it more buy and hold or are they going to be looking to maybe sell this asset in the next two to three years? Because the biggest difference between the 1031 exchange and our income funds is the 1031 exchange is you're going to be invested in a certain asset or maybe a couple of assets versus a blended portfolio. So we really want to get you educated on what that asset looks like. And so we do all the engineering and the underwriting. We then provide a lot of here's where we think. Here's what's going on, here's how we see the trend and really getting our investors educated on what we think the overall return profile looks like, conservatively. And then, you know, then they can designate that as a 1031 exchange. And we work with a lot of those custodians as well, kind of facilitating, you know, the naming of the asset. Remember, you got 45 days to identify and 180 days to close. So sometimes we get people calling in at the last minute. They couldn't find real estate and they want a 1031 and it's sitting there and they're on the 43rd day. We can help with that. Like I said, we've got assets sitting on the shelf. We can just carve those out and say, you got 200,000 in 1031, a million in 1031. Let's kind of put something together that fits your investment profile, whether that's cash on cash yield now or long term upside.

Roland Wiederänders (44:20.952)
Yeah, let's just point out one thing that a lot of times clients will come to us and they prepared a pitch deck on a syndication of a real estate deal and there'll be a line in there that says 1031 eligible and just trying to attract people with 1031 funds to invest in the security syndication. But it's important to note there, you know, immediately we have to dispel the idea that you can use 1031 and that way 1031 funds. The important point to note is if you sell the real estate and you have funds that you want to qualify for 1031, you can't invest in securities. You can't invest in a syndication in an LLC interest. So Jase, how do you structure your investment so that people are eligible to use their 1031 funds?

Jace Graham (45:13.858)
Great question. Exactly. So it's a little bit different from mineral funds, right? How we structure that is we do a kind of a what we call a promoter, a carry on the front end, because you own the assets, clear and clear. You're getting the check steps. So we kind of work with those investors depending and usually it's about an eighth carry on the front. So about 12 and a half percent. So investors put up 100 percent of the costs and get 87 percent of the interest. And we factor that into the economics to make sure it makes sense. If it doesn't, then we adjust accordingly. We also, know, a lot of times investors like, okay, I'm getting these checks out. So what's going on? I mean, these things are very detailed. There's marketing costs and deductions. And so we also are opening up a mineral management component of our business in 2025 to kind of work with those investors to say, Hey, listen, we'll continue to manage it just like we do our mineral funds and you'll get a monthly update of activity and making sure that you're being paid properly if that's something that the investor wants. And then the last piece is if they want to go on and sell and divest and maybe 1031 exchange back into real estate, can help with that as well because we know who the buyers are for that particular asset.

Roland Wiederänders (46:24.75)
And do you have a 1031 company that you like to use or could recommend?

Jace Graham (46:30.816)
I do. IPX exchange. Craig Brown is the guru of 1031 exchange on the oil and gas front. He's out of Dallas, Texas. Craig Brown at IPX exchange.

Roland Wiederänders (46:43.374)
And just full disclosure, we have a law partner. We're going to have them on as a guest. They've got their own 1031 exchange company as well. And he can tell us more about that. there's lots of differences, opportunities to use those services out there. And so we do want to give opportunities for people to let us know about the service providers that they feel confident in. That makes a really big difference rather than just going, doing a Google search and looking for a 1031 company.

Sarah Florer (47:19.919)
I think particularly if you're already interested in the oil and gas asset, sounds like, Jace, I would assume that, now, the guy, Craig is experienced with your kinds of deals and your kinds of, and the oil and gas options available for 1031 exchanges. You know, it's also good, Roland, isn't it, to hear about some of these other people who might be the right person for the right investor in the right Alternative investment.

Roland Wiederänders (47:51.246)
That's right. I mean, one thing in this business, there's no one size fits all. Everybody's circumstances are unique and that's what makes it interesting. You have to account for everybody's own unique tax circumstances, their life circumstances.

Sarah Florer (48:11.215)
Well, and that actually, Jace, just so you know, something that Roland and I have talked about, not at length, but we try and briefly mention it for you episode, is that alternative investments are a wonderful space. They're a great place to invest, but you have to focus on your self-education, and also you need to rely on the right advisors. If you're a person who's more comfortable with the sort of passive stance you can take through the public equity markets and the variations of ways that you can invest on that side of things, that's great. But once you move into this space, you need to be a little bit active just so you can always understand and read the private placement memorandums for the funds you might be investing in and all of those kinds of things. For a lot of people, I would imagine that it's rewarding to really start to understand more about the different kinds of alternative assets that are there and the ways to invest in them. And there's a sort of self-empowerment that comes from it, not becoming an expert necessarily, but starting to understand how this asset class as a whole has so much to offer.

Jace Graham (49:19.138)
Yeah, I'll add to that. I totally agree and sometimes read these PPMs and try to understand the nature of the business. It all sounds good. You like the story, like everything looks good, but how do I know? We've kind of proactively reached out to, there's a firm out in Nebraska called Mick Law, M-I-C-K Law. And what they do is they will go in and do a third party underwriting of your private placement. And we've started doing that as of our last fund. And we'll do that with all funds going forward. And this is like what the wealth management companies, the RAs out there are looking for because again, they need something to be able to validate like is everything that Jace is saying correct? Like, and they go in and they verify all of our distributions and they go out the return profiles that we're saying, is that correct? The engineering reports are those valid and they do third party engineering. So we try to take a proactive stance at Rising Phoenix Capital to get those types of things in place so that it helps investors look at that kind of step back, not just coming from us, but also from a third party to kind of see if this is worth investing in.

Roland Wiederänders (50:27.374)
That's great. sounds like you've got a lot of best practices implemented and so it's good to learn about.

Sarah Florer (50:33.273)
Yeah. Just to conclude things, one thing that we were gonna, apart from if there are any other topics that you still want to discuss, Jace, but one thing when we were first conversing last week or a couple of weeks ago that I found really, really interesting was the way you talked about your personal planning and you have such a positive attitude about...

how you plan for the future, how you run your organization, your family office, et cetera. You'd even mention that you and your wife took a couple days out of everything to just go and touch base about your personal goals, I assume, and maybe the business goals also. So would you like to share any of that for us? Because you've got this personal and organizational philosophy approach that just seems really positive and proactive.

Jace Graham (51:17.792)
No, that's great. I mean, you talk about life, right? At Rising Phoenix Capital. Career is one. We talk about the Wheel of Life. We actually did a big talk yesterday about it where we're doing a lot of big goal setting with our team for 2025. And so we take that very seriously. The Wheel of Life talks about the different aspects of life from spirituality to career to relationship to fun and recreation to health, you name it. And so what we do is we really want to kind of focus on, you know, let's put some real goals out there and then let's hold each other accountable. And so we do a will alive kind of evaluation. Each person on our team does that. And then that steps out into a career with a one, three, five plan where it's like, what's the one thing that you want to crush in 2025 from a career perspective? What are the three kinds of strategies where that's networking or health or whatnot? And then what are the five very actionable, smart, tangible goals that you can set to hit that three, to hit that one? And so we're very, we move with intent.

We met as a leadership team down in Austin for two days and we've planned 2025. I mean the road map is there and so now we've got you know the 10 year target, the three year, the one year and even the 90 day. So my leadership team. I mean we've got some you know we're stepping through that, but you're right. My wife and I went and did a little couples retreat where we planned all 25 vacations. So we put all the vacations out there and any of the events that I'd be going to that kind of helped me learn more about things in our businesses and whatnot. So we did that whole thing. And then I'm going to do a little solo retreat next week where I'm really refining my will of life and really trying to figure out what goals I want to try to achieve in 2025. So I think that's important. Career is one piece. Making money is one piece. it's not the end all be all. So I think you need to take stock.

Sarah Florer (53:09.487)
I just want to tell you something, if you're interested, we just put out an episode with a friend of ours who's also an attorney, but he's an estate planning attorney and he does qualitative estate planning. And the Wheel of Life and what you're talking about in terms of how you organize your life, there's a whole way of thinking about your wealth, your financial wealth, your spiritual wealth, your social wealth, your intellectual wealth, all of these things that roughly fit in with, think you just said, that he advises his clients on who are working on passing everything that they've created in this life or inherited on to future generations with a view to having it last for up to seven generations, like not just what's the next generation and how family health and human health and all these things balance that you're talking about are such critical factors of all of that. That's David Claflin, who's our friend and colleague. He's not our law firm colleague, but he's a member of the.

Jace Graham (53:50.722)
Love that.

Sarah Florer (54:06.319)
the bar. So in any event, I think there are different ways to look at going about doing that. And it's just, it seems like it's more and more of a theme for people and such an important theme too, because in the end it's very easy to get out of balance in one's life. And so it seems like really good successes can come when you take care of all the, all the parts of the wheel of life or all the parts of your capital and your wealth.

Jace Graham (54:29.378)
Yeah, no, I mean, this is from 2024. And so, I mean, we don't just talk about it. We do it. And I started looking through all the goals that I set for 2024. I damn near hit 75 % of them. So it's impactful. mean, when you put pen to paper and you set these things up and you start manifesting, I mean, it's a powerful thing.

Sarah Florer (54:33.586)
cool.

Sarah Florer (54:43.439)
That's cool. I've done one of those before. Yeah, I need you to inspire me to get back to it. Yeah.

Sarah Florer (54:56.047)
Mm. Mm-hmm.

Jace Graham (54:59.07)
So we're big on that. We've got, you know, we're very transparent at Rising Infinities Capital, transparent books. The team's all aware. They know what the P &Ls look like. So that's just kind of how we want to live life. Same thing with my kids. We're starting to bring them in. They're eight and 11. We're starting to bring them into that kind of education of just what the family looks like from a not worth perspective. And so really communicating all the way down, just like you said, Sarah, thinking of that legacy. I didn't think seven generations out. was thinking like,

Sarah Florer (55:08.505)
Hmm.

Sarah Florer (55:12.559)
Yeah.

Jace Graham (55:27.202)
All the way down to maybe G3, but I think it's important.

Sarah Florer (55:28.875)
Yeah, no, I mean, as far as you think you can go, but I totally agree with you on kids. i think in the past, kids were considered protected if they weren't included in family financial things, financial discussions, maybe successes financially, but also some of the worries maybe. And so we do the same with our kids. Like, of course you can understand money. You need to understand the value of money and how you get it. You know, it doesn't just sort of arrive on the credit card.

All right. Amazing.

Jace Graham (55:58.134)
Let's say you talk about the value. We teach our kids to create value. Create value. And so we've got, we've kind of started this. It's kind of in process right now, but where we've got a gig board where if they want to go make money, there's things up there where they create value. And if they're valued, then they get paid. And so if they want to leave a thank you note, a dollar to walk the dog, $2. And so we've got this gig board that we're kind of working on, and it's getting bigger and bigger with their input where they're thinking value first.

Sarah Florer (56:02.796)
Yeah, exactly.

Roland Wiederänders (56:11.938)
you

Sarah Florer (56:27.341)
Yeah, I know, being a producer, right? Having something to contribute to. Exactly.

Jace Graham (56:29.088)
No. Same thing for us. If we create value, we're, we're thinking in, in dollars, right? So.

Sarah Florer (56:36.975)
But Roland and I, that's part of our philosophy for how we approach our clients. It's part of what caused us to form this webcast actually was wanting to try to create more value for clients in terms of giving them a place to talk about the deals they're promoting or if they're interested in investing in things. And also we've had a great opportunity to learn. So listen, thank you so much for joining us. Roland, do you?

Roland Wiederänders (56:37.176)
Let's.

Jace Graham (56:59.97)
Absolutely. It's been fun.

Roland Wiederänders (57:01.634)
Yeah, for sure, Jace. Thank you so much. And I think that this seems to be kind of a natural place for us to stop. And I think we've addressed the topic here today that is really useful knowledge for investors and for other people that may be interested in the oil and gas business. But primarily, we're speaking to investors and hope that it's given our audience some good food for thought when they want to consider.

Sarah Florer (57:09.369)
Yeah, soon.

Roland Wiederänders (57:31.18)
diversifying your portfolio specifically in oil and gas. So again, Jayce, thank you so much.

Jace Graham (57:38.348)
Thank you guys for having me on.

Sarah Florer (57:39.769)
Yeah, it's so lovely to meet you, Jason, and so informative. I can't wait to actually keep learning more. might check out your website. So just thanks, everyone, for joining us today. If you like this episode, please like and subscribe to our channel.

Jace Graham (57:46.05)
Absolutely.

Roland Wiederänders (57:54.102)
And remember everyone, take aim with your alternative investing strategies.

Sarah Florer (57:59.375)
See you next time.