Author Topic: Private investments in Permian/oil boom towns  (Read 804 times)

montgomery212

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Private investments in Permian/oil boom towns
« on: June 06, 2018, 09:14:45 PM »
Thereís been lots of articles re boom times in the Permian oil fields leading to shortages of workers etc in that area. Is there any way for an individual not living in the area and not looking to move to drive trucks etc invest financially in this type of boom (whether this one or another one down the road)? I mean the obvious way is EP/driller stocks but then that comes with the usual downsides - oil price fluctuations; mgmt decision making; accounting issues etc. I mean is there some way to be a financial investor in say a privately owned trucking company hauling oil down there or some other heavy equipment related private placement? Iím guessing such options donít exist for regular east coast people but just wanted to ask if there are ideas since this forum draws from all over/all industries. And FYI before ppl yell at me ó Iím mostly an index investor and anything like this would be a side business/investment not derailing the index investments.

terran

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Re: Private investments in Permian/oil boom towns
« Reply #1 on: June 07, 2018, 05:46:06 AM »
There was a writer who had a column for awhile in Inc Magazine several years ago (Norm Brodsky I think) who had invested in real estate (a hotel I think) since oil boom in rural area = large increase in transient workforce = lack of temporary housing = high prices if you time your development right. He was a retired business owner who it seemed had done quite well for himself and had more than "won the game" so just be careful if this isn't an investment you could afford to lose. It seems pretty risky since it relies on beating others to the opportunity and you're at risk from fluctuations in the oil market too. Anyway, I think he explored the deal a few time in his column, so you might be able to track those down.

RichMoose

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Re: Private investments in Permian/oil boom towns
« Reply #2 on: June 07, 2018, 08:01:31 AM »
I live in a major hub city that is surrounded by big oil and gas country. All I can say is be very careful! Liquidity is a big problem.

Within several hours drive from my location there are a number of smaller oil field towns. Back in the mid-2000s property values, investment properties, and businesses just exploded in value. Doubling and more in a few years. Then in 2008-2010 the markets just closed and you couldn't sell anything. Things picked up again in 2011 to 2014, but it didn't get quite as crazy as the prior decade.

In 2015, just after things started slowing a bit, a guy I know was offered over $20 million for his oil field related business. He didn't sell because he knew the value was $8 million higher than that a year earlier and he figured it was coming back right away. Now, he's still holding the business and the value is well under $20 million--a 50% haircut from previous values.

Right now in Alberta we're dealing with shipping problems so the market here isn't great like it is in Permian and other U.S. shale fields. For example, there are thousands of people with houses for sale in northern Alberta and there are almost zero people looking to buy. No one even knows what the value of their property is because supply and demand is gone so the implication is that everything is wildly overpriced, even when listing prices are 20% lower than a few years ago.

I would seriously just stick with your highly liquid investment portfolio and ignore on the ground ventures in oil country. Unless of course you have gobs of money, want to make a highly speculative investment, and understand that you might find yourself holding an asset that you can't sell at any price.

Not to mention other problems like shady operators, ridiculous personnel problems, rampant theft and fraud, and other things that come along with the oil business. There are many good people in the patch, but the easy money for unskilled labour also attracts a special crowd.

bwall

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Re: Private investments in Permian/oil boom towns
« Reply #3 on: June 07, 2018, 08:22:51 AM »
By definition any investment in the Permian will be subject to the price fluctuations of oil. Boom or bust, it's all a function of the same variable.

Michael in ABQ

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Re: Private investments in Permian/oil boom towns
« Reply #4 on: June 16, 2018, 07:53:27 PM »
I've appraised several properties in southeast New Mexico over the last 5 years or so. Hobbs, NM is the most prominent city on the NM side of the Permian basin, though at about 50,000 population it's still a lot smaller than Midland and Odessa (over 100,000 population each).

The bottom line is that while you might be able to obtain higher yields investing in that kind of market, there is significant risk to offset it. Also, as an outside investor in the market you're never going to have the level of knowledge or access as a local. I know a couple of larger players in that market and I can almost guarantee that before some deal gets listed for sale and broadcast to a larger regional or national audience that they probably got a look at it and passed. Those types of markets are very small when it gets down to it and if you've got a million dollar investment there's only a relative handful of people in the area with the cash available to act on that quickly. If the deal size is a lot less then obviously there are far more potential investors. Either way, if a seller needs to look for a buyer nationally it's because A. the deal is too large for local investors, B. it's not really a deal and they're hoping to find someone a bit less savvy than the locals to overpay for it.


As a couple of examples, I saw a lot of industrial office/warehouse/shop type buildings on a couple of acres of land sell over the last decade. Mostly sold to owner-users but a few investors purchased leased properties. If that same building were in a larger market like Albuquerque, NM I would typically expect to see a yield of 8-10%. In Hobbs, NM that same property might sell at a 7% yield when things are really booming or more realistically, at a 11-13% yield with things are more stable or in a bust phase. The typical tenant might sign a 3-year lease if you're lucky or they're a large national company. 1- or 2-year leases were more common with 5-year + leases being very uncommon outside of large national companies. Either way, the tenant who is willing to pay $2,500 a month one year might be out of business the next or only able to pay $2,000 a month a year later. Sure you can get some great returns if they stick around a decade and you can keep raising the rent a couple percent a year. It doesn't take a building being empty for very long to wipe out a lot of those gains.

The hotel angle is even riskier. At one point in Hobbs, NM several years ago there were probably 4-5 hotels being built at the same time. Every single apartment complex in the city was 100% occupied with waiting lists for any new units. A few years later when oil prices were no longer $100+ a barrel those hotels were now competing against each other for the remaining business and apartment occupancy was back to 90-95%. A lot of guys would rent a 2-3 bedroom apartment and then have 4-6 guys in that one apartment since they might work different shifts and would essentially share a room. If you're working 12-hour shifts day in and day out you don't have much time to hang around in a hotel or apartment so you might not really care too much what the accommodations are like. A lot of companies would setup man-camps closer to the actual operations to cut down on the commute time and make sure their employees weren't going out and getting drunk in their limited down-time. That directly cuts down on the amount of hotel rooms or apartments needed in a market to support all of those workers. RV Parks are also a very cheap and fast way to increase supply and I saw a lot of those being built in Carlsbad, NM when hotel rooms were getting full and going for up to $200+ a night for something modest. $600 a month to park an RV is a whole lot cheaper than a hotel room and a good alternative when other options like apartments and houses are full. Plus, you're month-to-month and can easily move if a better opportunity comes along in some other oilfield town.
« Last Edit: June 16, 2018, 08:20:20 PM by Michael in ABQ »

doggyfizzle

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Re: Private investments in Permian/oil boom towns
« Reply #5 on: June 16, 2018, 08:07:49 PM »
I bought some sub-shares of the Texas Pacific Land Trust a couple years ago that is the largest private landowner in Texas, with much of the land (and mineral rights) concentrated in Reeevs and Culberson counties.  Iíve watched the sub shares appreciate from $50 to roughly $700 now and I still donít really know what the ďceilingĒ price is.  Iíve read and re-read the Horizon Kinetics research piece on the company from the mid 1990s and with the addition of the water business and all the easement revenue from pipeline crossings I think the company will be able to retire st least 5% of outstanding stock (its mandate from company creation in the 1880s) each year.  So OP, if youíre looking for a unique way to invest in the Permian, this is as good an investment as Iíve come across.

hodedofome

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Re: Private investments in Permian/oil boom towns
« Reply #6 on: June 18, 2018, 02:44:33 PM »
Move to Midland and get a job selling trucks. Everyone down there is driving a new F250. I'm sure you can make the same as a roughneck but without losing a few fingers.

montgomery212

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Re: Private investments in Permian/oil boom towns
« Reply #7 on: June 18, 2018, 03:13:37 PM »
Definitely helpful info -- keep it coming, I've enjoyed the discussion. You all confirmed what I thought -- it is really hard to make good investments in a boomtown, if you're not there and not part of the industry. I feel like I've even heard E&P lawyers say -- the only time a deal gets shopped to NYC/Wall Street is when the local investors don't consider it a good enough deal to take the risk; I imagine that's even more true for an investor trying to get a piece of a private investment in a trucking company, hotel etc. I guess it's always been a pipedream of mine to have some small involvement in some boomtown (whether this one or another one down the road).

Thanks for the info re Texas Pacific. Sounds very interesting since they make their money from royalties on oil, gas, water, and grazing -- not from actually doing the drilling/selling the oil. Will look into it some more. I'm mostly an index investor with my "routine" biweekly investments for retirement/non retirement -- but I don't mind taking a risk with some limited "additional" investments.

Michael in ABQ

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Re: Private investments in Permian/oil boom towns
« Reply #8 on: June 18, 2018, 03:53:34 PM »
Definitely helpful info -- keep it coming, I've enjoyed the discussion. You all confirmed what I thought -- it is really hard to make good investments in a boomtown, if you're not there and not part of the industry. I feel like I've even heard E&P lawyers say -- the only time a deal gets shopped to NYC/Wall Street is when the local investors don't consider it a good enough deal to take the risk; I imagine that's even more true for an investor trying to get a piece of a private investment in a trucking company, hotel etc. I guess it's always been a pipedream of mine to have some small involvement in some boomtown (whether this one or another one down the road).

Thanks for the info re Texas Pacific. Sounds very interesting since they make their money from royalties on oil, gas, water, and grazing -- not from actually doing the drilling/selling the oil. Will look into it some more. I'm mostly an index investor with my "routine" biweekly investments for retirement/non retirement -- but I don't mind taking a risk with some limited "additional" investments.

I'm also in the National Guard and one of the guys in my previous unit works down in the Permian basin in NM. He was getting ready to start a company with a friend (or maybe brother-in-law, can't recall). I didn't understand the specifics, something about coiling wire. Apparently it requires a truck and some equipment - nothing outrageous but an investment in the tens of thousands to get started. His plan was to try and get a couple of trucks and then once they start making money hire some more people and buy more trucks. I'm not sure how often a new or existing well would need the kind of services he was planning to offer but there are thousands of wells in the area with a few dozen new ones being drilled.

In a case like this maybe he'd be willing to give up some percentage of the business for an upfront investment. Realistically though, he could probably come up with the money to buy a couple of trucks and equipment without having to give away a lot of equity. This kind of deal may be what you're looking for but that kind of person is not thinking "man, I really need to go find an investor who will give me $50k for a 20% equity stake."

montgomery212

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Re: Private investments in Permian/oil boom towns
« Reply #9 on: June 19, 2018, 01:02:59 PM »
Definitely helpful info -- keep it coming, I've enjoyed the discussion. You all confirmed what I thought -- it is really hard to make good investments in a boomtown, if you're not there and not part of the industry. I feel like I've even heard E&P lawyers say -- the only time a deal gets shopped to NYC/Wall Street is when the local investors don't consider it a good enough deal to take the risk; I imagine that's even more true for an investor trying to get a piece of a private investment in a trucking company, hotel etc. I guess it's always been a pipedream of mine to have some small involvement in some boomtown (whether this one or another one down the road).

Thanks for the info re Texas Pacific. Sounds very interesting since they make their money from royalties on oil, gas, water, and grazing -- not from actually doing the drilling/selling the oil. Will look into it some more. I'm mostly an index investor with my "routine" biweekly investments for retirement/non retirement -- but I don't mind taking a risk with some limited "additional" investments.

I'm also in the National Guard and one of the guys in my previous unit works down in the Permian basin in NM. He was getting ready to start a company with a friend (or maybe brother-in-law, can't recall). I didn't understand the specifics, something about coiling wire. Apparently it requires a truck and some equipment - nothing outrageous but an investment in the tens of thousands to get started. His plan was to try and get a couple of trucks and then once they start making money hire some more people and buy more trucks. I'm not sure how often a new or existing well would need the kind of services he was planning to offer but there are thousands of wells in the area with a few dozen new ones being drilled.

In a case like this maybe he'd be willing to give up some percentage of the business for an upfront investment. Realistically though, he could probably come up with the money to buy a couple of trucks and equipment without having to give away a lot of equity. This kind of deal may be what you're looking for but that kind of person is not thinking "man, I really need to go find an investor who will give me $50k for a 20% equity stake."

This is the exact kind of thing I'd be interested in -- an equity stake in someone else's business that makes money from operations in a boomtown. But as you note, it's hard to even know about these kinds of opportunities unless you're in the area and the industry and you know someone starting up and can offer to invest; and even if you learn about some random opportunity, it's hard to diligence it from the east coast bc it very easily could be some kind of scam.

FIRE@50

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Re: Private investments in Permian/oil boom towns
« Reply #10 on: June 19, 2018, 01:19:40 PM »
https://oilprice.com/Energy/Energy-General/Permian-Discount-Could-Rise-To-20-Per-Barrel.html

With oil producers essentially giving away $20 with every barrel that they pump out of the ground, it seems like there is an opportunity to buy oil today and sell it at some point in the future when transportation capacity is found or new supply drops. So, buy some storage tanks. Fill them with oil at 50 bucks a barrel and wait to reap the profits.