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Today we have an exceptional guest joining us, Zachary Oliva. Zachary is 
an attorney and founder of Oliva Gibbs, a leading law firm specializing in energy law. With a journey that took him from Ohio to Texas during the transformative shale boom, Zachary has emerged as a significant player in the energy sector.
But that’s not all; Zachary’s impact is multifaceted. Beyond his legal expertise, he is an astute investor and authority on energy investments. In this episode, Zachary shares his wisdom on navigating the complexities of the energy market, highlighting the critical need for diversification, thorough operator due diligence, and managing price volatility.
In this engaging episode, Zachary delves into misconceptions about oil, gas, and alternative energy sources, revealing the ongoing necessity of these resources despite the push for cleaner energy solutions. He discusses the importance of evaluating a company’s culture and the potential pitfalls of investments led by inexperienced operators. Zachary also provides actionable advice, stressing the importance of understanding a company’s track record and utilizing public data to gauge investment potential.
One of the key takeaways from this conversation is Zachary’s personal investment lesson for 2024: not to sell winning investments too soon. His insights into the art of smart investing, combined with his extensive industry knowledge, offer a valuable blueprint for those aspiring to build wealth through energy investments.
In This Episode
- Misconceptions about oil, gas, and alternative energy sources.
- The importance of operator due diligence and diversification.
- Strategies for managing volatility and risk in energy investments.
- Personal investment lessons and strategies for 2024
Zach, welcome to the show.
Thanks for having me, Dave.
Yeah, really awesome to have you on the show and we’re just chatting in the green room and can’t believe all the things we actually have in common together, including that Zach is Italian. So our passion for Italy might shine through to the listeners here, but really excited to have you on today to really talk about your background and your expertise in energy.
Especially in a legal capacity of, you know, how have you vetted, you know, different operators? What ways are there to invest in the sector? And really interested as well as, you know, your investment thesis on the sector, right? Because there’s a lot of, you know, I think there’s a lot of bad press that’s been out there from
You know, probably a decade ago around the oil industry and everything. So it’d be really great to get some kind of legal opinion. So why don’t we just kind of kick off the conversation and talk to us a little bit about your origin story and you know, how you got into into law and law as it relates to energy.
Sure, so thanks, Dave. I kind of got into law because I grew up in Ohio and I graduated from Ohio State and during the Great Recession and some of my buddies and I decided to go to law school to kind of hide out from the recession because Ohio just got absolutely decimated, and when I was in, when I was graduating from law school there still were not a lot of jobs in the legal industry around the country at that time, especially in Ohio. And there was an energy company named Chesapeake Energy, which is now named something else, but led by an amazing entrepreneur named Aubrey McClendon, who basically kind of popularized the shale boom that has swept across the country.
So this was 2010, 2011, and I remember seeing an article in the newspaper in Ohio where he said the shale boom is going to be the largest thing to hit Ohio since the horse and plow and I thought that’s a pretty bold, a pretty bold assertion, and Chesapeake and some other operators had discovered this prolific natural gas play underneath the land of Ohio and West Virginia and Pennsylvania and parts of New York. And underneath Ohio, a large part of that natural gas formation is called the Utica Shale, and as you start getting into New York and parts of Pennsylvania and West Virginia, it’s called the Marcellus Shale.
At the time, the data suggested that they were prolific natural gas plays, know now that there is also oil in those formations and there’s companies like EOG who are exploring other parts of Ohio for natural gas, and it’s a massive, very prolific natural gas field, and so I had talked to one of my professors said, if you really want to get in the oil and gas industry, you need to move to Houston, Texas.
I’d never been to Texas in my life. I called, I talked to several of the big firms in Ohio and none of them really had expertise in the oil and gas industry because it hadn’t historically been an oil and gas producing state, and so I cold called like 50 law firms in Houston and I found one that was looking for an oil and gas attorney licensed in Ohio to start working.
One of the clients of that firm was Chesapeake Energy, which I had read about earlier and so I basically packed my bags and moved to Houston, and about a year after my first job, I started what is now Oliva Gibbs in 2013. So I had only been practicing for about a year and today we have around 100 employees and offices all around the country, and we work primarily with public and private equity backed oil and gas companies. So companies that are actually going out and exploring and drilling wells.
Got it and what do you find is really the most enticing attributes about the asset class, really from kind of your independent standpoint?
I think when you think of energy as an asset class, you know, Warren Buffett often talks about getting a royalty on the growth of others, and I think that if you just want to take a royalty on the growth of humanity, you want to look at the energy industry as a whole. mean, we use more and more energy, population continues to grow, and everything in our world really depends on energy.
I think that a lot of folks don’t realize when I see like, you know, I get sent social media clips or whatever, and there are these folks or groups who are 100% clean energy, anti-oil and gas, anti-coal, anti-dirty, you know, quote unquote dirty energy. I mean, the computer that I’m talking to you on right now, many of those components are made up of petroleum products.
Right? The cell phone, my car, the components of the car, the carpet, the chair that I’m sitting in, well, this chair is leather, so maybe not this chair, and most computer chairs, right? So there are so many day-to-day products that involve petroleum specifically and those byproducts that really, I think somehow the narrative shifted to like, need to completely get rid of the oil and gas industry, and I think that that’s just incredibly short-sighted and not rational.
And I know that, you know, there’s a difference between comments that are made in the news and in real life, and I think what’s interesting is over the years, seeing that narrative shift to real life, I have friends that manage oil and gas, private equity funds and hedge funds, and the institutions and pension funds are playing into that narrative and allocating less and less money to the oil and gas industry.
And you start to see that there’s just this historic underinvestment in oil and gas infrastructure projects around the country that are, you know, because of this narrative, and we don’t have an economically comparable product to replace it with.
I mean, if Shell and Exxon and the super majors, if they found it, I think that they would absolutely sign up to do it all the time because they’re businesses, right? You got to do that. So it’s a really interesting time to be in the energy industry. I think that it’s going to be around for a long time.
It’s gotten a little bit more politicized and over the years, which has been interesting to kind of witness over the last decade or so, and it’s something that we all need, regardless of what you believe about the energy industry or politics or whatever, we all need energy. would be a very bad situation if it’s almost like stepping, like we would revert back in history if we got rid of of oil and gas. So it’s kind of like illogical.
Yeah, no, I would agree that that narrative has been strong for so long around going after clean energy, and what’s interesting is, you know, yeah, we went through the same transformation kind of getting into the industry and the more you learn about it, it’s amazing. Like even those lithium mines, the amount of petroleum you need to actually mine the lithium to create an EV car is massive, right?
And then you’re also driving that electric car on an asphalt road and a concrete bridge. Right? So to your point, really, it’s everywhere that we look.
Well, and it’s it’s not only oil and gas. It’s also coal. Yeah, there’s two types of coal. There’s thermonuclear and metallurgical. All of the all of it is labeled as dirty coal. It’s kind of a four letter word in this country at this point, but you need metallurgical coal to make steel. So like are we going to stop building things? So it’s kind of like. It’s strange.
Yeah, but I think it is important for, I think what’s interesting, is so our community, our entrepreneurs, investors, really looking for ways to diversify outside of the stock market, right? Invest in tangible assets, right? That have some good cashflow, some good tax attributes, which we understand, from investing in mostly into oil and gas, but there’s also other forms of energy like getting solar credits, you know, in the space as well.
And we have this, you know, massive demand, I think that’s growing even more, you know, with the rise of AI and the computing power, right? That’s, you know, really kind of coming online. So even if you were to take, you know, all our existing oil and gas and add all of the green initiatives, like we still just don’t have enough to really kind of keep up with where it’s going.
So I think for investors, right, the interesting part is like, how do we, we need to get smarter on this asset class number one. let’s understand like all of the facts and then really see if that’s kind of a fit, you know, for me to add into my portfolio allocation. So are there any other things that you would recommend for the audience in terms of?
You know, if you’re newer to this asset class, you haven’t really invested in it, you don’t know all that much about it. How do you understand, you know, the industry, the dynamics, where to invest, where not to invest?
Yeah, I mean, it’s a large ecosystem for sure and there are a few different ways. Obviously, you brought up the stock market. So there are publicly traded oil and gas companies and those go across. There are publicly traded oil and gas companies, there are publicly traded oil field service companies and within those two companies, there are companies that are within those two groups.
There are companies that only focus on onshore. So that would be lower 48 United States. Basically there are companies that only focus on offshore, both from a service company perspective and an operations perspective perspective or explorations companies that only focus on offshore. And there are also publicly traded companies and that operate in Canada, England, Ireland, all over the world.
Additionally, you can do private investing through marketplaces like Oil and Gas Asset Clearinghouse and EnergyNet, where you can private investors that are accredited, qualified depending on the standard of those marketplaces, and there may be other marketplaces as well, they can actually, you can go on there and you can buy leases, minerals, non-operated interests, and that’s basically owning the right to that production.
With leases, obviously you want to be very careful because there’s a chance that your lease could get pulled into a unit and you suddenly are a working interest owner in a $13 million well. So like there are serious working interest capital calls for a well of that size, so in the oil and gas industry, like at the lease level, it’s really buyer beware. And I think that you would not want to just go on Energy Net and buy a lease without understanding the ramifications of doing so.
I mean, you could have serious, you could become a joint interest partner in an oil and gas well, and today the oil and gas wells are miles deep, miles deep, and then the laterals are miles long, and they’re 13 to $15 million. So, I think there are groups that put together packages that are maybe make it more advantageous to participate as a group. So that’s another way.
Publicly traded, another publicly traded option is to buy mineral companies that are listed on the public market. Those tend to pay a pretty high dividend yield, and additionally, a lot of them are structured as limited partnerships or MLPs.
So there are various tax ramifications that come into play that a financial advisor or a tax advisor would know more about than I would. So those are the main ways to really, I think, invest or get involved in the oil and gas industry.
It’s interesting that you brought up AI. I just read last month, I think, that Microsoft is getting Three Mile Island started again and getting into the nuclear space. So think AI is going to be a big driver of energy in the data centers and everything. It’s crazy how much energy those data centers use. What are some great or some interesting investing products or strategies in the energy industry that you’ve seen.
Yeah, so one of our latest opportunities, actually just closed it here at the end of last month was investing across about 50 different active wells. And that included existing production and some, you know, PDP as well as PUD. So that really diversified risk, right?
Mmm. Mm-hmm.
Also had actual production of some of the bigs that was out there, right? So ways to kind of really minimize risk and then for investors, to invest directly into a private opportunity, taking advantage of the IDCs and depletion is massive from a tax perspective, especially if you’re a high income earner, to be able to offset aand get a quick return of capital and then to receive distributions.
We’ve seen that as a much stronger play versus some of the exploration type things. We’ve also looked at some areas around infrastructure, which is really quite interesting to your point earlier, where the entire industry has been just underdeveloped, really since COVID.
Yeah.
I think it’s when it took a huge nosedive and you have to understand that even like we’re talking about this demand of AI that’s hitting today, but to put in infrastructure for energy, you know, it takes years and years just to get it up to speed, right? So we have to be way ahead of that. So I think there’s going to be some exciting opportunities there.
Those however, come with a little bit more risk, I think, than you know, some investors are kind of ready for. but yeah, I think those are, know, in the, you know, the Permian basin just keeps on giving the other, one that I’ll note that’s very interesting. We’ve been looking at trying to identify opportunities, is actually run helium gas, which is very profitable used in MRIs, a lot of different, applications, just not enough of it and know, good returns on that.
Again, hard to identify good sources for that, we’re always looking to really find good tax efficiency in our opportunities and really lower risk, really like an asymmetric type return for investors.
You’ve ever heard of the NAEP Expo? But we’re a big, you know, we’re a sponsor of NAEP and we have many events during that time, and that’s great because it’s like kind of like the the woodstock of the oil and gas industry. And there’s always a helium education and lithium education and all kind of the new types of developments. They always have sessions on that. It’s really good.
Yeah, for sure. What do you think, are some of the biggest, you know, risk areas, that investors should be cognizant of when they’re doing due diligence on kind of getting into an opportunity in energy?
Hmm. It’s a great question. I think, operator track record is important and it’s something that you know everyone should be aware of like any investment. What’s their track record? And exploratory areas I think would carry more risk. Like if someone says, “Hey, I’m going to have this drilling project outside of Miami that’s going to provide 10x returns,” I would say, “has anyone done this before? Who are the operators in the area?”
You can gather data and a lot of it is public data or publicly available through 10Ks and investor presentations from public companies as to their results and their production in certain areas and so maybe if you’re looking at an investment opportunity and it’s within that area, you can kind of gauge or start to build a little bit of an understanding of what Wells, how Wells typically act or what production activity looks like in that area.
So I think that that’s important and also but, know, not only operator track record, but I work a lot with. Am I own investing publicly available documents, including the 10K’s, and I’m looking out for.
What is the culture of that company? How do they treat their people? How do they treat their vendors? Because really when you’re investing in these oil and gas projects, you’re basically an investor along with a company who has some sunk risk into the ground through their drilling costs, right?
It’s been interesting, i’ve been seeing more and more advertisements on LinkedIn that may or may not be targeted to me about folks raising all these drilling funds around the country and some of them are raised by guys whose last job was like working at Best Buy. So like what is the track record of the people promoting it as well? Do they have a track record of success and investment? So they have an investing background, etc.
Yeah, no, that makes sense, think track record is definitely key in this space. And I think for investors also, like really understanding your investor DNA is really key because some people are willing to take more risk, you know, for a higher upside. But you just really have to recognize that on the front end, right? Because there is more risk in some of these that are more exploratory in nature.
Yeah, totally and why are you making the investment? Is it for tax reasons because you’re a high net worth individual? Are you looking for cashflow or is this like you truly believe in the sector and the operator and the opportunity, and this is something that you might not expect to get paid out for five years or so.
So if you’re looking at an investment, using it for cashflow, then that investment should already have the adequate cashflow when you make that investment. Also, a big thing that some folks don’t realize, wells decline just as a basic, there’s a known thing in the energy industry, just for anyone that’s listening that’s not in the industry, called a decline rate, so oil and gas production is not perpetual in history and they often decline. a good investment will, or might, you might consider incorporating or doing some investigations over what that decline curve looks like.
Yeah, now that’s a really great point you point out on that because of the depletion of the well that’s naturally occurring. And I think most of us as investors, we’re always thinking, in the context of real estate and having some kind of asset that appreciates. Yeah, things are going to appreciate, but in this case, it’s going down.
Rents will always go up, yeah. It’s the other way.
But I think, you know, one way to look at this also, and it is really a great point around really, you know, risk mitigation and understanding your investment. So if you are looking for that tax offset, you know, and your tax is the max rate, you know, really like 40% of your investment is almost offset right away because of the tax investment, you know, in that year, if you’re paying the max in taxes.
So that’s kind of a nice upfront gain that you’re going to get, regardless of how the opportunity performs. So then it’s kind of de-risking you a little bit, right? As soon as you get into the opportunity. But I do like how you pointed out that it’s also key for investors to understand why are you making the investment? Are you making the investment for tax efficiency? Are you looking for cashflow off of these, right?
Or what is your objective and then really try to align to the opportunity.
For Investors, it’s critical to understand your objective-whether it’s tax efficiency, cashflow, or diversification and align it with the right opportunities.
Mm-hmm. Yeah, it’s a great space to be in. mean, I’ve met some of my best friends in this industry. It’s dynamic. There’s great opportunities. I think it’s a great space. It’s tied to the long-term prosperity of our country. I think it’s really awesome.
Yeah and talk to us a little bit, Zach, too. I mean, just talking about that diversification standpoint, right? Of having this commodity and portfolio. And again, whether you’re buying this through the public markets or private markets, talk to us a little bit about how you see that right in the mix of your portfolio.
It’s a great question.
Modern portfolio theory suggests that diversification is the safest thing to do when it comes to investing, right? At the public level, you can get the diversity either through investing in an operator that is publicly traded and has a singular focus in a basin. So there are companies whose only focus is drilling oil wells in the Permian Basin.
There are public and traded companies who maybe have five areas. Maybe they drill in New Mexico, Montana, Pennsylvania, and West Texas, for example. So you can get that diversification at the operator level, depending on what that operator’s individual strategy is, or through diversification of different companies, we try and be, you know, across our client base, we try and be fairly diverse because we have been lucky to pick great clients that have grown over the years and when they’ve had success in one area, they’ve had success in another area.
So that’s been really great, the first firm that I worked at had one client that had one area that it was drilling in and that work fed around a hundred attorneys. Then that client went bankrupt and it was not great for anyone, know, any firm, vendors, whatever, working for that client. So that happens sometimes, I mean, you know, there are risks to growing really fast as an oil company and also to concentrating on one area because you’re tied to commodity prices.
If you really want to get deep as an investor, you could look at the different ways that different companies are hedging their production.
Throughout the year and how those hedges are are they rolling off? Are they not hedged at all, which provides upside when oil prices or gas prices go up? There’s a lot of upside there versus companies that are hedged to say $70 a barrel and then prices go to 90. Well, they kind of miss out on a little bit of that Delta, right?
Diversification is key in energy investing. Whether through operators or asset types, spreading risk can safeguard your portfolio.
Yeah, that’s exactly what we utilized for our latest fund is a collar strategy where we could basically make money around between 65 and $85 a barrel. So even if it’s on the slide, you know, we’re still making money and it’s a really great way. Cause to me, I think that’s one of the biggest risks. I mean, outside of the operator performance is, you know, price volatility, cause we certainly can’t control that.
It still seems like gas is way artificially low, especially when you see, you know, what gas is trading at like in the thirties in Japan. You know, you look at Europe and we have just a ton of gas here.
Yeah, I think it’s like LNG export should help that. remember, I mean, oil went negative for a little bit during COVID. And I remember I got a call from an energy reporter at Reuters, like the day that it happened. And, you know, she was doing some background for a story that she was working on. She said, “Oil went negative. What are you going to do?” And I said, “I have no idea. I’ve never been here before.”
Yeah.
There are some really interesting things that happen when price you have crazy price volatility There used to be a bumper sticker that you would see around Houston and it said like Dear God give me one more boom and I won’t screw it up.
Yeah, that was interesting times for sure. Hopefully that was the last.
Yeah, I mean like most extreme price fluctuations, it was temporary.
Yeah, do you have any other resources you can recommend in terms of for investors just trying to get smarter and educated on the asset class, whether they be, you know, I don’t know, podcasts, maybe some newsletters or industry sites that you recommend?
Sure, so my friend Josh Young is very active on Twitter. He runs a hedge fund in Houston that focuses on oil and gas, small cap oil and gas companies in the US and Canada. The name of his company is Bison Interests.
Also, I’ve been tinkering around with this new platform that just came out called Collide.io, and it’s kind of like a LinkedIn for people in the energy industry that are like CEOs of public companies, advisors, et cetera. And people seem to be really active on there. It’s like LinkedIn slash Twitter for the energy industry.
So that’s kind of a new platform that has come out in the last year. And I think those two would provide ample kind of, I’m not gonna say insider information, but more industry color that might be a little bit more specific than you would get in like the Wall Street Journal or CNBC, for example.
Yeah, no, awesome. If you could give only just one piece of advice to the audience about how they could accelerate their own wealth trajectory in the energy sector, what would it be?
I’ve had a lot of luck investing in oil field service companies, I tend to understand them more because I run a law firm, which is a service company, and so I understand what is important in those companies. And so I think that if you’re a private investor, look at how you’ve made success in the past and what is the oil industry analogy to that maybe. I’ve had success doing that and I’ve also think a good piece of advice would be.
I don’t know. That’s probably the piece of advice would be what has worked for you in the past and how can you analogize that to the energy industry. And like anything, expect to learn a lot.
Yeah, absolutely, it’s Warren Buffett’s one of his number one rules, right? Is never invest in something you don’t understand.
Yeah, I made some mistakes recently and so my biggest lesson for 2024 for myself was a reminder to not sell my winners. And that’s a mistake that I hope I made for the last time, but probably unlikely.
Awesome, Zach. Well, can’t thank you enough for coming on the show and sharing your wisdom and expertise with us. If people would like to connect with you, learn more about your firm or reach out, what’s the best place?
Sure, either I’m active on LinkedIn, so Zach Oliva on LinkedIn, and also our law firm website is oglawyers.com.
Awesome. Thanks again, Zach. Really appreciate it.
Thanks, Davis. This great. Thanks.