Chris Faulkner, CEO of Breitling Oil and Gas Corp., talks with the Opportunist’s Managing Editor Leslie Stone about his company’s mission to find new sources of oil and gas, the benefits of investing in energy and whether the United States will become less dependent on foreign oil.
Imagine finding a treasure map that leads you to literally thousands of untapped oil and gas reserves. According to Chris Faulkner, there is a treasure trove of energy plays that, due to previous limitations in technology, went undetected in the oil boom of the 20th century. He says a good majority of the existing oil fields in the United States were only drilled down far enough to capture 6 percent to 8 percent of the well’s potential oil reserves. “Back in the fifties, sixties or seventies, exploration companies would go through these fields and produce the oil that was in place through primary production,” he says. “Then, when they were finished extracting all they could feasibly get to, they would move on to the next project—leaving the lion’s share behind.” Thanks to digital mapping software, exploration companies are revisiting what were previously considered maxed-out oil plays. “We started to go back into the fields that were drilled 50 to 60 years ago,” Faulkner explains, “because we knew if they drilled wells in that area they only drilled a small portion of them. With today’s advanced technology, we knew we could revisit those wells and capture 20 percent or more of what was missed. There is so much low-hanging fruit. We have to go deeper and further and apply new technology. We aren’t wildcatting, so to speak, because we are using seismic technology and digital mapping and data that helps us make informed decisions that we know will pay off for our investors.”
Seismic technology produces vibrations that send sound waves deep into the earth—below potential producing oil fields—and produces 3-D displays that show precisely which spots should be drilled. “In 1999 I had a tech company that was building software and some of it was being built for the oil and gas business,” Faulkner adds. “GEO 3-D was a seismic filtration processing software that could process seismic data at a higher resolution to find slim or thin zones—two to three feet of pay zone in some cases—that could render up to 75,000 to 100,000 barrels of oil that would have been missed on primary processing. This software helped find missed opportunities and it was licensed to E&P [exploration and production] companies.”
Opportunist: Can you give us a little background on yourself, Chris?
Chris Faulkner: Sure. I am 37 years old now and I have been an entrepreneur for 22 years.
Opportunist: So you have essentially been an entrepreneur since your teens?
Chris Faulkner: Yes. I started my first retail company at the age of 15, and I have founded over 200 business enterprises in multiple industries since 1990.
Opportunist: That’s remarkable. Please tell us about some of the companies you founded.
Chris Faulkner: I founded a Dallas telecommunications company that offered long-distance and prepaid calling cards, and C I Host, which was a data center and web hosting firm that became the third largest in the world, and Central Amusement, a coin operating and vending amusement operating company. In the late-90s I founded Dallas SEO, one of the original search engine optimization firms, to manage search engine marketing and reputation management for companies on the Internet. We helped to ensure that a company’s reputation remained stellar online and that they held top placements in the search engines.
Opportunist: How did you get into oil and gas?
Chris Faulkner: In 2004 my business partner and I decided to use the GEO 3-D tool ourselves and start our own company: Breitling Oil and Gas Corp. We used it in a field we purchased in an onshore area along the Gulf of Mexico in Texas. The device helped us locate proven reserves of over half a million barrels of oil just in that one area—and that’s only in the last five or six years. So, in short order: technology led me to oil and gas.
Opportunist: Is your management team as accomplished as you are?
Chris Faulkner: Our management team has combined experience of about 150 years. Our geologist has 40 years of experience in Texas, Oklahoma and Louisiana and the primary areas in North Dakota. He has been roaming around these three or four areas his entire career and knows them like the back of his hand.
Opportunist: Please give us a breakdown on the company’s Breitling Royalties and Breitling Royalty Funds divisions.
Chris Faulkner: Breitling Royalties is the exact opposite of Breitling Oil and Gas. It buys production after the property is already drilled. We send a staff of land men and geologists and reservoir engineers who identify high value assets, such as producing oil and natural gas wells all over the United States. Then we acquire the mineral rights to a very small fractionalized interest in those wells and override the producing oil and gas wells and aggregate the cash flow and strap securities onto those. This allows investors to purchase a portion of those producing oil and gas properties. So, they are basically buying monthly cash flow based on production and they get to participate in all the new wells on the property without having to pay for any of the costs.
Opportunist: How many properties do you have an interest in?
Chris Faulkner: We have an interest in over 150,000 acres and 7,000 producing oil and gas wells.
Opportunist: For those who don’t know, please explain what overriding royalty interests are.
Chris Faulkner: The term overriding royalty interests means fractional, undivided interests or rights of participation in the oil or gas. Imagine a square piece of paper with 10 holes, each one representing oil or gas wells. The paper can hold up to 50 holes, but when the other 40 are drilled the royalty owner owns the same interest in the additional 40 wells but does not have to pay for any of the cost. Let’s say you’re a landowner and someone knocks on your door and says ‘I want to drill a well on your property and lease your mineral rights from you and give you 15 percent to 25 percent royalty as a landowner.’ We go to those landowners once a well has been drilled and purchase a piece of that royalty. We can approach 7,000 people and purchase a part of the royalty for each of those wells. Then, investors get that royalty whether there is five or one well on that property. We become the landowner in these scenarios.
Opportunist: Is it considered a real estate transaction?
Chris Faulkner: I would say that you could relate to this exactly like a real estate deal. You are a landlord, but instead of owning a building you own an oil well. Instead of a rent stream, you have a moving production stream—and it could go up or down based on commodity price. Every month you get a check in the mail. That’s the difference in royalties versus our hedge fund.
Additionally, if you already own real estate and sell it you can do an IRS 1031 Exchange that allows you to reinvest the capital from real propriety back into the United States. You get the deed and assignment of mineral rights. You could invest money from the sale of a commercial building, a jet airplane, land, or a number of different real properties into these oil royalties and avoid having to pay taxes because they do not have a tax liability. The1031 Exchange has been around forever. It was created so that people who sell real property will keep investing into America.
Opportunist: What about Breitling Royalty Funds?
Chris Faulkner: Breitling Royalty Funds is a hedge fund that raises capital at five, 10 or 25 million tranches. It’s a blind pool. You can invest into a $25 million fund that goes to purchase oil and gas royalties in the United States. It is a fully managed investment that is just used for oil and gas wells. As a fully managed account, the fund continually buys and sells assets to maximize the profits of the fund. The difference between a hard asset royalty property versus a managed fund is that with a royalty property the dynamics are x, y and z, whereas on the fund it could change continually to maximize the fund.
Opportunist: Are there any recent developments that Breitling is excited about?
Chris Faulkner: Yes, our biggest oil play is our North Dakota Bakken and Three Forks play, which we think will be one of the biggest components on the road to America’s energy independence. It certainly has the biggest potential to help us achieve that goal.
Opportunist: How do you compete with the larger, more established companies?
Chris Faulkner: We don’t compete with bigger companies; we partner with them.
Opportunist: How so?
Chris Faulkner: They derisk some of their assets and allow us to take 5 percent, 10 percent or 15 percent of their project and work with them. Let’s say a large company wants to drill 200 wells this year and their capital is x amount and their budget is x amount. They can actually drill more wells by bringing partners in. They run the show and we partner with them. That is how we get into a lot of these plays. They bring some capital and that allows us to take a percentage of their wells and capital and derisk some of their projects. No matter how big you are, no one has a truly unlimited budget. With all of the plays emerging as quickly as they are, companies need capital to drill all these wells and hold the acreage. A lot of these companies are multi-leg stools that allow partners to come in and joint venture with them. The big driver for us is maintaining great relations in the industry. When we say we’re going to do something we do it. For example, if a company with millions in Bakken asks you to take a 25 percent interest you better have the money when they come to call. Being true to our word means we are getting the call when the next well is available to participate in.
Opportunist: For potential investors who are reading this, what are the benefits of investing in energy at this time?
Chris Faulkner: First of all, it’s not correlated directly to the stock market. It’s a hard asset with ownership in an oil and gas well versus investing in stock where all you can do is invest in the performance of the company. I see that as a great hedge against inflation. Also, the industry has turned itself around. It’s not in the same stage it was 20-some years ago. Production is growing and we are seeing potential to surpass Saudi Arabia as the biggest oil producer in the world and become self-sufficient and export oil and gas to other countries. We are already exporting more gas and diesel than we are using.
Our growth projector rivals any industry. For example, today there are 7 billion people on the planet using 88 million barrels of oil. By 2035 there will be 9 billion people using 105 billion barrels of oil. If oil is at x amount today where will it be tomorrow? It will be a multiple of itself. It’s certainly not going down. It’s an appreciating asset—not a depreciating asset—and that’s hard to find right now. Energy is one of the unique bright spots in our country and it will continue fueling America when plenty of industries are in great decline. Of course, you don’t have to invest directly into oil and gas wells—you can do it via the stock market—but with that comes the risk of the stock market.
Opportunist: What is the minimum investment that your company will accept?
Chris Faulkner: It varies, but roughly about $100,000. Our properties are engineered to have 50 years of production life left in them. At the time they’re sold they have an annual yield of around 10 percent, but this can go up or down based on production and commodity price. When oil goes up, so does your check. And when it goes down, so does your check.
Opportunist: What if someone doesn’t have 50 years left to live?
Chris Faulkner: The investment is willable. You can leave it to your children. Lots of our clients have reached retirement age and decide to will their investment to their heirs. You can offer a monthly cash stream as opposed to a lump sum, which might be better in terms of long-term money management. It’s a good strategy that will ensure wealth and income for generations.
Opportunist: Do you believe it’s possible for the United States to become less dependent on foreign oil?
Chris Faulkner: Yes, it is absolutely possible. In fact, it’s a reality and I believe it will happen.
Opportunist: How can you be so sure?
Chris Faulkner: America has a couple of essential things going for it. First, billions of barrels of new oil were produced in the United States in the last decade. It simply takes time and resources to get to it. Second, America is getting more energy efficient and doing more for less. Those two things will converge and we will become independent and begin to export processed fuels, crude oil and natural gas to the rest of the world. At that point we will be competing with the Middle East as an energy supplier to other countries. If you asked the oil industry 10 years ago whether they thought that was possible they would’ve looked at you funny. Given the pathway that we are on, that could become a reality less than 10 years from today.
Opportunist: Some environmentalists criticized President Obama’s nomination of MIT physics professor Dr. Ernest Moniz for energy secretary. Do you believe Dr. Moniz was a good choice?
Chris Faulkner: Yes, he’s a great choice because he goes along with what President Obama has been saying. Environmentalists are against just about anything other than wind or solar energy. The president may also support wind and solar but he realizes they’re not going to displace coal, natural gas and oil, which produce 88 percent of our energy. It’s impossible to put together a program that says oil and gas are gone and wind and solar are all we’re going to use. Dr. Moniz has a broader view of energy overall.
Environmentalists are against all types of energy. They say they are pro renewable, clean energy but the reality is that every single type of energy poses a risk and consequence. Wind kills half a million migratory birds. Toxins go into making solar panels. They want energy to pop out of the socket in your house or garage but they don’t want to talk about how it got there. It is simply not true that oil and gas is putting out more greenhouse gas emissions than coal. The entire world’s security and every economy are built on energy. Can we power China’s 8 percent GDP without any energy? It’s ridiculous.
Opportunist: What are your thoughts on hydraulic fracturing aka ‘fracking’ and its impact on the environment?
Chris Faulkner: I believe it is 100 percent safe and has no impact on the environment. The so-called fracking procedure is a tool that was first used in Kansas around 1947, but it has been around for about 75 years. So far 1.5 million wells have been fracked in this country. In fact, Lisa Jackson, the former head of the Environmental Protection Agency, said the agency could not find one instance of water contamination due to hydraulic fracking. That’s the EPA with all their time, money and resources—and they could not find one instance. Environmentalists sell fear and fear is what funds their capital raising ability and keeps their firms in business. Without fear they cannot raise money and they will go out of business. So, of course, they can find all sorts of ‘instances’ but the EPA could find none. I believe Lisa Jackson was very anti-oil and gas—her career was not very positive for our industry anyway—and yet she had to admit she could not find one instance.
Opportunist: We understand you recently launched a radio program called “Oil & Gas Today.”
Chris Faulkner: Yes, we do our daily energy update in the country’s two largest talk radio markets: Los Angeles and Dallas. We chose Texas because it’s pro oil and gas, and we chose L.A. for the exact opposite reason. We talk about current events, what’s happening in the oil and gas industry, and we educate people about what we are doing. Our shows speak to the lay person about what the industry means to gas prices and jobs. Our message has always been about speaking to communities and answering their questions, such as: ‘Why do I care about drilling in the Bakken shale?’ and ‘What does it mean to me?’ and ‘Why should I have any worries?’ and we explain what oil and gas is doing for America and what it means to everyday citizens.
Unfortunately, the industry has allowed environmentalists to do the talking for us. This has caused ignorance about the industry to prevail because people are not educated on the facts. We are trying to remove the ignorance from the conversation and let people make their own decisions. We aren’t trying to force our views down folks’ throats—if we change your opinion great; if we don’t, fine. At least we educated you about what’s really going on.
Opportunist: When is your radio show on the air?
Chris Faulkner: It airs daily in Dallas on KRLD 1080 at 8 o’clock in the morning, at noon and during the 5 p.m. drive time. In Los Angeles it airs on KNX 1070 News Radio during the 8 a.m. and 5 p.m. drive times. People call in with questions and I give them my contact information so they can reach me directly offline. Our show allows for conversations. That’s all we can ask for is to have a conversation.
Opportunist: What do you find most rewarding about your work?
Chris Faulkner: The growth we’ve made with the company and our ability to become a self-appointed spokesperson, if you will, for what’s going on in the industry. We didn’t ask to become that—I think it just kind of grew out of our community relations efforts. Anyway, folks email us and say things like ‘I now understand and see that the industry is important’ and ‘I appreciate what you guys are doing to educate people.’ We can still go out and drill for oil and gas and tell people that what we are doing is top secret and none of their concern and still make the same amount of money. What we are giving back is coming back to us. We are big on environmental stewardship and taking time to make the community matter. We always say that we have a license to operate in the areas where we drill a well, but we also have a license from the community to operate. It’s a soft license that is earned; it’s not something to go out and buy. You have to earn it. We feel it is just as important for the community to understand what we are doing and why.
Opportunist: Where will Breitling be five years down the road?
Chris Faulkner: It’s going to be a wild ride during the next five years. [Laughs] I see Breitling continuing on a trajectory of growth and increasing production and acreage. I believe we will be out there as a leader, charting the path for new small companies to follow where we once were. I believe the next five years will be very important for the industry as well. It will allow us to reach that idea of energy independence and surpass Saudi Arabia.
Leslie Stone is an award-winning writer/editor with more than two decades of experience covering business, finance and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides in the Orlando area. Follow her on twitter at @les7989.
Breitling Energy Companies - www.breitlingenergy.com