[00:00:01] Speaker A: You're listening to PTC point of view brought to you by preferred trust company, the preferred custodian for all alternative investments. We're here to provide retirement savers like you with the tools you need to succeed. Need a confidence boost when it comes to investing outside of the stock market? Do you want the power to build a tax sheltered nest egg that will last through your golden years? You've come to the right place. Turn up your speakers and turn off cruise control because we're taking you on the alternate route to investing with your IRA.
[00:00:38] Speaker B: Good morning and thank you all for joining us today on PTC Point of View. Today we're excited to have Howard Crosby. He's the chairman and CEO of LGX Energy. He's joining us today. He's going to talk a little bit about LGX and give us an insight on what it's like to invest using a self directed IRA. So good morning, Howard. Thanks for being here.
[00:00:59] Speaker C: Oh, good morning. It's my pleasure. Thanks for having me.
[00:01:01] Speaker B: All right, so tell us. Yeah, you're welcome. Tell us a little bit about the risk reward profile associated with oil and gas investments.
[00:01:12] Speaker C: Well, obviously, oil is the most important commodity in the world, and it's over a $2 trillion annual market. There's a lot of different ways to invest in oil and gas projects. You can do it as a direct investment in oil wells. You can buy Fortune 500 companies like Exxon and Conoco that trade on the New York Stock Exchange. Or you can invest in companies like LGX Energy that are developing a broad portfolio of oil and gas assets. So there's a lot of different ways to go about it. Some people invest in oil and gas directly in wells in order to avail themselves of what's called the intangible drilling cost write off. So they can write off some of the investment against ordinary income.
That's appropriate for some very high net worth, accredited investors, for sure.
Probably not nearly as appropriate for what we're talking about here today, which is retirement accounts. Retirement accounts are looking for a combination of income that, of course, accumulates inside an IRA or a retirement account, tax deferred, and also with the potential for substantial capital gain over time. And so I think what we're doing at LGX Energy actually can fit very well into people's retirement accounts. We've had a number of investors that have come into what you referred to as a self directed IRA, where they take a portion of their individual retirement account and they invest it directly with our offering in our convertible preferred stock. So the way that works, essentially, is the company, through our Reg A offering, is offering shares in the company that are preferred shares, meaning that they have a dividend preference over the common stock. And so our Reg A investors are receiving a 10% cash dividend, which is paid every quarter, 10% annualized. So, in other words, someone who's invested $10,000 from their IRA will, over the course of a year, receive $1,000 in dividend payments paid every 90 days at the rate of $250 a quarter.
But in addition, because the preferred stock has a conversion feature, which is a conversion feature that's available at the investor's sole option, there's nothing that the company or our board of directors can do to force you to exercise conversion from preferred to common.
But you have that option to get two shares of common stock by converting your preferred and giving up your dividend, which you would only do sensibly if the common stock was trading publicly at a significantly higher price than your fixed conversion rate. So again, our preferred stock, which sells for $4 a share, is convertible at your option, as the investor into two shares of our common stock. So you have a fixed conversion price of $2 a share. And at some point in the future, if, let's say, our common stock had gone public, which we intend to do, and was trading at a higher level, let's say, eight or $10, then you might decide, well, I'll give up my 10% cash dividend, but I'll convert to common stock, and then I can sell the common stock for a big capital gain.
[00:04:35] Speaker B: Yes.
[00:04:35] Speaker C: So all of this can be appropriate for a retirement account.
[00:04:40] Speaker B: And so tell us a little bit about the challenges, I think, when facing investing with oil and gas. And how do you kind of mitigate the risk and the challenges that there are?
[00:04:50] Speaker C: Yeah, that's a great question. So I think when you're investing directly in oil wells, your risk is directly tied to the performance of one or two or three wells or a small program that you're invested in. Just like if you invest in the stock market and you only have one stock in your portfolio, could work out great if that company is a super big winner. But if they have problems, it'll be to your detriment.
Same thing here. If you're just investing in a handful of oil wells or one or two or whatever, then your risk is going to be tied directly to the performance of those wells. In our case, we expect to be drilling on the order of 20 to 30 wells a year in the southwestern part of Indiana. And the Illinois Basin diversified across the company's entire portfolio of oil wells.
[00:05:44] Speaker B: Okay, so talking about that a little bit, are there any regulatory or geological factors that investors should be aware of when they're considering.
[00:05:56] Speaker C: Yeah, there's a lot of things to consider. And, of course, the reason that we love Indiana is, number one, it's a very pro business state. It's part of a very historic province called the Illinois Basin. The Illinois basin has been producing oil and gas for 140 years. It's produced over 4 billion barrels of oil and trillions of cubic feet of gas. It was the basis of the first hundred million barrel field in us history, was found in the Illinois basin in eastern Indiana by John D. Rockefeller 130 years ago, made him a billionaire. So we're in a historic province. It's a province that has traditional oil wells. We have stacked pay horizons. As I said, the state of Indiana is a great place because it's a pro business state. The severance tax is only 1% versus 9% across the border in Illinois. So that's a very favorable factor.
And geologically, we're drilling traditional wells without having to do difficult fracs or long horizontal legs. So these wells are much simpler to complete, much less costly to drill.
And versus other parts of the country, we're paying far less in landowner royalties and front end bonus payments than you might see in some of the more prolific basins, like the permian basin in west Texas. I was actually talking to a fellow who's doing leasing up in the Bakken, and he's paying on the order of $1,200 an acre for a lease, a three year paid up oil and gas lease. That gives him drilling rights in the Bakken, by contrast, I'm able to get leases in southwestern Indiana for $25 an acre.
But $25, it's quite a big difference. So that impacts the economics of what we're doing dramatically, and that is largely why we're comfortable in structuring our investment as a convertible preferred and paying a dividend.
[00:07:56] Speaker B: Okay. How do fluctuations in oil prices impact the investment strategies in your industry?
[00:08:04] Speaker C: Well, they're pretty dramatic. In some places, the Bakken wells are deep. They're 10,000ft deep, and so they figure they pretty much need 65 or $70 oil as a breakeven price in terms of producing these deep, tight formations where they have to do long horizontal legs.
Our cost of production is so low in Indiana that even with oil prices at half of what they are today, we would still be substantially profitable on an operational basis. So this is, again, the benefit of shallower traditional vertical wells.
[00:08:40] Speaker B: Okay, so how does LGX kind of prioritize the environmental, the social, and the governance factors in the investment decisions that you all make and in your operations?
[00:08:54] Speaker C: Well, from a governmental standpoint, the beautiful thing about what we're doing operating on private land, land we've leased from Indiana corn farmers, is the regulatory authority is the Indiana division of oil and Gas in Indianapolis. That's the only government regulatory authority that we deal with. We don't have to deal with the Bureau of Land Management or the forest service or the federal government in terms of obtaining leases or drilling rights.
[00:09:23] Speaker B: Okay, so what key factors do you think investors, especially ones using retirement account, should consider before making these type of investments?
[00:09:36] Speaker C: Well, I would say the same advice I'd give to anybody on any kind of investment advice, and not that I'm an expert on investment advice, but I would say that the key is diversification. You certainly shouldn't put 100% of your retirement account in any one investment. You should be diversified across a portfolio of things.
[00:09:56] Speaker B: Yep. We always say, don't put all your eggs in one basket. You want to? Yeah, you definitely.
[00:10:01] Speaker C: Although I remember a quote from J. Paul Getty. They asked him why he wasn't diversified and why he had all of his investments in the Getty oil company.
He said, well, if you have all your eggs in one, if you have your eggs spread around in different baskets, you have a lot of baskets to watch. In my case, I have all my eggs in Getty oil. So I watch that basket very, very carefully. But then again, J. Paul Getty was the chairman and major shareholder of Getty Oil. That's quite different than somebody that's investing retirement money across a portfolio.
[00:10:34] Speaker B: Sure. So if someone is invested or interested in investing with LGX, how do they go about doing that?
[00:10:42] Speaker C: Well, we have a website, lgxenergycorp.com, and you can go to our website and you can register for one of our webinars, conduct them a couple of times a week. You can also find a lot of information on our website, and you can learn how there's a process for investing, and there's also a process for investing your retirement account. And my assistant, Beth Swanson, is very, very good at assisting people with that process if they have questions.
[00:11:12] Speaker B: Anything else you want to tell us or mention to us about LGX before we sign off today?
[00:11:18] Speaker C: Well, I would just say that when you invest with us, you're investing with a team that's had a track record of success in the oil business.
I've got a team of professionals on the ground in Indiana with over 150 years of combined operating experience.
These cover all the disciplines of project management, land acquisition, geology, geophysics, oil and gas accounting, field operations, because we have an operating field. So bottom line is, if you want to invest in oil, you certainly would want to invest with people that know what they're doing.
[00:11:53] Speaker B: Absolutely.
[00:11:54] Speaker C: And we do. We have a team that knows we know exactly what we're doing. So I think that's really, really important.
[00:12:00] Speaker B: Absolutely. Yeah. And to our viewers out there, if you're interested in investing and using a self directed ira, you can hit up LGX's website or you can reach out to preferred trust company. If you don't have a self directed IRA started, we can help you with that so that you can make that investment with LGX, you can reach out to us as well. Our website is preferredtrustcompany.com. And Howard, we thank you today. We appreciate your time. It's been great information and we look forward to working with you all.
[00:12:29] Speaker C: Thank you. It was a pleasure to be here, and I hope everyone has a great day.
[00:12:33] Speaker B: Yeah, thanks. You, too. Take care.
[00:12:35] Speaker C: You bet.
[00:12:35] Speaker B: Bye bye.
[00:12:36] Speaker A: Thanks for joining us for another episode of PTC Point of View, where retirement savers meet alternative investments. Know someone who's struggling with their retirement strategy? Tell them about our show. Can't wait for the next episode. To learn more, visit our
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