As the energy transition shifts the industry to a low-carbon future, the private investment structure is being upended by a crowdfunding startup, according to Laura Pommer, who is leveraging her expertise as a geologist to build up the online investing platform EnergyFunders where she serves as CEO.
Founded in 2013, Houston-based EnergyFunders connects accredited investors with investment opportunities in oil and gas assets. Essentially, the firm provides a new model that eliminates the expenses standing between investors and wellhead economics, delivering direct cash flow returns from both development wells (PUDs) and already-producing wells (PDPs), Pommer said.
Additionally, the firm has partnered with cryptomining experts to create mobile Bitcoin mining units. These mobile units convert wellhead natural gas into Bitcoins at the wellsite, for efficient and cost-advantaged mining.
Pommer joined EnergyFunders to lead the organization after previously serving as the CEO and lead geologist of Century Natural Resources, an E&P company in Wyoming’s Powder River Basin she helped launch in 2018 with a $75 million private equity sponsorship. Before joining EnergyFunders, she also provided prospect consulting as the owner of Bolder Exploration.
Recently, Pommer gave an exclusive interview with Hart Energy to discuss her efforts to disrupt the traditional energy funding model.
Hart Energy (HE): You’re introducing a new way to do energy funding. How do you pitch this to interested investors considering this can be perceived as a high-risk endeavor?
Pommer: One of the great things about the EnergyFunders platform is we provide investors with multiple different fund options, with different styles of investment suited for different risk profiles.
This includes a Yield Fund, focused on lower-risk proven reserves, as well as a Wildcat Fund for investors looking to take more risk in pursuit of higher returns. These are traditionally unapproachable assets for your everyday investor, and we’re excited to offer people the opportunity to perform their due diligence and find a fund style that works for them.
Plus, we now offer funds that provide fractional interests in Bitcoin mines, which means that you get the benefit of mining and you get to be a part owner in a mine. Instead of buying a Bitcoin on Coinbase, or something like that, you can invest with us and we actually mine the Bitcoin, which is cheaper than buying Bitcoin. There’s literally no other company who’s doing anything like this. So it’s super novel, and the fact that we're using energy that would otherwise be wasted, I think is really important.
While Bitcoin mining can also be a risky endeavor given the volatility of bitcoin prices, we believe our mining approach can give investors a cost advantage, by getting exposure to a mining process that can produce Bitcoins at a cost basis below the market price.
My whole goal is to democratize mine ownership because I think the point of Bitcoin is to be democratic—it’s supposed to be owned by everyone. But the problem is that he who owns the energy is the one who ultimately will own the Bitcoin and very many people in the world don’t own energy or land or water or anything that can create electricity, so you have to pay to do those things.
HE: For those unfamiliar, how would you explain what Bitcoin mining is and what makes it a good fit for oil and gas?
Pommer: Bitcoin mining is simply using a computer to solve algorithms that are specifically built for running the Bitcoin network. When the computer solves the bitcoin algorithm, you get rewarded with a Bitcoin.
Ultimately, it’s a really good fit for oil and gas because oil and gas is all built on energy. We’re extracting energy from the earth, so one of the ways that you can get electricity is from converting natural gas into electricity through a generator. So, when we’re mining Bitcoin on the well site, we attach these generators to our natural gas wells and then we put little mobile units on the well site that have a bunch of computers in them that are all mining Bitcoin. All you really need is electricity, and once you have electricity, you can pretty much go and start your mine.
HE: Describe the process of scoping out acreage for deals. As a trained geologist, has that made the exploring process easier considering you already know what makes “good rock”?
Pommer: I’ve worked at public companies, a large public company and then several smaller private companies—one of which I founded—so my whole career has been about reviewing deals and trying to determine if they’re going to be good or bad. It’s been my job for about 15 years and I’ve gotten pretty good at it.
Of course, with any sort of oil and gas project, there’s always the risk of something not panning out. But, we’re doing our best to mitigate that risk at EnergyFunders by not putting all of our investor’s capital into one project. We put them into multiple wells, around 10 wells at this point. This could change in the next fund that we raise, but we're putting our capital into multiple wells and because of that, you decrease your concentration risk—the risk of one of your wells hitting a dry hole or having problems. So, your likelihood of a successful outcome overall becomes higher by doing that.
HE: What assets would you say are not the most valuable and profitable that you offer to your clients?
Pommer: Wildcat wells can be very, very, very profitable if you have a good geologist, a good engineer who have taken a look at the projects and really made sure that they are low risk. Wildcat wells can offer returns of 10x or more if you’re lucky, but the chances of a wildcat well paying off are relatively low. In general, there’s about a 30% chance that a wildcat well will produce oil or gas.
Bitcoin mining can be very profitable as well. Based on the modeling we’ve done, we believe there’s opportunity to generate 100% or greater IRRs. Of course, the biggest underlying assumption here is what the bitcoin price does, right? Frankly, Bitcoin mining from an operational perspective and an execution perspective is relatively low risk. The only risk that you’re really incurring in Bitcoin mining is commodity price—whether it’s going to be high or low.
HE: Who can become an investor?
Pommer: Right now we only accept accredited investors, which the SEC defines as people who make $200,000 a year or more, or couples who make $300,000 or more a year, or you have a million-dollar net worth.
For now, this does maybe prevent us from fully democratizing the energy space, but our goal eventually is to offer a Series A, or a regulatory A fund, which means anybody can invest. But right now, we’re limited to people who are considered accredited by the SEC. So, our target audience are accredited investors who are interested in alternative investments and people who are interested in crypto.
HE: What is the biggest challenge that energy investors are facing right now and how is EnergyFunders positioning itself as a new solution for them?
Pommer: EnergyFunders is a new concept and our ultimate goal is to disrupt the energy funding industry. Traditional funding for oil and gas is very expensive. You can invest in public energy companies, but then you’re paying the indirect costs of corporate overhead, potentially bloated budgets and things like high executive compensation rates. You also have zero impact on what's happening with your money.
Alternatively, you can go the private equity route if you’re wealthy enough to invest in private equity, but they charge fees based on the Two and Twenty model, which means that they're charging you an upfront fee. And then they’re charging you another 20% at the end of the investment, so it’s very expensive to do.
The other big risk facing investors right now is inflation, which is approaching 7%—the highest rates of the last 40 years. EnergyFunders provides exposure to the two asset classes that we believe offer great inflation protection—energy and Bitcoin. Energy has traditionally been one of the best inflation hedges.
And then more recently investors are increasingly considering bitcoin as a way to protect themselves from inflation. Most of our investors are alternative investors who are looking for hedges against inflation so that they can put their money somewhere where it can still continue to grow and avoid losing purchasing power.
HE: Is EnergyFunders the new way to do private equity?
Pommer: Yes, I would say we are trying to replace private equity. EnergyFunders offers a new private equity model, by offering retail investors access to opportunities for great returns and also really good tax benefits available to people who directly invest in oil and gas.
We also approach running the business in a different way from the traditional oil and gas investment model. Right after I joined, we did a total brand overhaul. We brought new employees in house, including mostly women, and who all have oil and gas or technology experience. The team has been working really well together, and our long term goal is to be the new private equity model, focused on generating higher returns and taking less money from our investors’ returns.
HE: So you foresee EnergyFunders threatening today’s private equity structure down the road?
Pommer: Oh, yeah. Not right now, but the idea is there for sure. I think we’re still pretty small. Ultimately, I’d love to have a couple hundred million dollars in assets under management. Frankly, I don’t think it’ll be very long before we get there. A lot of those bigger private equity shops have millions and billions of dollars under management. I think we’ll get there. It’s just a matter of scaling up as quickly as possible. We are still a startup now, and my main goal is to make us a viable business model that can displace private equity. I’d like to eventually just kind of run oil and gas investing.
HE: Looking ahead, what is next for EnergyFunders and what does the successful integration of Bitcoin mining and energy finance look like to you?
Pommer: We are opening two new funds in January; we're opening a Bitcoin mining only fund and a Wildcat fund. The Wildcat fund is higher risk and potentially higher reward, and we’re excited to offer it because we know that a lot of our investors are really into that more aggressive style of investing.
With the Bitcoin mining fund, we’ve had so much good feedback about our approach of offering fractionalized Bitcoin mine ownership. People also love the off-grid angle, powered by natural gas that might otherwise be wasted. We’ve seen a lot of interest, so I think that fund is going to fill very quickly.
We also have plans for green energy and other alternative funds. Hopefully within the next year or two we’ve got $200 to $500 million under management. We’re cruising and we’re making amazing offerings to our investors, we’re saving them money, we’re putting money back into their pockets and we’re protecting them from inflation.
Even though oil and gas has a pretty bad reputation from an ESG perspective, there are ways to do it correctly. And, I think that the way that EnergyFunders is doing it is correct. We partner with only the best and that’s how I want it to be. With our five year plan, I see us being the Robinhood of oil and gas and Bitcoin mining.
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