Houston—EnergyFunders started out as a website to connect smaller oil and gas operators to interested investors. Turns out, the need wasn’t only in the matchmaking but in playing therapist throughout the relationship of a drilling project.
“The project is a living thing,” says Philip Racusin, EnergyFunders co-founder. “It’s not a one-and-done transaction. We’ve developed an expertise in managing a whole life cycle of a project.”
When I first spoke to Racusin nearly three years ago, oil prices were still bobbing around the $100 range and drilling and exploration activity was still in high gear. Still, he and co-founder Roger Gingell felt that smaller operators could use a boost in getting the cash needed to fully explore their sites. EnergyFunders was set up as a crowdfunding platform for drilling projects worth $2 million or less.
By the time EnergyFunders went live in early 2015, the energy market had cooled off significantly. That year, oil prices dropped by half. “We had deals at that point that would only make sense in 2014,” Racusin says. “As prices continued to dip, they became uneconomic and we took them off.”
Still, since launch Racusin says they have been able to execute about $3.5 million in funding deals, ranging in size from $185,000 to $800,000. It was in working with those operators that Racusin says they realized that the need was for more than just capital. These new services include connecting operators with technological hardware or engineering talent that they normally would not have on staff. Racusin says EnergyFunders has become an “ecosystem that can provide access to all those resources.”
EnergyFunders works like this: In order to be considered, operators must pay for a due diligence check by EnergyFunders. Upon approval, operators can list their projects on the site for a time period between a month and three months and, in exchange, offer investors a percentage in a particular well.
Investors have typically bought in at a minimum of $5,000. In exchange for connecting the parties, EnergyFunders, like other investors in an individual project, will take a 10 percent to 15 percent carried interest in the project. So, for a $500,000 stake in a $1 million well, Energy Funders would have the right to 10 percent of revenue of the 50 percent stake, Racusin explains.
Right now, EnergyFunders is not charging a fee for providing operators with additional technical and human resources, though Racusin says that may change in the future.
Even in a down energy market, Racusin says investors are eager to put money into the sector. “They’re looking for long-term cash flow,” he says. “They want the tax advantage of oil and gas where you can write off up to 80 percent of your investment against your earned income.”
