[Editor's Note: In October 2015, the Securities and Exchange Commission halted the Ascenergy equity crowdfunding campaign, calling it was "fraudulent oil and gas crowdfunding scheme." For more on this, see: Crowdfunding Fraud from Ascenergy: How do we Prevent it from Happening Again?]
Equities.com recently had an opportunity to speak with Wally King, Director of Sales and Marketing at Ascenergy, a company that locates properties containing strong oil and gas reserves within lucrative sandstone formations through a stringent refinement process. The company launched its latest capital raise campaign on Crowdfunder last March and has been gaining considerable traction.
As part of our expanding coverage in the crowd investing and private markets space, Equities.com wanted to find out more about what’s gotten everyone so excited about this unique and progressive oil drilling business.
EQ: First of all, would you mind giving a brief overview of Ascenergy and a brief background on the company?
King: Our CEO Joey Gabaldon started Ascenergy back in 2012 as a sister company – actually the future company of his existing operation that he's got two successful wells in, pulled a little over a million dollars out of the ground with. He started that company back in 2008 and he's had some success with it, basically using it as a testing ground to learn and continue to test properties and his technology with it. Ascenergy has been borne from his learnings on that, and he's been in oil and gas as an investor for about 20 years, after an early retirement from a successful company that he started in his twenties.
He financed the analysis of over 200 properties. Most of them were in Texas, and the top 10% were set aside. They basically had to pass this very strict set of criteria that confirmed strong nearby production, that all the different technologies that were applied to it agreed that there was going to be successful oil production, and that they were going to be sandstone plays, which is lower in cost to operate and longer life than shale.
Our long-term breakeven is around $20 per barrel on those properties. With Ascenergy, we've taken the top 20 properties and we've put it up on the crowdfunding market. We started about a year ago. We’re not professional fundraisers – I’ve got a background in marketing and sales but never funded a company before, and Joey is basically an operator. We just chose crowdfunding because we don’t have a giant Rolodex of wealthy people in our pockets, and it's a great way to expose the company. As the JOBS Act passed, we started with Equity.net and we moved on to Crowdfunder and a couple of other platforms. We have raised over $2.7 million raised right now, with a little over $4.3 million committed in total out of our $5 Mil threshold. We’ve successfully funded over half of the committed funds.
We’re currently over halfway done funding the first $5 million, which would be enough to close the round. We have 20 properties. The $5 million will be enough to drill in five of those. We’re going to expand into the others with conventional bank financing once we have proven our oil reserves.
EQ: What are your target markets at the moment? What sort of investors would look to fund Ascenergy?
King: As far as demographics of current investors, we've got a pretty even split of people that have experience and expertise in oil and gas investing and then there’s about half of them that have never invested in oil and gas, but have an interest in cash flow based investments. Since our offering pays monthly cash flow from gross revenues, for the life of the wells, it has a lot of attractive benefits to just the general high net worth individual that is looking for a quick return of money for a long period of time.
We pay the investors from gross revenues as opposed to net, so there's no worry about how our expenses go. They get paid right off the top line, before any expenses. We are setup as a 506C (General Solicitation) offering so we’re only taking accredited investors.
EQ: Do you have specific initiatives that you’re utilizing to grow within the energy field?
King: It's oil and gas, and we've already done the heavy lifting, we’ve proven our methods, and now we’re expanding. We have technologies that we've used, and we have a team that works. We’ve got over a million dollars of existing revenues from that, over $40 million in third party proven reserves, and we have a collection of properties that will multiply that figure grossly. It's just a matter of utilizing a combination of tried and true technologies, plus some progressive technologies that are proprietary to us that have helped us to identify all these properties.
The future properties are just an expansion on what we've already started on a larger scale. Our existing property that is on the sister company is only 160 acres. We've already got over 2000 acres secured, most of it in Texas. There’s at least another 10,000 to 20,000 acres to come in the next year or two.
To comment on one of the unique things you mentioned regarding the future of energy, our company is forward thinking, and we are not expecting the company to be dependent on oil and gas for the rest of eternity. In fact, we're big supporters of alternative energy. Part of the reason we structured the offering to pay investors from gross revenues is that it allows us to invest our profits into alternative energies and also alternative health, which is one of our passions as a team. We have started a philanthropic movement called Ascenergy.org (website in beta), which will be ramping up in about a year from now, as soon as profits are stable and we're already investing in those other avenues. But that won’t be something that we pay the investors from, that’s just sort of a side note that’s of interest to us.
EQ: Do you have any goals or milestones planned to achieve once the campaign is completed? It sounds like that is definitely one of them.
King: Yes, definitely. That is a huge one for us. We appreciate money, everyone does, but there’s a lot more to life than just money. What you did in this world to make an impact is far more important, and to feel the reward that way is exceedingly gratifying. I have a kid, I have a four year old. I want him to grow up in a good place. We’re definitely on the responsible end of companies, especially oil companies, and the sandstone drilling we're doing doesn’t require extensive horizontal shale fracking. In fact, we’re not even going into that. The environmental impact is very minimal with what we're doing. It’s a lot like simply pulling water out of the ground, only with oil. It’s the same type of soil that you'd be pulling out of the water table, only it's an oil table as opposed to a water table.
EQ: What would you say Ascenergy’s main growth initiative is right now?
King: As far as our initiatives to grow, I think our biggest initiative is simply to grow the campaign. We're about to ink a deal with a $2 billion investment institution. They’re going to be brokering our offering to their networks, so that's going to help close the round pretty quick. That’s a big one.
We were recently featured on CNBC. We’re in the Crowdfinance 50 Index, as the number three company. Then, as I mentioned, expansion beyond these first five wells. We plan to expand probably around 100 to 200 wells in 2016 with conventional bank financing.
EQ: Did you have anything else specific that you wanted to touch on or bring up?
King: Aside from being unique in that we're paying from gross revenues instead of net, one of the neat things about our offering that no one in this industry has done, and we don’t really see in a lot of private offerings, is that we're hedging the investor's dollars. If you were to invest in only one well (or all 5), we hedge your investment’s success with the production of all of our wells (beyond the first five even) if needed.
We've created a proprietary hedging program called the Ascenergy Well Investment Reassurance Program. It applies your investment across all the wells we drill, so that if you end up on an underperforming well, or even two, or however many you invest in, and that well doesn’t hit a certain level of performance, we'll take whatever part of that well you own and we'll duplicate that into another well until your benchmark is met or exceeded. Let's say it's 1% of gross revenues – put 1% interest into the next well we drill, and we keep doing that until we’ve breached the guaranteed benchmark level, which depends on what month you come in. Every month that investors wait to invest, that benchmark decreases by about 5%. It incentivizes investors to come early.
For example, say it's February. The minimum return in February on the benchmarks is 105 barrels of oil per day. If we invest on a well and it produces less than that, let's say it's 50. We owe you another well. If that well doesn’t get you over the 105 level during the first 120 days of production, we owe you another well until we've exceeded that level. That ensures that you're going to get a good return. It’s easy to basically take a forecasting tool that we've created to identify based on what level of minimum return you're coming in with, what the minimum return on the investment is going to be. We can even apply that to the future wells that we drill with the bank financing once we've expanded.
EQ: That definitely sounds like an effective strategy. Was there anything else about Ascenergy that you wanted to touch on?
King: Just that we've got a really great team. One of our team members was formerly with Arena resources – when they found some pretty powerful oil reserves and sold to SandRidge Energy Inc. (SD) for $1.2 billion in 2010. They were a pretty small operator, kind of like us. He is now with us, and he still has his collection of properties that hasn’t been tapped yet. Things like that are why we're successful and going to continue to be successful. It’s been a culmination of 20 years of Joey's experience in the industry as both investor and an operator and the team’s collective 180+ years of experience that has gotten us to where we are now. As Joey would say, the heavy lifting has been done and now it's harvest time.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer