In this episode of Energy News Beat – Conversations in Energy, I sat down with Graham Patterson and Nathan Myers, founders of Shalehaven Partners. It is refreshing to find oil and gas investments that offer investors attractive benefits by design.
One interesting note is the makeup of their investor base. Generally, oil and gas industry folks tend to shy away from investing within the industry because they have seen too many actors in this space promote average deals, which are designed to make the sponsor money, not persay the investor. One of the big things my team at Sandstone always says is “If they are making money on you, they are not making money with you”. That phrase is exactly why I love what Shalehaven is doing with their annual vintage funds.
Another thing that jumped out at me when reflecting on the conversation is the step-by-step approach they have to evaluating and underwriting assets within the portfolio. I am slightly biased since my firm helps with some due diligence and underwriting, but the thoughtfulness and rigor they apply to each deal is why the 2024 portfolio is returning over 30% annualized cash-on-cash.
I learned a lot, and it is easy to see why many of their investors are in the oil and gas space. Trust is earned, and by what I can see, they are working hard to earn everyone’s trust.
Learn more: shalehaven.com
And get in touch with them here
Topics covered:
- Why all oil & gas investments are not created equal
- How Shalehaven reduces risk through portfolio diversification
- The power of 90%+ first-year tax deductions
- Differences between investing in AFEs vs. joining a fund
- Transparent fee structure with no acquisition or disposition fees
- How hedging protects investors from price downside
- Shalehaven’s expanding focus on natural gas demand from AI/data centers
- Whether you’re an energy insider or an investor in high-tax states looking for yield and tax efficiency, this episode unpacks how Shalehaven’s model stands apart from the pack.
“We don’t make any money until we pay our investors back” is enormous, and I have not seen this done before. Stu Turley
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Are you Paying High Taxes in New Jersey, New York, or California?
Highlights of the Podcast
00:00 – Intro
01:00 – Meet Shalehaven’s Founders
02:15 – What Shalehaven Is and Why It Was Built
04:01 – Risk Reduction Through Diversification
05:32 – Only Proven Assets—No Exploration Risk
06:45 – Why Invest in a Shalehaven Fund Instead of Direct AFEs?
07:45 – Fee Transparency and Investor Alignment
08:33 – Credibility Within the Energy Industry
09:49 – Transparency and Simple Structures
12:17 – Tax Efficiency: 90%+ Deductions in Year One
14:32 – Oil & Gas vs. Green Energy Returns
16:39 – Target Returns: 15–20% Base with Tax Bonus
18:47 – Hedging Strategy: 75% at $65 Oil
20:05 – Why $55–$75 Oil is the Sweet Spot
22:00 – Data Center Growth = Natural Gas Tailwinds
24:15 – Future Investment in Behind-the-Meter Infrastructure?
25:04 – How to Invest with Shalehaven
26:29 – Wrap-Up & Looking Ahead to Fund III
Full Transcript:
Stuart Turley – CEO and President – Sandstone Group [00:00:07] Hello, everybody. Welcome to the Energy Newsbeat podcast. My name’s Stu Turley, president CEO of the Sandstone Group. And when you’re looking for an investment, you really want to make sure that you’ve got the right crew watching your investment. Not all oil and gas investments are created equal. Not. All renewable investments can even give you a return. Today I talked to Graham Patterson and Nathan Myers over at Shalehaven and they have a fantastic look at how a fund that they’ve been working on, they’re going to be coming up into their third year. They’ve got some really unique ways to look at the oil and gas industry and creating very good returns with tax advantaged investments. I kind of like the way they think. Buckle up and hang on and let’s meet Nathan and Graham. Hey, welcome Graham Patterson. I appreciate you stopping by the podcast.
Graham Patterson – Co-Founder & Chief Investment Officer [00:01:01] Yeah, we’re delighted to be here, Stu. We’re coming from you live from beautiful Williston, North Dakota. So happy to be with you on your podcast this morning.
Stuart Turley – CEO and President – Sandstone Group [00:01:11] Oh, fantastic. And we also got Nathan Myers. What are you doing?
Nathan Myers – Co-Founder & Chief Legal Officer [00:01:14] Yeah, I’m up here in Williston as well. We’re, we’re up here looking for looking for some deals and also meeting with a couple of investors.
Stuart Turley – CEO and President – Sandstone Group [00:01:23] Now tell us a little bit why you’re up there. Cause he just don’t wander into town. Like on a moment’s notice there.
Graham Patterson – Co-Founder & Chief Investment Officer [00:01:30] Yeah, no, good question. Nathan failed to leave out the important concept work. We’re checking on some of our wells that have just come online for our 2024 portfolio. And maybe that’s a good segue for us to talk about Shale Haven Partners itself. And, you know, our strategy is to raise annual funds. So we raised a 2024 fund last year and we invested in Bakken Pad, a three well Bakken pad that was drilled by Hunt Oil Company. And so we are up here giving giving a look at those wells that just came online. In addition to what Nathan mentioned, you know, meeting some people on. Those who have deals for us to buy, and also those who potentially invest in our funds.
Stuart Turley – CEO and President – Sandstone Group [00:02:16] Well, that is absolutely cool. How did you find about these deals?
Graham Patterson – Co-Founder & Chief Investment Officer [00:02:20] Yeah, so we have a pretty solid network of those who are looking to sell what are called AFEs, Stu. And so an AFE is effectively the bill sent to the minority working interest owner for their proportionate share in the wealth. And so many cannot, you know, either their business plan is to get rid of that AFE right away. Right. Or they just purely don’t want to fund their proportionate shares. So we are buyers of those small proportionate shares of wells drilled by other, which is known as the non-operated model. There’s a few benefits to that. First and foremost, it eliminates our concentration risk so we can invest in multiple AFEs in our various funds. You know, we don’t go into one specific oil project. And de facto or by nature of of that investment thesis. We can create a diversified portfolio every year for our investors. And so, yeah, and so the hunt wells that just came online, you know, we have a small working interest. That is just one of the projects that we invested in for last year’s portfolio. Thereby, again, you know, in the oil and gas business, some wells outperform, some underperform, some are on budget, some are over budget, and some are under budget. And by nature of constructing these portfolios for our investors every year, creating that diversification effect is very important for risk mitigation. And that is the number one. Priority for our investors is reducing risk with their investments.
Stuart Turley – CEO and President – Sandstone Group [00:04:01] Okay, Graham, this sounds like, and I’m, I’m picking up on a fact that you created Shale Haven for a reason because you probably saw this was not being done in the industry. So is this why you created Shail Haven?
Graham Patterson – Co-Founder & Chief Investment Officer [00:04:18] Yeah, precisely, Stu. So, you know, our industry, we love it. It’s full of, you know, some of the most, you know, entrepreneurial and risk taking individuals in the country. But for us, we know that, you know, inherently, oil and gas drilling comes with risks. And so, you know, when we put this product together for investors, it was important for us to look at all of the different ways we can reduce risk for our investors. And so that diversification effect is just one of those ways we reduce risk. The other is we only invest in proven areas. So we’re here in the Bakken. This is the heart where Wells have been really, you know, utilizing the technological advancements we’ve made over the past 10 years with horizontal shale drilling. And so we will only invest. Our investor dollars in places like the Bakken where we can see great offset well data. So we take no expiration risk. We’re not going to drill in Nebraska where we think there’s a prospect. While there’s time and a place for expiration drilling, it’s not part of our business model because as I mentioned, reducing risk for our investors is the most important part of our thesis.
Stuart Turley – CEO and President – Sandstone Group [00:05:33] Is that Nathan, why you sit back and, and invest in things in it rather than invest in the AFE’s, why should people invest it with you as opposed to an AFE? Sure. Stu. I mean.
Nathan Myers – Co-Founder & Chief Legal Officer [00:05:46] There are certain individuals, especially within the oil and gas space, who take it upon themselves to invest in single well AFEs, or they’ll individually, or as a group… You know, team up with a couple of their oilfield buddies and invest in AFEs. That’s perfectly fine. I mean, if they’re sophisticated enough to be able to do the due diligence and the analyzing offset well data and production curves and all that, that’s certainly fine. The real benefit of kind of using us is twofold. I think number one is first and foremost, you know we have a very robust due diligence process, and we’re able to, like Graham mentioned, create that portfolio effect of not only investing in one or two AFEs here and in a certain basin, but we’re able to diversify that portfolio across numerous basins. And secondly, since we as a fund and as a management team, we’re probably the lowest fee option in the market for putting AFEs together and packaging them up like this for our investors, and so can others go out and do this? Yes, absolutely they can. But at the same time, a lot of our investors, especially in the oil and gas space, who invest with us, trust us to kind of do the requisite due diligence. And they know that we’re not taking a lot of fees off the top or even off the back end either. So it’s a very natural fit where we have that trust with our investors. And they know that, you know, we’re making a lot of money off of them so to speak.
Stuart Turley – CEO and President – Sandstone Group [00:07:25] You’re making with money with them.
Nathan Myers – Co-Founder & Chief Legal Officer [00:07:27] Very well.
Graham Patterson – Co-Founder & Chief Investment Officer [00:07:28] That’s very, very well said, Stu. I think the key phrase there is alignment with investors. Again, in addition to reduction of risk for our investors, alignment with the investors is another important pillar for us.
Stuart Turley – CEO and President – Sandstone Group [00:07:45] You know, I was looking at your evaluation. You have a YouTube video that was very well articulated on what you look at when you’re looking at you’re deals. And I, I’m going to have that in the show notes on this podcast for people to look at Shale Haven view of what you’re describing in that field. I thought that was an extremely well done because I’ve seen so many bad projects put out there with good marketing. Bad projects and good marketing equals investor dollars, which is bad for the industry. And one of the things that I think that I’m hearing and that I am seeing out of this is that if you know oil and gas investing, this is a good deal for people in the industry to invest in. Did I just say that correctly?
Graham Patterson – Co-Founder & Chief Investment Officer [00:08:34] Yeah, you did, Stu. And I think that was, that’s been one of the, the concepts that has been pleasantly surprising for us is we have over 50% of our investor base within the industry. And so Yeah and we’re really excited about that. We’re not just seeking investment dollars from those who don’t understand oil and gas. When we walk an oil and gas professional, and that’s anywhere between oil field services, CEOs, we have minerals groups that invest with us, when we walk in potentially a longer version of that video, but even just that succinct video of how we look at transactions, they understand And again, the risk mitigation approach. Resonates with them. The low fee approach resonates with them and they love our industry. They want to find a way to invest in their industry as well and you know get that long-term mailbox money that is so powerful within our industry and that’s why they’ve come to us.
Stuart Turley – CEO and President – Sandstone Group [00:09:35] That’s pretty darn cool. You know, the fun thing about my day job is reviewing the, the oil and gas evaluations and taking a look at different kinds of deals and things. And it is fun picking the ones that have the least amount of fee.
Nathan Myers – Co-Founder & Chief Legal Officer [00:09:50] Associated with it. Yeah, I mean, that’s going back to kind of the central thesis of Shalehaven and one of the reasons why, you know, not only why we started Shale Haven, but also why our funds are designed the way that they are is. You know, like Graham said, we love this industry. I think there’s been a lot of, I mean, there’s bad actors in any industry for sure. But I think that, you know, a lot of people don’t understand oil and gas. They kind of get swindled into something or, you know, heavily promoted into something where where either either the fee structure isn’t transparent or it is just don’t understand it. So, I mean, that’s one of the main main tenets of Schilheven is transparency and keeping things simple. We don’t charge any acquisition fees, we don’t charge any disposition fees, whatever the fund acquires the asset at is what the fund receives. There’s no management entity carving off overrides, carving off an additional promote, and then putting the asset into the fund. It’s whatever asset is out there that is being acquired, it’s being acquired at the fund level. Again, like you mentioned, Stu, There’s lots of ways to skin the cat, if you will. And it’s very difficult, I think, a lot of times for your kind of traditional retail investor to really understand and get into a 300, 400 page PPM and partnership agreement and all that stuff and really synthesize what those fees look like. So again, we try to be as transparent as we possibly can and have a very, very simple fee structure.
Stuart Turley – CEO and President – Sandstone Group [00:11:30] Okay. You guys have said you’re up there reviewing your 2024. How do you get the delineation between what is going on? And there’s two questions. This is a two question load, a setup here. You got your 2024 investors here and they’re all going, yeah, but what about 2025, because if you’ve got tax problems right now, And I’m sitting there listening to this because some of our on energy newsbeat.com or energy news beat.co some of our biggest following is in New Jersey, New York, Florida, and all these other places. And everybody’s looking for taxes. What if you’ve got taxes coming up in 2025? What does this mean to you in 2024?
Graham Patterson – Co-Founder & Chief Investment Officer [00:12:18] Yeah, great, great questions, too. So again, one of the one of the benefits, as I touched on earlier, of starting a new fund every year is we can really maximize that tax deduction every year for our investors. And so our 2024 investors who came in last year received what we believe is a market leading 90.7% deduction on their 2024 investment. So they were able to take a write-off. On their 2024 income when they prepared their taxes this year, we maximize that first year of investment loss for our investors. And then we send 100% of the cash distributions back to our investor in the year following. And so it’s a really powerful, synthesized, two-step approach. Come in in the years that you invest for tax purposes, take that really nice deduction when we spend all of the capital across our portfolio. And then again, alignment with investors, Nathan and I do not make any money until our investors are made whole or paid back. And so we accelerate all of those cash distributions back to the investor in the following year. So I would say to any of your followers in those high tax states, you know, one of the values, one of the really unique. And interesting parts of investing in oil and gas working interest is you can deduct it from your active W-2 capital gains, ordinary income. I think that’s the key to kind of highlight here. And so as an option to reduce your taxable, effective tax rates in these really high tax states and, you know, obviously federal income tax can be high in states like Texas that don’t even have a layered in state income tax. But it’s a really nice option for those who who have, you know, significantly high tax percentages in their income. And coming into to a Shalehaven fund on an annual basis is just one of those ways you can reduce that active income for, again, a product that is is aligned with management and has a very stringent risk mitigation approach.
Stuart Turley – CEO and President – Sandstone Group [00:14:32] And Nathan, how are your returns compared to the stock market? And, and I’m going to ask this as in two different ways. Renewable and net zero equals deindustrialization. We know that the green new deal is not with all the wind farms being canceled and everything else. So if you invested in green energy. Lost all your money or or busses or those kind of things they’re just not that real sporty but how is your investment compared to the Nasdaq?
Nathan Myers – Co-Founder & Chief Legal Officer [00:15:04] Yeah, I’ll let Graham answer that portion of the question, Stu, but you bring up a good point. I mean, first of all, I love that we’re 30 minutes into this and are just now talking about taxes because a lot of, I mean you’re laughing, I know, but a lot of investors get sucked into making investment decisions purely based on tax benefits or They’re very tax motivated and they don’t look at the investment as a whole. So to your point in terms of other alternatives, especially kind of green energy, solar, wind type investments, I was in California earlier this year talking to several of our investors out there and they get pitched so many different tax savings investment opportunities, especially kind of the wind and solar, you know, retail investment opportunity. You get a good tax credit or tax benefit from a lot of those investments, but there’s little to no return on top of the tax benefit. We’ve also seen that in some oil and gas deals as well. They pitch the tax benefits and investors get really happy because they receive that tax benefit, but then there’s not much on the back end of that. Again, I’ll let Graham talk about the returns. But again, I love that we’ve made it 30 minutes into this and are just now talking about taxes because they’re. While it is a very nice benefit to oil and gas investing, it’s not our main investment motivation.
Graham Patterson – Co-Founder & Chief Investment Officer [00:16:39] Yeah. I agree. I think a lot of people lead with the tax and then follow with their oil and gas investment strategy. We like to do things kind of in reverse order, and the cadence of this podcast kind of speaks to that. With respect to returns, the way to think about where we place capital, again, in a diversified portfolio, but we look at every single project on a rate of return basis. So, every project that comes in, we perform our due diligence and an opportunity that, you know, it may come in on a Monday and we might have, you know less than two weeks to bid on it to put in our portfolio. We make sure those rates of returns are in a high teens, low 20s on a base case scenario. What that does is it allows us to protect some downside. We do hedge here at Shalehaven, so we have some downside price mitigation strategies in the portfolio. And again, things that can go wrong. The project underperforms, the wells are over budget. You know, if we come in and underwrite at a 15% rate of return, it provides some downside if and when things go wrong. And then as I mentioned earlier, you know, some of our projects are under budget and they outperform. And so that portfolio nature effect creates creates creates a nice return product irrespective of the tax. But really, when you layer in the tax benefit… Which is approximately the way for your listeners to think about it is it’s around a third of your investment in the form of tax savings. And so when we provide those tax savings, in addition to a robust portfolio of 15% rate of return base case projects, we have a really nice rate of return product that is designed to beat the market every year. And particularly as a diversification effect in a normal portfolio. We believe we are a fantastic alternative to add to any investor’s portfolio.
Stuart Turley – CEO and President – Sandstone Group [00:18:47] You know, not all funds are created equal and not all funds hedge. This is a huge, I want to highlight this as a very huge thing because this is, you can’t guarantee a return, but you can minimize downside and maximize upside, and I believe you have done that if I said that correctly.
Graham Patterson – Co-Founder & Chief Investment Officer [00:19:13] Yeah. So, you know, we, we take a oil and gas price to underwrite our projects. And when our completion crews come into, you know, frack and complete those projects, you know, we will layer in 50% of the forecasted production in terms of hedging. When those wells come online, we will layer in more hedges. And so, you know, for our 2024 portfolio, we’re approximately 75% hedged at $65 a barrel. Now, looking back over the past year and kind of where we see oil prices heading, you know, we’re kind of in that standard deviation of where we think the prices will be. However, you never know what can happen in terms of downside, recession risk is always looming. And so for us, it is a very important part for us to protect downside price risk in the form of hedging with our counterparty.
Stuart Turley – CEO and President – Sandstone Group [00:20:05] And I believe that we are very comfortable at that 65 range because I believe that there is trillions missing in the global oil market in order to meet normal decline curves. If we have any kind of normalcy of oil demand, we have yet to see peak oil demand yet. So I think between those two things alone. You’re very well off in a higher range. I’m more of a permable than Michael is, but I guarantee you, I, I think that the, that is a very smart strategy.
Graham Patterson – Co-Founder & Chief Investment Officer [00:20:44] For us, on the natural gas side, we see a lot of upside there, obviously, with the chatter around data centers and needing natural gas to power the AI boom. For us we like to kind of put our range in a place where we can transact. You know, we’re not interested in, you know, our funds getting the benefit of $100 oil. For us, a place between $55 and $75, we can add a lot of transactions to our portfolio. Those projects can make money for our investors. Same goes for around $2.50 gas to $4.50 gas in that range. We’ll be able to pick up a lot of AFEs in East Texas as we did last year, you know, with the Haynesville play and pure gas plays like such as that. And again, that’s the other benefit of a diversified portfolio. We’re not just all in oil weighted in one particular area. We have a really nice mix of not only oil, gas, but NGLs as well. And so that diversification effect, when gas goes one way, and oil goes another way is a value add to our investors as well.
Stuart Turley – CEO and President – Sandstone Group [00:22:00] Oh, that is cool. I’ve been interviewing a lot of folks in the data center space. And when we talk about data center and natural gas and we take, we’d look at the grid, the grid stabilization is going to occur through keeping coal plants back online as well as huge amounts of natural gas demand. And there’s a complicated formula that the Department of Energy is trying to work on right now. And that is how do we get all these extra turbines How do we do behind the meter? This is a big deal. And are you looking at investments in behind the meter data center, natural gas demand? Because that’s going to be a dedicated customer all of a sudden buying a long-term contracts. That’s a lot of money that you could be making back behind the.
Graham Patterson – Co-Founder & Chief Investment Officer [00:22:51] Yeah, 100% Stu. And I think that kind of comes with two concepts. The first, we’ve found a nice statistic that kind of backs our thesis of more energy demand in this country where I think the pipeline of data centers is 50% over capacity and what we can supply them with with energy. And so when you take that concept in isolation, I think what that’s doing for us at Shale Haven is we are reaching investors now I think that would not necessarily look at us in five, six years ago in terms of oil and gas providers domestically to power our country. I think, you know, a lot of individuals who might have said, I don’t want, you know, any exposure in oil and gas are starting to kind of rethink that thesis, just given the vital need that, you know, our domestic supply will provide the AI boom and the data center boom. And we think that’s fantastic, right? I think the shifting in mentality in the country, in the way that they view. Oil and gas investing is certainly a tailwind for us, and obviously coming to market with this product that again is very focused on low fee diversification of proven areas only is very timely and a fantastic tailwinds for us.
Nathan Myers – Co-Founder & Chief Legal Officer [00:24:15] This is cool. Nathan, you got anything on that? Certain operators are capitalizing on that. And to your point, Stu, monetizing that. I personally don’t think that that industry has matured yet. It has a ways to go. But yeah, we are having those conversations. And I think that those conversations, as we continue to invest with certain operators and continue to grow our portfolio, we will begin having those conversations with certain operators as to how to monetize that and again, monetize that for the benefit of our investors as well.
Stuart Turley – CEO and President – Sandstone Group [00:24:53] Oh, absolutely. Well, this has been very cool. I would like to have you guys back here in a little bit and, and do this again with an update later on, but tell how everybody can get ahold of you.
Graham Patterson – Co-Founder & Chief Investment Officer [00:25:05] Yeah, I think if you just go visit our website shalehaven.com, there’s a form to fill out in terms of the kind of investor appetite. So just one thing to footnote, you must be an accredited investor. And so that’s a box to check on the investor side. But beyond that, we have a very low minimum compared to others in the market. We will spend an hour with, you know, a minimum investment ticket all the way up to a seven figure investment ticket. That, you know, we… Part of our thesis is to form relationships with our investors, get to know them, kind of understand what their needs are, if they’re tax motivated, if they wanna add hydrocarbons as part of their portfolio. And so if they go to our website and there’s a few forms to kind of click through and fill out, we can get in touch with them and have a discussion with them.
Stuart Turley – CEO and President – Sandstone Group [00:25:57] That sounds great. Nathan, last word to you.
Nathan Myers – Co-Founder & Chief Legal Officer [00:25:59] Yeah, really, really appreciate it, Stu. It’s always fun talking to you. Look forward to coming back and giving an update. I mean, we will be on our third fund in the next kind of four or five months. So a lot happening at Shell Haven, a great trajectory, and so far great returns for our 2024 investors. Our 2025 portfolio is even more diversified than our 2024 portfolio. We will likely continue that trajectory for 2026. So appreciate it, Stu.
Stuart Turley – CEO and President – Sandstone Group [00:26:29] Oh, that is way cool. All right. Well, thank you guys for stopping by the Energy Newsbeat podcast. My name’s Stu Turley, President and CEO of the Sandstone Group. We’re going to have all of the show notes and I’ll have the link to that video that I described in the show. Notes as well too, because I think it’s important when people realize that you guys are not the average oil and gas investment out there. I truly appreciate your differentiations that set you apart from the rest of the pack. So with that, thanks, we’ll talk to you guys soon.
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