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Crowdfunded Crude

By Denise Morris San Angelo Standard-Times, Texas.

Crowdfunding has arrived in the oil patch, allowing smaller investors to shop for black gold opportunities online in the same manner they can invest through the Web in startups ranging from space projects to new potato salads.

For a one-time $1,000 investment, anyone in Texas can become part-owner of an oil and gas project involving mineral leasing, drilling and testing or well completion and oil field services.

Put another way, it's a drop from the Permian Basin that might be worth a lot someday.

Previously, only big money could afford to -- or was allowed to -- get involved in such high-dollar ventures. But now the oil field is open to everyone, investment-wise.

Accredited investors have easy access and ample funds and are classified either by having annual incomes of $200,000 or more or existing assets of $1 million or more.

"Our Crudefunders opportunity is for everyone, including nonaccredited investors -- who comprise 95 percent of the population of Texas" said David Taylor, co-founder of the forward-thinking Crudefunders.

"People can take investing into their own hands," Taylor said.

Its first project successfully funded, the group is starting a drilling project in Ozona. The necessary $950,000 was raised online through the Crudefunders website. Two other projects remain open in Eastland County and Archer County.

How do such relatively small investments make a difference for an oil field project?

"It is the wisdom of the crowd that makes this work," Taylor said. "If you get 20 people, you have more intelligence. It's like having access to your lifeline on 'Who Wants to Be a Millionaire'. The crowd was correct 98 percent of the time."

For Texans, this is also an economically patriotic means of keeping investment local. Intrastate crowdfunding rules, adopted in 20 states, limit online investment activity to businesses and investors within state lines.

"In this model, residents of a state can invest in a company that derives 80 percent of its revenue from a state in which it is registered," Howard Orloff, who leads a new division at Zacks Investment Research focused on equity crowdfunding, said in the industry publication, Rigzone.

Crudefunders prides itself in investor education and transparency, visible on its website in the form of company intel not normally accessible. Graphics depict 2-D and 3-D seismic reports, maps, regulatory filings, biographies, production reports and operation updates. Its founders say crudefunders.com is the only website of its kind in the nation.

The site has videos designed to educate potential investors about the basics of the oil and gas industry, with primers on vertical drilling, log analysis and the anatomy of a drilling rig.

Crudefunders' team includes geoscientists, drillers, operators, attorneys, accountants and financial experts from around Texas.

"When you get a group of experts, you get a better opinion than with a single expert," Taylor said. "It's a science." As with any investment, there is risk involved.

"I would never say there is a sure thing in oil," Taylor said. "If a well does prove out to have oil in there, it's a sure thing it's going to the refinery and be sold. The question is, what is the price of oil that day."

Volatile enough for thrill-seekers? Remember West Texas crude has fluctuated from over $100 per barrel to below $50 over a rocky 14 months. One motto on Crudefunders is that even in oil, buy low and sell high.

"The higher the risk, the higher the return," Taylor said.

So you've logged on, invested from $1,000 to $5,000 in an operation, and now wait anxiously for the royalty checks to come in. "If the project is successful, about 30-60 days after it is complete, the drilling is done and the oil starts pumping," Taylor said.

When the pump site tank battery fills up, the oil is ready to be hauled off. At that point, the operation collects revenue and investors get their piece of the action in the legendary monthly oil-money check.

Investors' money is held in escrow, pending whether enough funding comes in for a given project to start. If it's underfunded, the money is returned to investors. If the funding campaign is successful, money invested is then pumped into the oil field and fingers are crossed that it will bring a return.

Its founders call this method of financing projects actually disruptive to the status quo. Taylor's business partner Alan Fine didn't like the way people typically have been raising money in this industry.

ENTREPRENEURS David Erickson of the Angelo State University Small Business Development Center explains how crowdfunding works for entrepreneurs and businesses at all levels of the playing field:

"Crowdfunding benefits those who can use the power of their social network to secure financing for a business or business startup when it is not possible to secure regular lender or equity financing," Erickson said.

"Crowdfunding for perks allows a business to secure funds without debt and without giving up equity. They create a campaign on one of the many crowdfunding platforms such as Kickstarter, Indiegogo, or GoFundMe.com. They set up various funding levels and may assign perks (gifts) for each level."

"The key is their social network."

Susan Childress has the distinction of being the first known entrepreneur in the Concho Valley to jump-start a crowdfunding campaign after intrastate crowdfunding was approved last fall by the Texas Securities Board.

Childress had developed an anatomical support system through her company Hall International. The Acme Posture Partner, designed initially to provide comfort for her ailing mother, was already on the market, but Childress sought funds to be able to make donations of the product to more nursing homes and other medical facilities.

Her campaign on Indiegogo.com, Acme Posture Partner: Support Us to Support Others, raised $1,515 in the first four days -- at a time when crowdfunding was a new word for most of us. In two months online it brought in a total $2,665 toward its $8,000 goal.

"The funding efforts of the many different individuals lead to the donation of a comfort system to a local elderly resident in need," Childress said. "It is heartwarming to see the improvement in the quality of life with this very simple yet versatile and restraint-free product. The Acme Posture Partner comfort system may be used in most any chair, bed, vehicle and RV for added support, positioning and comfort."

This donation-based project did not offer perks in the form of T-shirts or gas royalties, but instead the warm feeling of helping others. While her crowdfunding campaign is over, Childress can be reached at acmeposturepartner.com.

No known local potato salad chefs or space enthusiasts are currently seeking crowdfunding assistance, but other projects can be found at the sites mentioned by Erickson, above.

And then -- there's the oil market.

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